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General Insurance > Types of Life Insurance Policies > Flashcards

Types of Life Insurance Policies Flashcards

1
Q

The amount of the death benefit is called the ______ ______

A

Face amount

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2
Q

Simplest type of life insurance

A

Term life

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3
Q

Term life insurance policies only offer

A

A death benefit and remain in force for a specified period of time. No death benefit is payable if the insured dies after the term expires

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4
Q

The death benefit of a level term policy equals

A

The face amount throughout the term of coverage. Premiums also remain level and term of coverage may be expressed in number of years or specified age

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5
Q

The death benefit of a decreasing term policy..

A

Declines over the coverage period until it reaches zero at the end of term

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6
Q

The death benefit of an increasing term policy…

A

Begins near zero and grows over term of coverage

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7
Q

Return of premium term policies

A

Will return all or a part of the premium paid for the policy if the insured is still alive at the end of the term. Premium will be higher and dependent on percentage returned

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8
Q

Renewability feature (term)

A

Guarantees that the policy will renew (extend) at the end of its term. Insured does not have to re-apply or qualify medically and new renewal period will be for the same term originally purchased

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9
Q

Convertibility feature (term)

A

Allows a policy owner to convert a term insurance policy to a permanent type of policy without evidence of insurability and without having to submit an application

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10
Q

The premium for a converted term policy will be based on one of two options:

A

-attained age (at time of conversion)
-original age (at time policy written)

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11
Q

Initially the least expensive form of life insurance

A

Term policy

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12
Q

_____ ______ is a permanent insurance policy which is guaranteed to remain in force for the insured’s entire lifetime provided the required premiums are paid, or to the policy maturity date

A

Whole life

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13
Q

Whole life insurance is designed to

A

Remain in force for the whole life of the insured and the premiums will never increase

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14
Q

The purpose of a level premium with whole life policies is to

A

Make lifetime coverage affordable at older ages

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15
Q

The level premium system results in

A

Overpaying for the risk of dying at younger ages and underpaying in later years toward the end of life expectancy

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16
Q

Whole life mode of payment for the policy’s level premium is on a _____ _______

A

Fixed schedule

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17
Q

Like its premium, the death benefit of a whole life policy is ____ and _____

A

Fixed; level

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18
Q

Cash values reflect

A

The reserves necessary to assure payment of the guaranteed death benefit

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19
Q

The “cash surrender” value of the whole life policy arises from…

A

….the policyholder’s rights to quit the contract and reclaim a share of the reserve fund attributable to the policy

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20
Q

By cashing in a whole life policy, the policy owner gives up….

A

….the death benefit

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21
Q

Allow the policyholder to borrow up to the cash value of the policy

A

Loan provisions on life insurance policies with a cash surrender value

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22
Q

The whole life death benefit consists of two components:

A
  1. The cash value (savings element)
  2. An insurance protection element that must be paid in addition to the cash value so the death benefit equals the policy’s face amount (net amount of risk)
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23
Q

A whole life policy usually endows at age ____ or _____

A

100; 120

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24
Q

Continuous premium whole life

A

The premiums are the same each year for the duration of the contract. If the policy owner discontinues making payments, they will receive the cash value of the policy

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25
Q

Limited-payment whole life policies

A

Allow for a lifetime of premiums to be paid in a shorter period of time. Annual premiums will be higher than continuous policies.

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26
Q

Common forms of limited payment whole life

A

-10-pay or 20-pay whole life; premiums are payable in 10 or 20 level annual installments
-Life paid-up at age 65; premiums are payable in level annual installments from the date of purchase to the year insured turns 65

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27
Q

A ______ _______ whole life policy has one payment made at the time of purchase and creates immediate cash value

A

Single premium

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28
Q

Modified premium whole life policies

A

Have lower premiums during the first 3-5 years. After initial period, premiums increase to a certain amount and then are level for the life of the policy

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29
Q

Graded premium whole life policies

A

-have an even lower initial premium than modified whole life
-the graded premium starts out lower than other whole life policies and increases every year for 5-10 years until leveling off for as long as policy is in force

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30
Q

Indeterminate premium whole life policy

A

-provides for adjustable premiums
-company will charge a current premium based on its current estimate of investment earnings, mortality and expense costs
-premiums never go above max guaranteed premium stated in policy

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31
Q

A type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant

A

Interest-sensitive whole life

32
Q

The interest sensitive whole life policy has:

A

-a fixed, level death benefit
-a premium schedule fixed in regard to the timing of payments

33
Q

With interest sensitive whole life, the insurer will make investments with…

A

…a percentage of each premium payment. Excess or current interest from those investments may be credited to the policy to make the cash value rise

