Unit 4 Types of Life Insurance Policies

Question 1

All life insurance policies pay a benefit upon the death of the insured. the amount of the death benefit is called the ____ because it’s usually found on the first page of the policy. Depending upon the type of policy, the actual death benefit payable after the initial purchase of the policy can be equal to, less than or greater than the face amount.

Answer 1

Face amount

Question 2

Certain types of life insurance policies also offer ____ - that is, financial benefits that are available while the insured is still alive. The differences between the types of life insurance policies arise from variations in how living and death benefits are provided.

Answer 2

Living benefits

Question 3

The death benefit of a ____ policy equals the face amount throughout the term of coverage. The premium also remains level during the term. The policy’s term of coverage may be expressed in reference to either:
1. number of years
2. a specified age

Answer 3

Level term policy

Question 4

The death benefit of a ____ policy declines over the coverage period until it reaches zero at the end of the term. Decreasing term is appropriate coverage for financial obligations that decrease steadily over time, like home mortgages, bank loans, or financial obligation that require regular periodic payments.

Answer 4

Decreasing term policy

Question 5

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

Answer 5

Increasing term policy

Question 6

____ policies 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. 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 premium that will be returned. A 100% return would have the highest premium.

Answer 6

Return of premium term policies

Question 7

The ____ feature, with term life insurance, guarantees that the policy will renew at the end of its term. The insured does not have to re-apply or qualify medically for the coverage. The new renewal term will be for the same term as originally purchased.

Answer 7

Renewability feature

Question 8

The renewability feature guarantees the same amount of death benefit, however, the premium for the new renewal period will increase based upon the insured’s age at renewal; the insured’s ____ age. The payment of the higher premium at each renewal results in what is called a ____ premium.

Answer 8

Attained age

Step-rate premium

Question 9

A ____ feature 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 insurance policy expires. The premium for the converted policy will be based on 1 of 2 options:
1. ____ - insured’s age at time of conversion
2. ____ - age at the time the original term policy was written. A lump sum amount is required that equals what the cash value would have been if a permanent policy was originally purchased instead of the term policy

Answer 9

Convertibility

Attained age

Original age

Question 10

____ is a permanent insurance policy which is guaranteed to remain in force for the insured’s entire lifetime provided the premiums are paid to the policy maturity date.

Answer 10

Whole life insurance

Question 11

The purpose of a ____ premium with whole-life policies is to make lifetime coverage affordable at older ages. This system results in overpaying for the risk of dying at younger ages and underpaying in later years toward the end of life expectancy. As a result, the premium amount paid never increases.

Answer 11

Level premium

Question 12

Does the face value of the death benefit on a whole-life policy ever change?

Answer 12

No

Question 13

____ are an integral part of a whole life policy, and reflect the reserves necessary to assure payment of the guaranteed death benefit.

Answer 13

Cash values

Question 14

The policy cash value increases steadily over the life of the contract because it is regularly credited with a ____ rate of interest. The scheduled increases in the cash value are stated in the policy illustration.

Answer 14

Guaranteed (level) rate of interest

Question 15

The ____ value of the whole life policy arises from the policyholder’s rights to quit the contract and reclaim a share of the reserve fund attributable to the policy. By cashing in a policy, the policyowner gives up the death benefit.

Answer 15

Cash surrender value

Question 16

____ loans - life insurance policies with a cash surrender value usually have loan provisions that allow the policyholder to borrow up to the policy’s cash value. The policy and its death benefit remain in force when cash is loaned and interest must be paid on the amount borrowed. (If this type of loan has not been paid back and the insured dies, the amount borrowed plus interest are deducted from the policy’s death benefit.

Answer 16

Policy loans

Question 17

The whole life policy death benefits consists of two components:
1. The cash value, sometimes referred to as the ____
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. This is known as the ____ amount of risk to the insurance company, which represents the amount of money the insurer must have on hand to pay the death benefit. The death benefit equals the ____ value plus the net amount at risk at any given time.

Answer 17

Savings Element

Net

Cash

Question 18

Death benefit components: ____ values increase each year, the ____ decreases each year.

