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ExamFX > Types of Life Policies > Flashcards

Types of Life Policies Flashcards

1
Q

Regarding the length of coverage, all life insurance policies fall into 2 categories:

A

Temporary Protection

Permanent Protection

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2
Q

______ is temporary protection because it provides coverage for a specific period of time. It is also known as pure life insurance

A

Term Insurance

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3
Q

Term policies provide the _____ amount of coverage for the lowest premium as compared to any other form of protection

A

greatest

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4
Q

Term insurance provides what is known as

A

pure death protection

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5
Q

Term insurance has no ___ value

A

Cash

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6
Q

3 basic types of TERM coverage available, based on how the face amount (death benefit) changes during the policy term:

A

1) Level
2) Increasing
3) Decreasing

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7
Q

Regardless of the type of term insurance purchased, the premium is ____ throughout the term of the policy; only the death benefit may fluctuate, depending on the type of term insurance

A

Level

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8
Q

Upon selling, renewing, or converting the term policy, the premium is figured at

A

attained age (insureds age at the time of transaction

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9
Q

_______ is the most common type of temporary protection purchased. The word ____ refers to the death benefit that does not change throughout the life of a policy.

A

Level Term Insurance

Level

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10
Q

_______ is the purest form of term insurance

A

Annually Renewable Term

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11
Q

______ policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.

A

Decreasing term

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12
Q

Decreasing term coverage is commonly purchased to insure the payment of a

A

mortgage or other debts

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13
Q

A decreasing term policy is usually _____; however, it is usually not renewable since the death benefit is $0 at the end of the policy term

A

Convertible

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14
Q

_____ features level premiums and a death benefit that increases each year over the duration of the policy term

A

Increasing term

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15
Q

Increasing term is often used by insurance companies to fund certain riders that provide a _______ or a gradual increase in total coverage, such as the cost of living or return of premium riders

A

refund of premiums

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16
Q

Increasing term would be ideal to handle _____ and the increasing cost of living. It is also added to another policy as a rider, such as with return of premium policies

A

inflation

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17
Q

Most term insurance policies are

A

1) Renewable
2) Convertible
3) Renewable & Convertible

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18
Q

The _____ provision allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability

A

Renewable

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19
Q

The _____ provision provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability. Premium will be based on the insureds attained age at the time of conversion

A

Convertible

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20
Q

________ insurance is a general term used to refer to various forms of life insurance policies that build CASH value and remain in effect for the entire life of the insured (or until age 100) as long as the premium is paid. Most common is WHOLE life insurance

A

Permanent life

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21
Q

_______ provides lifetime protection, and includes a savings element (cash value)

A

Whole life insurance

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22
Q

Whole life policies endow at the insureds age ___, which means the cash value created by the accumulation if premium is scheduled to equal the face amount of the policy at age __

A

100

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23
Q

Premiums for whole life policies are usually ___ than for term insurance

A

higher

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24
Q

The three basic forms of whole life insurance are

A

1) straight whole life
2) limited-pay whole life
3) Single premium whole life

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25
Q

_____ (also referred to as ordinary life or continuous whole life) is the basic whole life policy . The policyowner pays the premium from the time the policy is issued until the insured’s death or age 100. Has the lowest annual premium

A

Straight Life

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26
Q

______ is designed so that the premiums for coverage will be completely paid-up well before age 100. This type of policy has a shorter premium-paying period than straight life insurance, so that annual premium will be higher. Cash value builds up faster for the limited-pay policies

A

Limited-pay whole life

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27
Q

_______ is designed to provide a level death benefit to the insureds age 100 fore a one-time, lump-sum payment. The policy is completely paid-up after one premium and generates immediate cash

A

Single premium whole life

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28
Q

_______ can assume the form of either term insurance or permanent insurance. The insured typically determines how much coverage is needed and the affordable amount of premium

A

Adjustable life policy

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29
Q

Policyowner has the following options under Adjustable life insurance

A

1) Increase or decrease the premium or the premium-paying period
2) Increase or decrease the face amount
3) Change the period of protection

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30
Q

The policyowner also has the option of _______ from term to whole life or vice versa.