34
Q

Cash values in whole life insurance policies accumulate ____ _____

A

Tax deferred

35
Q

Advantages of Whole Life Insurance

A

-permanent coverage
-guaranteed level premiums
-lifetime coverages

36
Q

Disadvantages of whole life insurance

A

-premium not flexible
-higher initial premium

37
Q

Types of whole life policies

A

-continuous payment
-limited payment
-single premium
-modified premium
-graded premium
-indeterminate premium
-interest sensitive

38
Q

An adjustable life policy gives the policy owner the options to adjust…

A

….the face value/benefit, the premium, and the length of coverage without having to change policies

39
Q

Offers the ability to have term and whole life coverage in one policy

A

Adjustable life insurance

40
Q

Designed for people who want flexible premiums and flexible coverage over the course of their lifetime

A

Universal life

41
Q

Premiums paid into a universal life policy accumulate as…

A

….interest in the policy’s cash value

42
Q

In universal life, monthly interest credited to the cash value is either…

A

…the guaranteed rate or current rate, whichever is higher

43
Q

Universal life Option A (Option 1)

A

Provides for a level death benefit equal to the policy’s face value. As a result, more of the premiums is placed in the cash account, making the cash value rise more quickly

44
Q

Universal life Option B (Option 2)

A

Provides for an increasing death benefit equal to the face value of the policy plus the cash account. Cash value does not increase as quickly because more of the premium is applied to the higher cost of the increasing death benefit over the life of the policy

45
Q

Both whole life and universal life allow _____ ______ from the cash value

A

Policy loans

46
Q

Only universal life allows ________ from the cash value

A

Withdrawals (partial surrenders)

47
Q

A universal life withdrawal is federal income tax-free up to the ______ ______

A

Cost basis (i.e. premiums paid)

48
Q

Equity-indexed universal life

A

A permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index such as the S&P 500

49
Q

Indexed universal life typically contains a minimum _____ _____ ____ component along with the indexed account option

A

Guaranteed interest rate

50
Q

Indexed universal life policies give policyholders the security of..

A

…fixed universal life with the growth potential of the underlying market index

51
Q

The ______ protection of equity-indexed universal life policies guaranteed that the interest credited to the cash value will never be below zero

A

Downside

52
Q

Types of flexible policies

A

-adjustable life
-universal life
-equity indexed universal life

53
Q

Universal life’s ______ _____ means that policy owners can skip premiums without losing their coverage, as long as there is enough cash value to cover the policy’s monthly expenses

A

Flexible premium

54
Q

Advantages of flexible policies

A

-flexible premiums, death benefit options, and cash value

55
Q

Disadvantages of flexible policies

A

More complex

56
Q

Permanent insurance policies designed to provide coverage for the insured, have cash value and a death benefit, and allow the policy owner to participate in various types of options while not being taxed on the earnings until the policy is surrendered

A

Variable policies

57
Q

The _______ _______ is a fund held by the life insurance company and maintained separately from the insurer’s general assets

A

Separate account

58
Q

Separate account investment options usually include a mixture of…

A

Stocks, bonds, mutual funds, money market instruments, and even commodities

59
Q

Variable insurance is an insurance product that contains an _______ element

A

Investment

60
Q

Both the securities industry and state insurance commissioners regulate these policies

A

Variable life insurance policies

61
Q

Variable life insurance has a _______ _____ instead of guaranteed cash value

A

Separate account

62
Q

Variable universal life policy option A

A

Remains level regardless of increases or decreases in the cash value

63
Q

Variable universal life option B

A

Varies with the fluctuating cash values

64
Q

The death benefit of a variable life policy will increase with…

A

…positive investment results, however in the event of negative performance it cannot decrease below the original face amount

65
Q

The original face amount of a variable life policy is the _____ _______ death benefit

A

Guaranteed minimum

66
Q

Types of variable policies

A

-variable life (death benefit can increase, has guaranteed death benefit)
-variable universal life (no guaranteed death benefit)

67
Q

Advantages of variable policies

A

-potential for high returns
-keep pace with inflation
-tax advantages

68
Q

Disadvantages of variable policies

A

-no guaranteed rate of return
-complicated
-highly regulated

69
Q

Usually covers two or more lives with the death benefit being paid when the first insured dies

A

Joint life policy

70
Q

A joint life (or first to die) policy may be the right product for married people who want a surviving spouse to be able to maintain a certain lifestyle but want…

A

…to pay less than the cost of two individual policies

71
Q

Insures two individuals and will pay the death benefit when the last insured dies

A

Survivorship life policy

72
Q

Coverage written on the life of a child or minor

A

Juvenile life insurance

73
Q

In addition to the death benefit juvenile life insurance provides the benefit of…

A

….locking in the low premium for the child’s entire life, and guarantees the child has life insurance in case their health changes in the future

74
Q

Jumping juvenile policies

A

Face amount of policy increases when the child reaches 18 or 21, with no corresponding increase in premium. Jumps to five times its original amount

75
Q
A

General Insurance (20 decks)

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