Unit 6 Life Insurance Policy Options

Question 1

All life insurance policies have a death benefit and ____ which are used to determine how the proceeds will be distributed to the beneficiary(s).

Answer 1

Settlement Options

Question 2

Permanent life contracts accumulate cash value and policies issued by participating policies may pay dividends to a policyowner. The policyowner can choose how to use these “____.”

Answer 2

Living benefits

Question 3

____ options give permanent life insurance policyowners alternatives for using cash value if the policyowner wants to change the existing policy.

Answer 3

Nonforfeiture options

Question 4

The life insurance policyowner may designate a specific settlement option to be paid upon their death. If the policyowner does not indicate a specific option, the death benefits are distributed as a ____.

Answer 4

Lump sum

Question 5

Under the ____ settlement option, the insurer retains the death benefit and pays a stated amount of interest on the money. The interest is paid to the beneficiary at regular intervals.

This can be a good choice for those who do not need the life insurance proceeds until a later date, perhaps for a child’s future education expenses.

Answer 5

Interest Income (only)

Question 6

The ____ settlement option will pay both an amount of principal and interest to the beneficiary over a certain period of time. Should the policy’s primary beneficiary die before all of the proceeds are paid out, the remainder of the money will be paid to the contingent beneficiary that was named in the policy. Three factors are used to calculate each payment: (3)

Answer 6

Fixed Period Option

1. Amount of death benefit
2. A guaranteed interest rate; and
3. The length of the chosen period

Question 7

With the ____ settlement option, the proceeds will be paid out in a fixed amount over time until both the principal and interest have been completely paid to the beneficiary. The recipient has the choice to either ____ or ____, and if they choose, they can also even change to a different settlement option altogether. Three factors are used to determine the minimum length of the payment period: (3)

Answer 7

Fixed amount option

increase or decrease the payment amount

1. amount of death benefit
2. a guaranteed interest rate
3. the chosen payment amount

Question 8

Fixed Amount Option

…If interest exceeding the guaranteed rate is earned, the money will last longer than expected. It will increase the ____, not the size of the payment amount. If the beneficiary dies before the money runs out, payments may continue to another person or the remaining funds will be paid into the beneficiary’s estate.

Answer 8

length of the payment period

Question 9

The ____ option is similar to an annuity; the policy beneficiary will be guaranteed to receive an income for the rest their life, regardless of how long that may be. The actual amount of the income depends on the policy death benefit and the life expectancy of the beneficiary; their ____ and ____. The beneficiary can select to receive the entire annuity payout until they die or share it with another individual.

Answer 9

Life Income Option

Age and gender

Question 10

The ____ or straight life option will pay the largest amount to the beneficiary for as long as they live, regardless of how long that may be. Upon their death, no further payments are made.

Answer 10

Life Only Option

Question 11

The ____ option also pays an income for as long as the beneficiary is alive. However, the beneficiary selects a payment period, typically 5, ____, or ____ years can be chosen, and payments are guaranteed to be made for at least that number of years. If the beneficiary dies before the end of the selected period, payments continue to another person for the rest of the payment period.

Answer 11

Life with Period Certain

10 or 20

Question 12

The ____ settlement option pays an income for as long as the beneficiary is alive but also guarantees total payments will be at least the amount of the death benefit. If the beneficiary dies before the total of payments reaches the death benefit, the balance is paid to another person. The payment to the other person is either the remainder of the death benefit or in installments.

Answer 12

Life with Refund Option

Question 13

The ____ settlement option continues paying a benefit for as long as either beneficiary lives. This option is often used when a married couple will be receiving the payments. After the death of the first beneficiary, the same or a reduced payment amount is paid to the survivor. Selecting a reduced payment for the second beneficiary will allow a ____ while both beneficiaries are alive.

Answer 13

Joint-and-Survivor Life Option

Larger payment

Question 14

Permanent life insurance policies have two components, the death benefit or face value and cash value - the savings element funded by a portion of the premium. If the policyowner needs cash but does not want to surrender their policy, they can access the cash value that is available using the ____.