A

Converting

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31
Q

Although adjustable life policies contain most of the common features of other whole life policies, the _____ of an adjustable life policy only develops when the premiums paid are more than the cost of the policy

A

cash value

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32
Q

______ insurance is also known by the generic name of flexible premium adjustable life. That implies that the policyowner has the flexibility to increase the amount of premium paid into the policy and to later decease it again

A

Universal life

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33
Q

In Universal Life, the premium can be adjusted, the insurance companies may give the policyowner a choice to pay either of the two types of premiums:

A

1) Minimum premium

2) Target premium

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34
Q

The _________ is the amount needed to keep the policy in force for the current year. Paying the _______ will make the policy perform as an annually renewable term product

A

minimum premium

35
Q

The _____ is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime

A

Target premium

36
Q

A universal life policy has two components: an _______ and a _____

A

insurance component and a cash account

37
Q

The insurance component of a universal life policy is always _______

A

annually renewable term insurance

38
Q

Universal life offers one of two death benefit options to the policyowner. ____ is a level death benefit option. and ______ is the increasing death benefit option

A

Option A

Option B

39
Q

_________ insurance is a level, fixed premium, investment based product. These policies have fixed premiums and a guaranteed minimum death benefit. Cash value of the policy, however is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.

A

Variable Life

40
Q

Policyowner bears the ________ in variable contracts

A

investment risk

41
Q

Because the insurance company is not sustaining the investment risk of the contract, the underlying assets of the contract cannot be kept in the insurance company’s general account. These assets must be held in a _____, which invests in stocks, bonds, and other securities investment options

A

separate account

42
Q

________ is a type of insurance that combines many features of the whole life with the flexible premium of universal life and the investment component of variable life, making it a securities version of the universal life insurance

A

Variable universal life insurance

43
Q

Features of variable universal life insurance

A

1) Flexible premium that can be increased, decreased, or skipped as long as there is enough value in the policy to fund the death benefit
2) Increasing and decreasing the amount of the insurance
3) Cash withdrawals or policy loans

44
Q

Unlike universal life, most of the investment vehicles in variable universal life policies do not guarantee

A

return

45
Q

Variable life insurance products are _______ by the State and Federal Government

A

dually regulated

46
Q

Due to the element of investment risk, the federal government has decaled that variable contracts are _____, and are thus regulated by the SEC and FINRA

A

securities

47
Q

Agents selling variable life insurance products must:

A

1) Be registered with FINRA
2) Be licensed by the state to sell life insurance
3) Have received securities license

48
Q

_____ is a single policy that is designed to insure two or more lives. Can be in the form of term insurance or permanent insurance

A

Joint Life

49
Q

Two major exceptions to Joint Life

A

1) The premium is based on a joint average age that is between the ages of the insureds
2) Death benefit is paid upon the first death only

50
Q

______ is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. Major difference is it pays on the last death rather than first death. Also referred to as a “second-to-die” or “last survivor”

A

Survivorship Life

51
Q

Endowment policies are another type of whole life insurance that have all the same features as regular whole life policies with a slight variation in the maturity date. Primary difference between whole life policy and an endowment is that an endowment matures at an ______

A

earlier age

52
Q

Because the cash value in an endowment has to build up faster since the funds are intended to be used while the insured is alive, the premium for an endowment is considerably _____ than an ordinary straight policy.

A

higher

53
Q

An _______ is a contract that provides income for a specified period of years, or for life.

A

Annuity

54
Q

Annuities are not life insurance, but rather a vehicle for the accumulation of money and the ___________

A

Liquidation of an estate

55
Q

Annuities do not pay a face amount upon the death of the ______

A

Annuitant

56
Q

_____ is the purchaser of the annuity contract, but not necessarily the one who receives the benefits. The _____ of the annuity has all of the rights, such as naming the beneficiary and surrendering the annuity

A

Owner

57
Q

The ____ of an annuity may be a corp, trust, or other legal entity.

