UNIT 4

Question 1

TERM LIFE INSURANCE

Answer 1

SIMPLEST FORM OF LIFE INSURANCE. ONLY OFFER A DEATH BENEFIT AND REMAIN INFORCE FOR A SPECIFIED PERIOD OF TIME, OR TERM. NO DEATH BENEFIT IS PAYABLE IF THE INSURED DIES AFTER THE TERM EXPIRES.

Question 2

TERM LIFE INSURANCE

LEVEL TERM

Answer 2

The death benefit of a level term equals the face amount throughout the term of coverage. The premium also remains level during the term.

• *Term may be expressed by a number of years such as 1, 5, 10 , 20 or 30
• • Term may be expressed by specified age term to 65 or to 70

Question 3

DECREASING TERM

Answer 3

The death benefit declines over the coverage period until it reaches 0 at the end of the term. This is appropriate coverage for financial obligations that decrease steadily over time, like home mortgages, bank loans, or financial obligations that require periodic payments.

Question 4

INCREASING TERM

Answer 4

The death benefit begins near 0 and grows over the term of coverage. This is appropriate to cover financial obligations that increase steadily over time. This coverage also helps keep life insurance death benefits current with inflation and keep pace with rising cost of living expenses.

Question 5

RETURN OF PREMIUM

TERM

Answer 5

Will return part or all of the premium paid for the policy if the insured is still alive at the end of the term. The premium for this policy will be higher than a regular term insurance policy, and the premium will also be dependent upon the percentage of the premium that will be returned.

Question 6

RENEWABILITY

Answer 6

With Term life insurance, this guarantees that the policy will renew at the end of its term. The insured does NOT have to reapply or qualify medically for the coverage. The renewal period will be for the same term as originally purchased.

• Guarantees the same death benefit
• The premium will be higher based on the insureds attained age

Question 7

CONVERTIBILITY

Answer 7

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

• The conversion must be made before the term expires
• Premium based on attained age and original age

Question 8

ATTAINED AGE

Answer 8

insureds age at the time of conversion

Question 9

ORIGINAL AGE

Answer 9

Insureds age at the time the original policy was written

Question 10

DISADVANTAGES OF TERM INSURANCE

Answer 10

• Term coverage lasts only for the term of the policy, its like renting, not owning a policy.
• Term premiums increase as the insured gets older
• Renewability features expire before the age of average life expectancy. As a result, individuals may not be able to obtain or afford coverage at older ages when their risk of dying is greater.

Question 11

ADVANTAGES OF TERM INSURANCE

Answer 11

BECAUSE TERM LIFE INSURANCE PROVIDES ONLY A DEATH BENEFIT, ITS PREMIUMS ARE LOWER THAN OTHER TYPES OF LIFE INSURANCE. A TERM POLICY IS INITIALLY THE LEAST EXPENSIVE FORM OF LIFE INSURANCE.

Question 12

WHOLE LIFE INSURANCE

Answer 12

A permanent insurance policy which is guaranteed to remain inforce for the insureds entire lifetime provided the required premiums are paid, or to the maturity date.
Designed to remain inforce for the whole life of the insured and the premiums will never increase.

Question 13

WHOLE LIFE POLICY

Answer 13

LEVEL PREMIUMS
The purpose of level premiums, is to make lifetime coverage affordable at older ages.
FIXED PREMIUM SCHEDULE
The policy holder selects the mode of payment for the policy’s level premium on a fixed schedule. If the premium is not paid when it’s due it will lapse.
FIXED, LEVEL DEATH BENEFIT
Like its premium, the death benefit is fixed and level. For as long as its inforce, the face amount remains the same.
CASH VALUE
Cash values are an integral part of the policy and reflect the reserves necessary to assure payment of the guaranteed death benefit.
* The policy cash value increases steadily over the life of the contract because it is regularly credited with a guaranteed rate of interest.

Question 14

WHOLE LIFE SURRENDER

Answer 14

The cash surrender value of the policy arises from the policyowners right to quit the contract and reclaim a share of the reserve fund attributable to the policy. By cashing in the policy, the policy owner gives up the death benefit.

Question 15

WHOLE LIFE POLICY LOANS

Answer 15

life insurance policies with cash surrender value usually have loan provisions that allow the ph to borrow up to the cash value of the policy. The policy and its death benefit remain in force when the cash is loaned and interest must be paid on the amount borrowed.

If a policy loan has not been paid back and the insured dies, the amount borrowed plus any interest charges are deducted from the policy’s death benefit.

Question 16

WHOLE LIFE DEATH BENEFIT COMPONENTS

Answer 16

The death benefit is payable upon the insureds death and consists of 2 components;

1) The cash value, sometimes referred to as the savings element; and
2) An insurance protection element that must be paid in addition to the cash value so that the death benefit equals the policy’s face amount.

Whole life policy’s usually mature or endows at 100 or 120 , if the ph is still living when the maturity occurs, the cash value in the policy will equal the policy face amount and is paid to the policyowner.

Question 17

CONTINUOUS PREMIUM WHOLE LIFE

Answer 17

The premiums for this whole life policy are the same each year for the duration of the contract. It is also referred to as a straight life of ordinary life. IF the policyowner discontinues making premium payments, they will receive the cash value of the policy.

Question 18

LIMITED PAYMENT WHOLE LIFE

Answer 18

Allow for a life time of premiums to be paid in a shorter period of time. Common forms of limited payment whole life are;

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

Cash values accumulate faster.

