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Private Wealth Management > Unit 6. Insurance Planning & Risk Management > Flashcards

Unit 6. Insurance Planning & Risk Management Flashcards

1
Q

______________________ normally means identifying risk exposures and consideration of alternative methods for dealing with risk.

A

Risk management

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2
Q

Business firms commonly use this approach in managing their exposures to risk.

A

Risk management

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3
Q

It also can be used by individuals in managing their personal exposures, in which case, it sometimes is called ________________________.

A

personal risk management

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4
Q

Basic Risk Management Techniques (4)

A
  1. Avoidance of risk
  2. Loss prevention and reduction (loss control)
  3. Retention (planned assumption) of risk
  4. Transfer of risk
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5
Q

Basic Insurance Principles (3)

A
  1. Pooling Exposures
  2. Large-Loss Principle
  3. Use of Deductibles and Other Cost-Sharing Devices
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6
Q

Considerations in choosing an Insurer and an Agent or Broker (4)

A
  1. Financial Soundness
  2. Extent and quality of service
  3. Types of coverage
  4. Price
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7
Q

Pertinent factors to consider in choosing an Agent or Broker (7) - Familiarize only

A
  1. What is the experience of the agent or broker in terms of years and extent of practice?
  2. Are they noted specialists in any certain line?
  3. Do they do business mostly with individual households, with business firms, or on a general across-the-board basis?
  4. Do they engage in survey selling or estate analysis?
  5. Do they present a unified program of coverage based on a careful analysis of exposures or needs?
  6. Do they represent a sound company or companies?
  7. Do they hold professional designations in insurance?
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8
Q

Sources of Life Insurance Protection (3)

A
  1. Individually Purchased Life Insurance
  2. Employer-Sponsored Life Insurance
  3. Government-sponsored coverages
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9
Q

Employer-Sponsored Life Insurance (3)

A
  1. Group life insurance
  2. Wholesale Life Insurance
  3. Group Universal Life Insurance
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10
Q

It is generally available with part or all of the cost paid by the employer and generally is issued without individual evidence of insurability.

A

Group life insurance

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11
Q

This is a hybrid between individual and group life insurance and normally is used for groups too small to qualify for group coverage.

An individual policy is issued to each covered person in the group, and there may be some individual underwriting.

A

Wholesale Life Insurance

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12
Q

This is a group, employee-pay-all version of individual UL or individual VUL insurance.

A

Group Universal Life Insurance

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13
Q

Main Types of Individual Life Insurance Contracts (2)

A
  1. Term Insurance
  2. Cash-value or permanent life insurance
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14
Q

Cash-value or permanent life insurance policy types (2) [with 2 subtypes each]

A
  1. Guaranteed-dollar policies
    i. Traditional (fixed-premium) cash-value life insurance
    ii. Flexible-premium policies (universal life [UL] insurance)
  2. Variable policies
    i. Variable life insurance (VL)
    ii. Variable universal life insurance (VUL)
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15
Q

Term Insurance (Facts)

A
  • Provides protection for a specified period
  • If death occurs during the period, the face amount of the policy is paid, with nothing being paid in the event that the insured survives the period.
  • Generally, have no cash or loan values
  • Lower premiums than comparable whole life policies
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16
Q

This type of insurance provides protection for a specified period

A

Term Insurance

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17
Q

What type of insurance - If death occurs during the period, the face amount of the policy is paid, with nothing being paid in the event that the insured survives the period.

A

Term Insurance

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18
Q

Generally, this type of insurance have no cash or loan values

A

Term Insurance

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19
Q

This type of insurance has lower premiums than comparable whole life policies.

A

Term Insurance

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20
Q

Types of Term Insurance (4)

A
  1. Annually Renewable Term (ART)
  2. Level Term
  3. Reentry Term
  4. Decreasing Term
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21
Q

For this term product, which is also called yearly renewable term (YRT), the premium charged per $1,000 of insurance increases for each successive year as the insured’s attained age increases.

A

Annually Renewable Term (ART)

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22
Q

Another term for Annually Renewable Term (ART)

A

yearly renewable term (YRT)

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23
Q

Here, the premium remains fixed, or level, for a stated period of coverage, such as 10, 15, or even 20 or 30 years, after which the premium increases to that of an insured at that attained age.

A

Level Term

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24
Q

This type of policy provides that after a certain number of years of coverage, often 10 years, insureds who pass a new physical examination are permitted to continue their term coverage at a given set of increased term rates.

A

Reentry Term

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25
Q

This form provides a declining amount of insurance over the period of the contract. A good example is mortgage protection insurance designed to cover for an amount that will pay off an amortizing home mortgage.

A

Decreasing Term

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26
Q

Many term policies are ____________ for successive periods at the policyowner’s option without having to show any evidence of insurability at renewal.

A

renewable

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27
Q

(T or F) The age to which such policies may be renewed usually is limited.

A

True

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28
Q

(T or F) The age to which such policies may be renewed usually is unlimited.

A

False

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29
Q

Term policies also generally are ____________.