Answer 14

Policy loan provision

Question 15

The main advantages of a policy loan over other loans are that there is no ____, the ____ is usually much lower, the policyholder can pay back the loan according to virtually any repayment schedule; and, in fact, the policyholder is ____. The value of the life insurance policy is reduced while the loan is ____. If death occurs while the loan is outstanding, then the insurance proceeds are reduced by the amount of the loan outstanding plus ____.

Answer 15

Credit check

Interest rate

Not even legally obligated to pay back the loan

Outstanding

Interest

Question 16

Policy loans - when the policy loan and the accumulated interest exceed the ____ of the policy, it lapses.

Some policies have an ____ provision. If the insured fails to pay the policy premium by the end of the grace period, then the insurer will pay the premium with a policy loan and will continue to do so until the cash value of the policy falls below the premium amount, in which case, the policy will lapse.

Answer 16

Cash value

Automatic premium loan provision

Question 17

A loan is a sum you borrow and use your policy as ____. Loans are subject to loan interest and any unpaid loan will be deducted from the death benefit upon the insured person’s death. Loans may be repaid at any time while the policy is in force.

____, or partial surrenders, are allowed in universal life insurance policies but not whole life policies. This will result in a reduction of the cash value and the death benefit amount. This may be subject to a pro-rata surrender charge and/or ____.

True or false: a withdrawal can be repaid

Answer 17

Collateral

Withdrawals

Processing fee

False

Question 18

Life insurance policies that pay policy ____ are referred to as participating policies. Those that do not are referred to as nonparticipating policies. Policy ____ are a refund of a portion of the premium. These are based on the difference between the gross premium charges and the actual experience of the insurer. These cannot be guaranteed. Because these are a return of premium, they are not ____.

Answer 18

Dividends

Dividends

Taxable

Question 19

Dividend options: CARPPO

Answer 19

Cash
Accumulation of Interest
Reduced Premium
Paid Up Additions
Paid Up Insurance
One-Year Term Insurance

Question 20

Accumulation of interest: the dividend can be left with the insurer to earn interest in a savings account. The dividend is not taxable, however ____.

Answer 20

The interest credited to the account is taxable

Question 21

Reduced premium: the dividend can be applied and reduce the ____ premium due.

Answer 21

Next

Question 22

Paid up additions: the paid-up additions option uses each annual dividend to purchase ____. The result of a paid-up addition is a larger amount of life insurance. In turn, each paid-up addition builds its own cash value and also earns dividends. The cash value build-up is ____ under the tax rules for life insurance cash value.

Answer 22

An additional amount of life insurance

Tax-deferred

Question 23

Paid up insurance: dividends plus interest on dividends are applied to the annual premium and are enough to pay the ____. In a high interest rate environment, this may allow the policyowner to not have to pay premiums out-of-pocket. Since dividends are not guaranteed, a producer cannot tell a policyowner the policy is “____.”

Answer 23

Entire annual premium

Paid-up

Question 24

One-year term insurance: The dividend may be used to buy one-year insurance equal to the policy’s ____.

Answer 24

Cash value

Question 25

The ____ clause in an insurance policy allows for the insured to receive all or a portion of the benefits or a partial refund on the premiums paid if the insured misses premium payments, causing the policy to lapse.

Answer 25

Nonforfeiture clause

Question 26

There are three nonforfeiture options:

1. ____ - the policy is canceled and the policyowner receives the current cash value
2. ____ - the policyowner obtains a reduced amount of paid-up whole life insurance based on the insured’s attained age and the amount of guaranteed cash value available to buy a single premium policy. The policy will pay the reduced death benefit whenever the insured dies.
3. ____ - the net cash surrender value is used to buy a term insurance policy with a death benefit the same as the original whole life policy and is based on the insured’s attained age. The policy will terminate after a stated number of years found in the non-forfeiture table. If the policyowner fails to select one of the options when premiums cease, this option generally goes into effect automatically.

Answer 26

1. Cash surrender
2. Reduced paid-up insurance
3. Extended term insurance

Question 27

The annuity options for the life income option are: (4)

Answer 27

1. Life only option
2. Life with period certain
3. Life with refund
4. Joint and survivor life