Types of Policies

Question 1

The death benefit remains level and the premiums remain level during the policy term.

Answer 1

Level

Question 2

The death benefit decreases, but premiums remain level for the policy term. Lower premiums for this policy then with level term. Ex. Often such policies are sold as mortgage protection with the amount of insurance decreasing as the balance of the mortgage decreases.

Answer 2

Decreasing

Question 3

A special form of decreasing terms. Unlike the standard decreasing term policy, this type of policy automatically names the creditor as the beneficiary. Once the loan is paid, the policy ends

Answer 3

Credit Life Insurance

Question 4

The death benefits increase over the life of the policy while the premiums remain level. This type of term is normally written as a rider to provide cost of living or return of premium benefits.

Answer 4

Increasing

Question 5

The simplest form of term life insurance is for one year. The death benefits remains level and the premiums increase yearly ad the policy renews up to a specified age. While it is very inexpensive initially compared to other types of life insurance, over time it can become cost prohibitive.

Answer 5

Annually Renewable Term

Question 6

Term policies with this option will allow the insured, upon the end of the original term, to renew based on attained age and may qualify at a discounted rate by providing evidence of insurability. With annual renewable term policy the term automatically renews as long as the premiums are paid, however with this policy, it will allow the insured to renew at a lower rate than renewable term as long as the insured meets the qualifications.

Answer 6

Re-Entry Term Option

Question 7

Provides insurance protection to age 100, cash value accumulation to age 100, and fixed level premium payments. Has three different structures:
Straight life: premium payable to age 100 or death
Limited Payment: Specified time Ex. 20-pay, or age 65
Single Premium: Premium is paid in one lump sum

Answer 7

Ordinary Whole Life

Question 8

A non-participating whole life plan of insurance, except it provides for adjustable premiums. The company will charge a “current” premium based on its current estimate of investment earnings, mortality, and expense costs. If these estimates change in later years, the company will adjust the premium accordingly but never above the maximum guaranteed premium stated in the policy.

Answer 8

Indeterminate Premium

Question 9

Provided a level death benefit and requires that premiums be paid for the life of the policy (to age 100). The premiums do not remain level. It begins with a premium lower than ordinary whole life for the initial 5 years. After the first 5 years, the premium will increase and remain level throughout the balance of the life of the policy.

Answer 9

Modified Premium

Question 10

A type of permanent life insurance that combines features of term and whole life coverage, giving policyholders the option to change the characteristics of their policies. It is most appropriate for those whose income is expected to fluctuate from year to year. This policy allows for policyholders to manipulate the period of protection (to age 100 or shorter), increase (with insurability) or decrease the face amount, raise or lower the premium amount, and change the length of the premium payment period. Also provides cash value. Changes can only be made annually.

Answer 10

Adjustable Life

Question 11

This is a form of whole life in which the insurance company can change the premiums or interest rate being credited to the account based on current money market rates. The policy has a guaranteed minimum death benefit, but may increase based on growth of cash value.

Answer 11

Interest- Sensitive Whole Life

Question 12

This gives policyowners the opportunity to decide the percentage of cash value that is invested in traditional fixed income securities. The remainder of the cash value is invested an equity index account linked to a stipulated stock index, typically the S&P 500. When there is an increase in the market, a giving percentage of the gain is used to determine the interest credited to the policy. When the market declines, the policy is credited with the minimum guaranteed interest rate or zero interest.

Answer 12

Indexed Universal Life (Equity Indexed)

Question 13

Features insurance protection and a savings element (cash value) that grows on a tax-deferred basis. It is an “unbundled policy.” This means the individual elements of the policy and premium – which includes the mortality risk, policy expenses, and the cash value – are credited to the account separately after the premium is paid. Universal life has built in guarantees regarding the cost of insurance (mortality risk) and the interest rates applied to cash values.

Answer 13

Universal Life ( Flexible Premium adjusted life Insurance)

Question 14

Pays the face amount of the policy and provides a level death benefit. As the cash value increases, the company’s risk decreases. A universal life policy must include an amount at risk. If the cash value approaches the face amount, the death benefit must increase so as to provide for this amount at risk. This minimum separation between the cash value and the death benefit is called the “risk corridor” This corridor of insurance is automatic and does not require insurability. This prevents the policy from maturing too early.

Benefit from a larger cash value accumulation.

Answer 14

Option A (Whole Life Death Benefits)

Question 15

Pays the face amount stated in the contract which is level term, plus any cash values accumulated over the years. This provides for an increasing death benefit. Mortality charge is higher.

Benefits from great death benefits.

Answer 15

Option B (Whole Life Death Benefits)

Question 16

Has certain benefits that will vary base on market conditions.
Includes: Fixed Premium, accounts, general accounts, and separate accounts (guaranteed value)

Answer 16

Variable Whole Life

Question 17

Fixed and guaranteed and provides for a guaranteed minimum death benefits to age 100.

Answer 17

General Account (guaranteed values - variable life)

Question 18

Invested in equity securities as offered by the insurance company. Cash value will fluctuate based on market conditions and performance of account, which is similar to mutual fund. There is no guaranteed minimum return on the cash value. Death benefits are recalculated annually. While the values may decrease, the policy will never pay less than the guaranteed death benefit in the general account. The owner bears all investment risk

Answer 18

Separate Account (guaranteed values - variable life)

Question 19

Combination of Universal and Variable Life Policies. Policy provides for flexible premiums and adjustable death benefits. Option A & B are available. Does not have a general account, only a separate account. Premiums are credited to the separate account and there is no guaranteed minimum death benefit. Since there is no guaranteed return on the separate account, the owner bears all investment risk. Policyowner can take a policy loan or partial withdrawal from the cash value without terminating the contract.

Answer 19

Variable Universal Life (VUL)

Question 20

Written on the life of a minor. Provides automatic increase in the face amount at a given age, usually 21 to 25, without evidence of insurability. Premium remains level, and the usual increase in the face amount is 5 times the issue amount.

Answer 20

Juvenile

Question 21

Whole life policy that is written to cover 2 or more lives. The death benefit is paid upon the first insured to die. Once payment is made, the policy no longer exists. Premiums are based on joint age.

Answer 21

Joint Life (First to Die)

Question 22

Whole life policy is written to over 2 or more lives, and the death benefits are not paid until that last insured dies. Premiums are based on joint issue age. The policy is often purchased to provide a lump sum benefit to pay estate taxes once the second spouse dies.

Answer 22

Joint Survivorship (Last to Die)