A

convertible

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30
Q

This means the policyowner has the right during the conversion period to __________________________________ of a like or lesser amount of insurance without having to show any evidence of insurability at the time of conversion.

A

“change the term policy into a whole life or other permanent policy”

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31
Q

Term Premium Structures (2)

A
  1. Guaranteed rate structure
  2. Indeterminate-premium policies
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32
Q

_______________________ - the premium rates for each age are set when the policy is issued and cannot be increased in the future. Naturally, as the insured grows older, the premium rate applied will increase; however, the whole rate schedule by age is guaranteed once the policy is issued.

A

Guaranteed rate structure

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33
Q

____________________ - have a lower current rate structure, which can be increased or decreased by the insurance company according to its actuarial experience, but cannot be increased beyond a higher maximum guaranteed level of rates

A

Indeterminate-premium policies

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34
Q

Insurance companies often offer life insurance contracts that are combinations of term insurance and whole life insurance. These policies are sometimes called ___________________________.

A

hybrids or blended policies

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35
Q

Intended to lower the initial premiums for the policyowner while still providing some cash value in the policy.

A

Term with Whole Life Insurance

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36
Q

The term element in blended policies usually will gradually decline over the policy’s duration.

Furthermore, some policies that nominally are whole life policies are structured so that the cash value develops so slowly that they are essentially term policies.

These are sometimes called ______________.

A

term-like policies

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37
Q

This broad classification embraces those policies that are designed to develop a cash value inside the life insurance contract.

A

Cash-value or permanent life insurance

38
Q

Traditionally, this cash value developed because of the ______________ approach to paying for this kind of life insurance, in contrast to the increasing premiums with attained age for term insurance.

A

level-premium

39
Q

Traditionally, this cash value developed because of the level-premium approach to paying for this kind of life insurance, in contrast to the ________________ with attained age for term insurance.

A

increasing premiums

40
Q

Traditionally, this cash value developed because of the level-premium approach to paying for this kind of life insurance, in contrast to the increasing premiums with attained age for _____________.

A

term insurance

41
Q

Traditionally, this _____________ developed because of the level-premium approach to paying for this kind of life insurance, in contrast to the increasing premiums with attained age for term insurance.

A

cash value

42
Q

Periodic growth in the cash values of life insurance contracts is often referred to as the _________________ in permanent life insurance policies.

A

inside buildup

43
Q

Periodic growth in the cash values of life insurance contracts is often referred to as the inside buildup in _______________________ policies.

A

permanent life insurance

44
Q

Cash values of these policies are invested by the insurance company and thus constitute part of its overall assets or general portfolio, these policies are sometimes called _____________________.

A

portfolio products

45
Q

Cash values of these policies are invested by the insurance company and thus constitute part of its overall assets or general portfolio, these policies are sometimes called portfolio products.

A

Guaranteed Dollar Cash-Value Policies

46
Q

These policies have a fixed premium that is determined primarily by the insured’s age at issue, gender, and whether the insured is a smoker or a non-smoker.

A

Traditional (fixed-premium) cash-value life insurance

47
Q

These policies can be Participating or Non-participating.

A

Traditional (fixed-premium) cash-value life insurance

48
Q

________________ - pay policy dividends based on the actuarial experience of the insurer

A

Participating

49
Q

________________ - pay no policy dividends

A

Non-participating

50
Q

Gross premiums for these policies are set when the policy is issued, and their guaranteed cash values increase according to a schedule contained in the policy.

A

Traditional (fixed-premium) cash-value life insurance

51
Q

Various kinds of traditional, fixed-premium life
insurance contracts (7)

A
  1. Whole Life Insurance
  2. Endowment Insurance
  3. Modified Life Insurance
  4. Graded-Premium Whole Life
  5. Family Income Riders or Policies
  6. Family Maintenance Riders or Policies
  7. Family Policy
52
Q

Types of Whole Life Insurance (3)

A
  1. Single-premium whole life (SPWL) policy
  2. Ordinary life or straight life insurance
  3. Limited-payment life insurance
53
Q

This policy furnishes protection for the entire life.

A

Whole Life Insurance

54
Q

In this policy, premium is paid in one lump sum at the inception of the policy.

A

Single-premium whole life (SPWL) policy

55
Q

In this policy, premiums are paid throughout the lifetime of the insured

A

Ordinary life or straight life insurance

56
Q

In this policy, the insured is to pay premiums over a specified period.

A

Limited-payment life insurance

57
Q

This policy offers insurance protection against death for a specified period, such as 10, 20, or 30 years, to age 65, and so forth; then, if the insured lives to the end of the period, the contract pays the face amount.

A

Endowment Insurance

58
Q

This policy has smaller premiums in the first few years.

A

Modified Life Insurance

59
Q

These contracts are somewhat similar in concept to modified life, except that the initially lower premiums increase annually for a longer period (such as from 5 to 40 years) until they level off.

A

Graded-Premium Whole Life

60
Q

Under this type of contract, if the insured dies during a specified family income period, income payments are paid to the beneficiary until the end of the family income period, at which time the face amount of insurance is paid.

