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Health & Life Insurance > Types of Policies and Riders > Flashcards

Types of Policies and Riders Flashcards

1
Q

What is the death benefit payable on the policy if the insured dies before the policy ends?

A

face amount

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2
Q

What are the two types of life insurance?

A

temporary (term) and permanent (whole life)

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3
Q

What is the death benefit also referred to?

A

limit of liability or the policy proceeds

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4
Q

Permanent policies provide ____ ____, which is cash accumulation in the policy that can be accessed through a policy loan or cancellation (surrender) of the policy

A

cash value. This is considered a living benefit in a permanent policy causing the premiums to be higher than term insurance

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5
Q

Which of the following is not a feature of term life insurance?
A
Cash value

B
Limited duration

C
Lower initial cost

D
Pure protection

A

Cash Value - Term life insurance has no cash value and is often referred to as providing pure protection. Compared to the same face amount of whole life insurance, term will cost less.

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6
Q

A “level term” policy means that the _________ remains the same throughout the entire policy period.
A
Cash value

B
Face amount

C
Loan value

D
Beneficiary

A

Face Amount

The death benefit or face amount of insurance remains level throughout the term of the policy. Term policies do not have cash value or loan value.

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7
Q

What are the two special features that a contract can have for life insurance?

A
  1. renewable: a benefit that will renew the contact on the renewal date without evidence of insurability
  2. convertible: the right to convert the existing term policy to a permanent policy without evidence of insurability during the conversion period specified on the contact
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8
Q

net amount at risk = face value - ______

A

cash value, in a traditional whole life policy, the net amount at risk is the face value minus the cash value

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9
Q

as the cash value increases over time, the ____ ____ at risk decreases

A

net amount

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10
Q

T/F: Traditional policies earn a specified guaranteed rate of return. once the cash value has accumulated for a certain number of years, the policy’s owner can borrow against the policy

A

TRUE

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11
Q

T/F: A whole life policy cannot be convertible or renewable. Only term (temporary) insurance can be convertible or renewable

A

TRUE

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12
Q

What age does ordinary whole life insurance provide protection to?

A

age 100, cash value accumulation to age 100, and fixed level premium payments

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13
Q

name the three tiers for premiums payments to be structured as

A

straight life or continuous premium
limited payment
single premium net amount

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14
Q

Which premium structure is level and payable to age 100 or insured’s death, whichever comes first. The face amount remains level throughout the life of the policy and this policy has the highest total premium outlay.

A

straight life or continuous premium

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15
Q

which premium structure is where the entire premium is paid in a lump sum at the time of purchase and creates immediate cash value? The face amount remains level and cash value continues to earn interest and mature at age 100. the policy has the lowest total premium outlay for the life of the policy.

A

single premium net amount

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16
Q

which premium structure has premiums for a specified period of time or to a specified age? the face amount remains level and cash value continues to earn interest and mature at age 100. This policy has the lowest total premium outlay for the life of the policy

A

limited payment

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17
Q

A producer is explaining the concept of limited-pay life insurance to a 40-year-old client. When comparing a straight life policy with a 10-pay life policy, which of the following statements is correct?
A
A straight life policy has immediate cash value

B
The cash value in a straight life policy will accumulate at a slower rate than the cash value in a 10-pay life

C
A 10-pay life policy will have a lower annual premium than a straight life

D
A policy fully paid up in 10 years will endow at the client’s age of 50

A

The cash value in a straight life policy will accumulate at a slower rate than the cash value in a 10-pay life

The actual amount of premium per year in a 10-pay life policy will be higher than straight life since the number of payments is reduced. Because of this, the cash value will accumulate faster in a 10-pay life and slower in a straight life policy. Both policies will endow at age 100. Neither a straight life or 10-pay life policy has immediate cash value.