A

Owner

58
Q

_______ is the person who receives benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written.

A

Annuitant

59
Q

Annuitant must be a

A

natural person

60
Q

The ________ also known as the pay-in period, is the period of time over which the owner makes payments (premiums) into an annuity. Furthermore it is the period of time which the payments earn interest on a tax-deferred basis.

A

accumulation period

61
Q

The ______, also known as the annuitization period, liquidation period, or pay-out period, is the time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant.

A

annuity period

62
Q

The _______ is the time when the annuity benefit payouts begin

A

annuitization date

63
Q

The annuity income amount is based upon the following:

A

1) The amount of premium paid or cash value accumulated
2) The frequency of the payment
3) The interest rate
4) The annuitant age and gender

64
Q

The first way to classify annuities can be based on how they can be funded (paid for). There are 2 options: a _____ or through _____ in which the premiums are paid in installments over a period of time

A

Single premium

periodic premium

65
Q

Periodic payment annuities can be either ______, in which the annuitant/owner pays a fixed installment, or _____, in which the amount and frequency of each installment varies

A

Level Premium

Flexible Premium

66
Q

Annuities can also be classified according to when the income payments from the annuity begin. An ______ is one that is purchased with a single, lump-sum payment and provides income payments that start within one year from the date of purchase.

A

Immediate annuity

67
Q

A ______ is an annuity in which the income payments begin sometime after one year from the date of purchase.

A

Deferred annuity

68
Q

Annuities may be classified as ____ or ____ based on how the premium payments are invested

A

Fixed or Variable

69
Q

A fixed annuity provides the following features:

A

1) Guaranteed minimum rate of interest to be credit to the purchase payment
2) Income (annuity) payments that do not vary from one payment to the next
3) The insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant

70
Q

With fixed annuities, the annuitant knows the exact amount of each payment received from the annuity during the annuity period. This is called ____ ____ ____ ____

A

level benefit payment amount

71
Q

A disadvantage to fixed annuities is that the purchasing power that they afford may be eroded over time due to

A

inflation

72
Q

A ________ serves as a hedge against inflation, and is variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity.

A

variable annuity

73
Q

3 main characteristics of variable annuities are

A

1) Underlying Investment- payments that annuitant makes into the variable annuity are invested in the insurers separate account
2) Interest rate- issuing insurance company does not guarantee a minimum interest rate
3) License requirements- variable annuity is considered a security and is regulated by the SEC and state insurance regulations. Agents and companies must be registered with FINRA

74
Q

Variable premiums purchase _______ in the fund, which is similar to buying shares in a Mutual Fund

A

accumulation units

75
Q

Accumulation units represent _________ in the separate account

A

ownership interest

76
Q

Upon annuitization, the accumulation units are converted to

A

annuity units

77
Q

__________ are fixed annuities that invest on a relatively aggressive basis to aim for higher returns. Has a guaranteed minimum interest rate. Current interest rate that actually credit is often tied to a familiar index like the Standard and Poor’s 500

A

Indexed (or equity indexed) annuities

78
Q

In addition to providing income for retirement and estate liquidation, annuities can be used to accumulate funds for

A

college education

79
Q

Annually renewable term death benefit remains _____ and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probability of death increases

A

level

80
Q

Key characteristics of whole life insurance

A

1) Level Premium- premium for whole life policies is based on the issue age; therefore, it remains the same throughout the life of the policy
2) Death benefit- is guaranteed and also remains level for life
3) Cash value- cash value, created by the accumulation of premium is scheduled to equal the face amount of the policy when insured reached 100 and is paid out to the policyowner. Cash values credit to the policy on a regular basis and have a guaranteed interest rate
4) Living benefits- the policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered. Cash value called nonforfeiture value does not usually accumulate until the third policy year and it grows tax deferred

81
Q

Under Option A (Level Death Benefit option), the death benefit remains level while the cash value gradually increases, thereby lowering the _______ with the insurer in the later years

A

pure insurance

82
Q

Under Option B (Increasing Death option), the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value _____. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value. Expenses of this option are much greater than thos eof Option A

A

increases.

83
Q

Joint life is also used to insure the lives of business partners in the funding of a

A

buy-sell agreement

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