A

Family Income Riders or Policies

61
Q

This is similar to the family income policy or rider, except that the income period is for a stated number of years after the insured’s death.

A

Family Maintenance Riders or Policies

62
Q

This policy includes coverage on all family members in one contract.

A

Family Policy

63
Q

The policy cash value is set up as a cash-value fund (or accumulation fund) to which is credited any net premium payments by the policyowner and a current interest rate, and from which is taken the cost of term insurance (as a mortality charge) at the insured’s attained age and any annual expense charges.

A

Flexible-premium policies (universal life [UL] insurance)

64
Q

The policy cash value is set up as a cash-value fund (or ___________________) to which is credited any net premium payments by the policyowner and a current interest rate, and from which is taken the cost of term insurance (as a mortality charge) at the insured’s attained age and any annual expense charges.

A

accumulation fund

65
Q

The policy cash value is set up as a cash-value fund (or accumulation fund) to which is credited any net premium payments by the policyowner and a current interest rate, and from which is taken the cost of term insurance (as a ________________) at the insured’s attained age and any annual expense charges.

A

mortality charge

66
Q

This separation of the cash value from the death benefit has been referred to as _____________ the traditional life insurance product, or as an open architectural product.

A

unbundling

67
Q

This separation of the cash value from the death benefit has been referred to as unbundling the traditional life insurance product, or as an _________________________.

A

open architectural product

68
Q

______________ are at the discretion of the policyowner, except that there must be a minimum initial premium to start coverage, and then there must be at least enough cash value in the policy each month to cover the mortality and any expense charges so the policy will not lapse.

A

Premiums

69
Q

There are two general types of _______________ systems under UL: option A and option B.

A

death benefit

70
Q

Two general types of death benefit systems under UL

A
  1. Option A
  2. Option B
71
Q

The cash value under UL is credited with an ____________ (usually monthly).

A

interest rate

72
Q

The cash value under UL is credited with an interest rate (usually ________).

A

monthly

73
Q

A __________________ is the mortality cost that is deducted each month from the cash value based on the insured’s attained age and the policy’s current net amount at risk.

A

cost of insurance (COI) charge

74
Q

A cost of insurance (COI) charge is the ________________ that is deducted each month from the cash value based on the insured’s attained age and the policy’s current net amount at risk.

A

mortality cost

75
Q

Insurers also may levy _______________ against premiums or cash values. Can be front-end loads or back-end loads.

A

expense charges

76
Q

Insurers also may levy expense charges against premiums or cash values. Can be _____________ or _________________.

A

front-end loads; back-end loads

77
Q

Since UL policies are unbundled, they normally allow the policyowner to make __________________ (partial surrenders) from the cash value while the policy is in force.

A

cash withdrawals

78
Q

Since UL policies are unbundled, they normally allow the policyowner to make cash withdrawals (_________________) from the cash value while the policy is in force.

A

partial surrenders

79
Q

__________________ allow the policyowner to allocate his or her premium payments to or among one or more investment subaccounts (mutual funds) offered by the insurance company and also to shift cash values among the subaccounts.

A

Variable policies

80
Q

Variable policies allow the policyowner to allocate his or her premium payments to or among one or more _______________ (mutual funds) offered by the insurance company and also to shift cash values among the subaccounts.

A

investment subaccounts

81
Q

Variable policies allow the policyowner to allocate his or her premium payments to or among one or more investment subaccounts (______________) offered by the insurance company and also to shift cash values among the subaccounts.

A

mutual funds

82
Q

The policyowner can have considerable flexibility when changing the asset allocation under a variable life (or _______________) policy.

A

variable annuity

83
Q

This is a fixed-premium contract that is similar in some ways to traditional fixed-premium (non-variable) whole life insurance.

A

VL Insurance

84
Q

This is a fixed-premium contract that is similar in some ways to traditional fixed-premium (____________) whole life insurance.

A

non-variable

84
Q

(T or F) In VL, however, the cash values and death benefits vary with the investment experience of the subaccounts to which premiums are allocated.

A

True

85
Q

(T or F) In VL, however, the cash values and death benefits do not vary with the investment experience of the subaccounts to which premiums are allocated.

A

False

86
Q

(T or F) VL policies have a guaranteed minimum death benefit.

A

True

87
Q

(T or F) VL policies do not have a guaranteed minimum death benefit.

A

False

88
Q

This policy is universal life combined with the variable life concept. The policyowner can decide into which
subaccount or accounts his or her flexible premiums will go.

A

VUL Insurance

89
Q

(T or F) In VUL Insurance, the cash value then will be determined by the investment experience of the subaccount or accounts chosen.

A

True

90
Q

(T or F) In VUL Insurance, the cash value then will be determined by the age of the subaccount or accounts chosen.

A
91
Q

In VUL Insurance, the death benefit will depend on whether the policyowner selects UL option A (________________) or option B (______________________________).

A

level death benefit; face amount plus the cash value at death

Private Wealth Management (3 decks)

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