Answer 18

Cash values increase

Insurance protection element decreases

Question 19

Whole life policies mature or endow at some point, usually at either age ____ or ____. If the insured is still living when maturity occurs, the cash value in the policy will ____ the policy face amount and is paid to the policyowner. At endowment, the policyowner will pay ____ on any taxable gain.

Answer 19

100 or 120

Equal

Income tax

Question 20

Continuous Premium Whole Life: The premiums for this whole life policy are the same each year for the duration of the contract. It is also referred to as ____ or ____. If the policyowner discontinues making premium payments, they will receive the cash value of the policy.

Answer 20

Straight Life

Ordinary Life

Question 21

____ whole life policies allow for a lifetime of premiums to be paid in a shorter period of time. Common forms of this type of policy are:
- 10-pay or 20-pay whole life; the 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 the insured turns 65

Answer 21

Limited-payment whole life

Question 22

Annual premiums for limited payment policies will be ____ than continuous payment policies.

The cash value of a limited payment policy accumulates ____ than a continuous premium policy.

Answer 22

Higher

Faster

Question 23

A ____ policy has one payment made at the time of purchase. The amount of this one-time payment, along with interest earnings, will cover all future costs of maintaining the policy. This policy creates immediate cash value.

Answer 23

Single premium whole life policy

Question 24

____ policies, sometimes called modified whole life policies, have lower premiums during the first ____ years. Compared to a continuous premium whole life policy, in those early years, this type of policy has lower cost similar to term insurance. However, 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 policy.

Answer 24

Modified premium whole life policies

3-5 Years

Question 25

____ policies have an even lower initial premium than modified whole life policies. The graded premium starts out lower than other types of whole life policies and increases every year for ____ until leveling off for as long as the policy remains in force.

Answer 25

Graded premium whole life policies

5-10 Years

Question 26

An ____ policy is similar to a nonparticipating whole life policy except that 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 26

Indeterminate premium whole life policy

Question 27

Interest-sensitive whole life, also known as ____ whole life is a type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant.

Answer 27

Current assumption whole life

Question 28

With ____ whole life, the insurer will make investments with 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. The interest rate is not fixed, it can fluctuate. Not only can the cash value increase more quickly, but the death benefits can also ____. The policyowner will be protected from a drop in value below a stated minimum.

Answer 28

Interest-sensitive whole life

Grow

Question 29

____ was designed for people who want flexible premiums and flexible coverage over the course of their lifetime. The premiums are flexible, not fixed, like whole life.

Answer 29

Universal life (UL)

Question 30

Universal Life

True or false - premiums paid into a universal life policy accumulate as interest in the policy’s cash value.

Answer 30

True

Question 31

Universal Life

True or false - monthly interest credited to the cash value is either the guaranteed rate or current rate, whichever is higher.

Answer 31

True

Question 32

Universal Life

Every 2 months a term cost of insurance and a monthly admin fee are taken from the cash value by the insurer. (as long as there is enough cash value to cover these bi-monthly expenses, the policy will stay in force)

Answer 32

False - it’s every month, not every two months

Question 33

Universal Life

True or false - the policyowner may increase or decrease the death benefit, subject to any insurability requirements. In addition, the policyowner has the flexibility to choose one of two policy death benefit options

Answer 33

True

Question 34

Option ____ (or Option ____) - 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.

Answer 34

Option B or Option 2

Question 35

Option ____(or Option 1) - provides a level death benefit equal to the policy’s face value. As a result of this choice, more of the premium is placed in the cash account, making the cash value rise more quickly.

Answer 35

Option A or Option 1

Question 36

Universal Life

Withdrawals and loans may not be made against the cash value account. The policyowner cannot surrender or “cash in” the universal life contract for its current cash value whenever they wish.

Answer 36

False, they can do both of the above

Question 37

True or false - both whole life and universal life allow policy loans from the cash value. Withdrawals reduce the cash value and the death benefit by the amount of the withdrawal.