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18
Q

Which type of term policy decreases the death benefit, but the premiums remain level for the policy term? often policies are sold as mortgage protection

A

decreasing policy

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19
Q

which type of term policy increases the death benefit while the premium remains level? Often policies are being sold as riders to provider cost of living or return of premiums benefits

A

increasing policy

20
Q

which type of term policy has a death benefit that remains level and the premiums increase yearly as the policy renews up to a specific age? if the insured dies while the policy is in force, the insurer will pay the death benefit

A

annually renewable term

21
Q

which type of policy is written as increasing term insurance and provides for an additional death benefit that equals a full refund of premiums if the insured is still living at the end of the term? these policies are very low-risk with respect to paying benefits and charge a much higher premium than level term insurance

A

return of premium term

22
Q

Term insurance is considered ___ ____ and provides a pure death benefit

A

pure insurance

23
Q

T/F: Term insurance offers cash value and living benefits

A

FALSE - term insurance does not provide any cash value or living benefits

24
Q

T/F: the face amount is paid out to the named beneficiary only if the insured dies during the specified term of the policy

A

TRUE

25
Q

How are rates calculated for term insurance?
1. underwriting class
2. age and gender of the insured
3. length of time protection is provided
4. All of the above

A

all of the above

26
Q

A ____ is an added benefit attached to the policy that supplements existing coverage

A

rider - a rider is usually added at the time the policy is purchased and may result in a small increase in premium

the cost of the rider is usually insignificant compared to the cost of buying a separate policy for the same benefits

27
Q

Which type of policy can change premiums or interest rates based on current money market rates?

A

nontraditional / whole life policy (interest/market sensitive)

28
Q

if cash value increases too quickly in a non-traditional/whole life policy, the insurer will add what?

A

a corridor of insurance protection to keep the policy from endowing

29
Q

Which of the following are characteristics of universal life insurance policies?
A
Two death benefit options, an adjustable death benefit and flexible premiums

B
Two death benefit options with premiums fixed for life

C
Adjustable death benefit with premiums that are fixed for life

D
Fixed death benefit for life with premiums that may be increased or decreased

A

A
Two death benefit options, an adjustable death benefit and flexible premiums

30
Q

A _______________ policy has a death benefit that will increase or decrease over time based on the performance of the separate account, provides a guaranteed minimum death benefit, offers a choice of subaccounts in which cash value may be allocated, and a has fixed premium.

A
Universal Life

B
Indexed Life

C
Variable Universal Life

D
Variable Life

A

Variable Life

31
Q

Which of the following is designed for someone with a large insurance need but with limited cash flow?

A
Home Service Life Insurance

B
Term Life Insurance

C
Whole Life Insurance

D
Variable Life Insurance

A

B Term Life Insurance - Term Insurance is pure protection (i.e. no cash value develops.) Its cost per thousand dollars of coverage is significantly lower initially than Permanent Insurance.

32
Q

M purchased a traditional permanent life insurance plan many years ago. What happens when he attains age 100?

A
M receives nothing from the insurer because the traditional permanent insurance plan expires

B
M gets a check for the face amount of the policy

C
M gets a refund of all premiums paid

D
M gets a dividend check from the insurer

A

B = M gets a check for face amount of policy.

At age 100 of a traditional permanent life insurance policy purchased many years ago, when the cash values reach the policy’s face amount the policy is said to endow, and M would receive a check in the amount of the face value of the contract.

33
Q

Who receives the endowment value of a whole life policy?

The insurance company

B
The beneficiary

C
The producer

D
The policyowner

A

D the policyowner - retains all rights in the policy up to and including receiving the endowment proceeds.

34
Q

All of the following are risks to the life settlement purchaser, except:

A
The insurer becomes insolvent

B
The third party runs out of funds to pay on-going premiums

C
The insurer will not honor the claim based on lack of insurable interest

D
The insured dies sooner than expected

A

D the insured dies sooner than expected. If the insured dies sooner than expected then the purchaser will achieve a greater return than they had planned on.

35
Q

Which of the following best describes an Annual Renewable Term Policy?

A
A policy with a level death benefit, but with increased premium at each renewal

B
A policy with an increased face value at each renewal

C
A policy with increasing cash value at each renewal

D
A policy with decreasing premium at each renewal

A

A
A policy with a level death benefit, but with increased premium at each renewal

Whether the policy period is 1 year, 5 years, 10 years, etc., the premium will increase at each renewal to sustain the same specified death benefit that was purchased when the policy was written. At renewal the premium is based upon attained age.