Question 19

SINLGE PREMIUM WHOLE LIFE

Answer 19

Has one payment made at the time of purchase. The amount of this single premium, along with interest earnings will cover all future costs of maintaining the policy. Create immediate cash value

Question 20

MODIFIED PREMIUM WHOLE LIFE

Answer 20

Have lower premiums during the first 3-5 years. After the initial period, premiums increase to a certain amount and then are level for the life of the policy, making them higher in cost than a continuous premium whole life.

Question 21

GRADED PREMIUM WHOLE LIFE INSURANCE

Answer 21

Have a an even lower initial premium than modified whole life. The graded premium starts out lower that other types of whole life policies and increases every year for 5-10 years until leveling off for as long as the policy remains in force.

Question 22

INDETERMINATE PREMIUM WHOLE LIFE POLICY

Answer 22

is similar to a non participating whole life policy 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.

Question 23

INTEREST SENSITIVE WHOLE LIFE

Answer 23

Also known as current assumption whole life. Is a type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant.

• fixed level death benefit
• Premium schedule fixed in regard to the timing of payments-

Question 24

ADVANTAGES OF WHOLE LIFE INSURANCE

Answer 24

whole life insurance is permanent coverage with guaranteed level premiums and it does not expire after a specific term. Cash values in whole life insurance policies accumulate TAX DEFERRED. By law permanent policies offer certain options in the event the policy lapses after premiums have been paid into the policy. These values include; cash surrender value, paid up insurance, or extended term insurance.

Question 25

DISADVANTAGES OF WHOLE LIFE INSURANCE

Answer 25

Because the policy is providing lifetime coverage, the initial premium for whole life is higher than term insurance. Unlike other types of permanent insurance, whole life premiums cannot be decreased and are not flexible. The death benefit cannot be increased. Lastly the policyowner has no control over how the cash value is invested.

Question 26

FLEXIBLE POLICIES

Answer 26

Flexible policies give the policyowner numerous options in terms of premiums, face amounts and investment objectives. These policy components can be adjusted in response to changing needs and circumstances.

Question 27

ADJUSTABLE LIFE INSURANCE

Answer 27

Gives the policy owner the options to adjust the face value/ death benefit, the premium and length of coverage without having to change policies. It offers the ability to have term and whole life coverage in one policy.

Question 28

UNIVERSAL LIFE POLICY

Answer 28

Was designed for people who want flexible premiums and flexible coverage over the course of their lifetime. The premiums are flexible not fixed and accumulate interest in the policy’s cash value.

The policy owner may increase or decrease the death benefit, subject to any insurability requirements.

Withdrawals and loans may be made against the cash value account, the policyowner can also surrender or cash in the universal lifer contract for its current cash value whenever he or she wishes.

There are 2 death benefit options A and B

Option A- Provides a level death benefit equal to the policy’s face value
Option B- Provides for an increasing death benefit equal to the policy’s face value plus cash value.

Question 29

EQUITY INDEXED UNIVERSAL LIFE

Answer 29

Permanent life insurance policy that allows policyholders to tie accumulation values to stock market index such as the standard& Poor’s 500 Index. Typically contains a minimum guaranteed interest rate component along with the indexed account option.

Question 30

ADVANTAGES OF FLEXIBLE POLCIES

Answer 30

Adjustable life combines the guarantees of whole life with affordable premiums of term insurance in one policy.
Universal Life’s Flexible Premium means that policyowners can skip premiums without losing their coverage when money is tight, as long as there is enough cash value to cover the policy’s monthly expenses. Adjustable death benefits, access to cash values without requirement to pay back.
Equity- Indexed life insurance provides the upside potential of the underlying index with the downside guarantee that the interest crediting rate to the cash value will never be below 0

Question 31

DISADVANTAGES OF FLEXIBLE POLICIES

Answer 31

Unlike whole life or term insurance these policies are more complex. It is important the policyowner understand the premium payment amounts, interest rates, withdrawals, and death benefit changes significantly impact the policy’s long term benefits.

Question 32

VARIABLE POLICIES

Answer 32

Permanent policies designed to provide lifetime coverage for the insured and have cash value and a death benefit. The major advantage is that they allow the policyowner to participate in various types of options while NOT being taxed on the earnings until the policy is surrendered.

Question 33

SEPARATE ACCOUNT

Answer 33

Is a fund held by the life insurance company and maintained separately from the insurers general assets. This account is established to hold premiums used to purchase funds/ investments that the company offers.

Question 34

IN ORDER FOR AGENTS TO SELL VARIABLE POLICIES THEY MUST

Answer 34

Have a valid life insurance license
Register with the Securities and Exchange Commission (SEC)
Register with the Financial Industry Regulatory Association (FINRA)

Question 35

VARIABLE LIFE

Answer 35

Has a separate account instead of guaranteed cash value. It’s called Variable whole life or fixed premium variable life.
* 2 death benefit options
Option (1) remains level regardless of increases or decreases in cash value
Option (2) Varies with fluctuating cash values

Has a guaranteed minimum death benefit

Question 36

VARIABLE UNIVERSAL LIFE

Answer 36

Has a separate account instead of guaranteed cash value. It’s called Variable whole life or fixed premium variable life.
* 2 death benefit options
Option (1) remains level regardless of increases or decreases in cash value
Option (2) Varies with fluctuating cash values

Does NOT have a guaranteed death benefit

Question 37

JOINT LIFE POLICIES

Answer 37

Usually covers 2 or more lives with the death benefit being paid when the first insured dies. They are also called first to die policies.

Question 38

SURVIVORSHIP POLCIES

Answer 38

Insures 2 individuals and will pay the death benefit when the last insured dies. Also called second to die policies.

Question 39

JUVENILE LIFE INSURANCE

Answer 39

Is coverage written on the life of a child or a minor.