Answer 37

True

Question 38

Whole and UL

True or false - a withdrawal is federal income tax-free up to the cost basis (premiums paid). Withdrawals above the cost basis are taxed as ordinary income. Unlike a policy loan, withdrawals do not require repayment.

Answer 38

True

Question 39

____ is a permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index such as the Standard and Poor’s 500 Index. These policies typically contain a minimum ____ rate along with the indexed account option. These policies give policyholders the security of fixed universal life insurance with the growth potential of the underlying market index.

Answer 39

Equity-indexed universal life

Guaranteed interest rate

Question 40

____ are permanent insurance policies designed to provide lifetime coverage for the insured and have cash value and a death benefit. The major advantage of these policies 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.

Answer 40

Variable policies

Question 41

The ____ is a fund held by the life insurance company and maintained separately from the insurer’s general assets. This account is established to hold variable annuity and variable life insurance premiums used to purchase funds/investments that the company offers. This account is distinct from the general account established to hold insurer assets and premiums for their fixed insurance products.

Answer 41

Separate account

Question 42

Do separate account investment options (usually a mixture of stocks, bonds, mutual funds, money market instruments, etc.) have a guaranteed rate of return?

Answer 42

No, but the rate of return can be much higher

Question 43

To sell investment products such as variable insurance, agents must register with the ____ and the ____. Exams are required to obtain the necessary licenses.

Answer 43

Security and Exchange Commission (SEC)

Financial Industry Regulatory Association (FINRA)

Question 44

Variable life insurance has a separate account instead of guaranteed cash value. It’s also called variable ____ or ____ variable life.

Answer 44

Variable Whole Life

Fixed-Premium Variable Life

Question 45

Variable universal life policies have two death benefit options like the universal life policy. Death benefit Option A (or Option 1) remains ____ regardless of increases or decreases in the cash value, while death benefit Option B (or Option 2) varies with the ____ cash values.

Answer 45

Level

Fluctuating

Question 46

The death benefit of a variable life policy will increase with positive investment results however in the event of negative performance, it cannot decrease below the original ____ - this is the variable life policy guaranteed minimum death benefit.

Answer 46

Face value

Question 47

Variable life is whole life with a separate account. ____ is universal life with a separate account - this is also called flexible premium variable life.

Answer 47

Variable universal life

Question 48

Variable universal life is a type of permanent life insurance because the death benefit will be paid if the insured dies at any time as long as there is sufficient cash value to pay the costs of insurance in the policy. A VUL policy can lapse if the ____ falls below the amount needed to cover the monthly insurance premiums. This means it does not have a ____.

Answer 48

Cash value

Guaranteed minimum death benefit

Question 49

Variable universal life policies have two death benefit options like the UL policy. Option 1 remains ____ regardless of increases or decreases in the cash value and the Option 2 death benefit ____ with the fluctuating cash value.

Answer 49

Level

Fluctuates

Question 50

What are the three disavantages of variable policies?

Answer 50

1. No guaranteed rate of return
2. Complicated
3. Highly regulated

Question 51

A ____ policy usually covers two or more lives with the death benefit being paid when the first insured dies. For this reason, they are also called ____ policies. Once the death benefit is paid out, the policy ends.

Answer 51

Joint life policy

First-to-die policies

Question 52

A 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 they want to pay less than ____.

Answer 52

The cost of two policies

Question 53

A ____ policy insures two individuals and will pay the death benefit when the last insured dies. Survivorship policy costs ____ than purchasing two individual policies. These policies are also called ____ or last-to-die policies. This policy can provide money to pay estate settlement costs and related expenses upon the death of a second spouse.

Answer 53

Survivorship life policy

Less

Second-to-die

Question 54

____ is coverage written on the life of a child or a minor. These are most often permanent life insurance. In addition to the death benefit, these policies provide the benefit of 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.

Answer 54

Juvenile

Question 55

The death benefit of a juvenile policy may seem too small when the child is grown up. To address this, the face amount of some juvenile policies automatically increases when the child reaches age 18 or 21, with no corresponding increase in premium. These are called ____ policies. In some policies, the face amount of these policies jumps to 5X its original amount.

Answer 55

Jumping juvenile policies