36
Q

When buying a $25,000 life insurance policy on his daughter, a father wanted to make sure the premium would be paid, even if he became disabled, so he also purchased a:

A
Long-term Care Rider

B
Payor Rider

C
Waiver of Premium

D
Waiver of Cost of Insurance

A

B - Payor Rider

the payor rider is a special rider that pay the premiums on a minor’s policy if the adult who owns the policy dies or becomes disabled while the insured is still a minor. Do not confuse it with the Waiver of Premium, which pays if the insured becomes disabled.

37
Q

Angie is the insured under a $100,000 10 year term life insurance policy with her spouse named as her beneficiary. If she dies in year 9, what will her spouse receive?

Nothing since this is term insurance

B
The policy’s cash values

C
The face amount of the policy

D
A refund of all premiums paid

A

C - face amount of policy

Since the policy was in force when Angie died, Richard will receive a claim payment equal to the face amount of the policy.

38
Q

C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. What is the maximum loan C can obtain from the insurer using the policy as collateral for the loan?

A
$70,000

B
$30,000

C
$100,000

D
$130,000

A

$30,000

The policy can be used as collateral for a loan from the insurance company, but the loan amount is limited to the amount of cash value in the policy.

39
Q

Bert is the owner and insured of a permanent life insurance policy he purchased 20 years ago. He has never missed a premium payment. He would like to buy a new car but his bank account is running low. How can he obtain the necessary funds while still maintaining coverage?

A
Surrender part of the policy and for the balance take a policy loan

B
Take a policy loan from the insurer

C
Surrender the policy back to the insurer

D
Reduce the policy’s face amount which will reduce his premium payment

A

B -Take a policy loan from the insurer.

A permanent life insurance policy cannot be partially surrendered or have its face amount reduced. To keep the coverage in force the only option feasible is to take a policy loan.

40
Q

How would a term policy normally be used to pay off a mortgage upon death?

A
Through a viatical or life settlement

B
By using the policy’s cash values

C
Using the death proceeds after the insured has died

D
By using the policy as collateral for a policy loan

A

C
Using the death proceeds after the insured has died

Term can be used as mortgage insurance which typically provides a decreasing term benefit.

41
Q

Which of the following would have the highest first-year annual premium for a 30-year-old, all other factors being equal?

A
Term to age 50

B
Term to age 40

C
Term to age 70

D
Term to age 60

A

C - term to age 70

40 years of coverage is more costly than shorter terms of coverage.

42
Q

How is a Variable Universal Life Insurance policy different from a Universal Life Insurance policy?

A
The premium payments

B
The death benefit options

C
The adjustability of the face amount

D
The ability to invest the cash values in various separate accounts

A

D
The ability to invest the cash values in various separate accounts

43
Q

life insurance premium is paid each month. The insurer then subtracts a mortality and expense charge from the policy’s cash value. This best describes which of the following life insurance policies?

A
Whole Life

B
Universal Life

C
Adjustable Whole Life

D
Variable Whole Life

A

B
Universal Life

All premiums paid to a Universal Life Policy are placed in the policy’s cash value account. The mortality charge (cost of protection) and expenses are then deducted from the cash value account.

44
Q

Why have many states prohibited STOLI/IOLI transactions?

A
Consumers are not reporting the cash received as taxable income

B
Investors are not licensed to conduct such a transaction

C
Producers are practicing fraud

D
Policyowners obtain too little in relationship to the death benefit

A

C
Producers are practicing fraud

45
Q

What is the ‘waiver of premium’ called on a Universal Life insurance policy?

A
Waiver of Cost of Insurance

B
Waiver of flexible premium

C
Disability premium income

D
Monthly premium waiver

A

A- Waiver of Cost of Insurance

Waiver of Cost of Insurance is a rider that waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled, usually after 6 months of continuous disability.

46
Q

A participating life insurance policy has a long-term care rider. The insured qualifies for the benefit. Where does the initial benefit money come from?

A
From the insurance company by policy loan

B
It is an advance of the face amount of the policy

C
From the policy’s dividends

D
From the cash values of the policy

A

B
It is an advance of the face amount of the policy

Health & Life Insurance (14 decks)

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