Life and Health Chapter 7 (Policy Options)

Dividend

-Participating vs. Nonparticipating The source of funds from which life insurance policy dividends are paid is the same as the three factors used in premium computations, which are Mortality, Interest, and Expense:

C) The insurer will issue a paid-up term insurance policy with the same face value as the policy with a term as long as the cash value will purchase.

Ann quits paying premiums on her whole life policy that has been in effect for 17 years. She does not select a nonforfeiture option. What happens to the cash value in her policy?

B) the fixed-amount option

Carmen has selected to receive $10,000 per month until the principal and interest on her husband's life insurance policy have been paid out. Carmen has selected A) the life-income option B) the fixed-amount option C) the interest-only option D) the fixed-period option

the life-income option

Emily has chosen to receive the payout from her husband's life insurance policy so that she will receive an income for the next 15 years. At the end of that time, the entire proceeds from the policy will have been paid out. Emily has selected

the fixed-amount option

Heath has chosen to receive the payout from his wife's life insurance policy in such a way that he will have an income for the remainder of his life, regardless of how long he lives. Heath has selected

Interest only

If Jim dies and and proceeds from his life insurance policy are paid to his children in interest installments, the settlement option Jim has chosen is: A) Fixed amount option B) Life income option C) Fixed period option D) Interest only

Refund Life income options

May take the form of a cash refund annuity or an installment refund annuity.

Nonforfeiture Options

Protect a policyowner from losing her entire investment when a life insurance policy is cancelled, surrendered, or when premium payments stop. (Nonforfeiture options are available only for life policies that accumulate cash value.) There are three nonforfeiture options: -Cash surrender value -Extended term insurance -Reduced paid-up insurance

Withdrawal Provisions

The withdrawal provision is used in connection with settlement options. Under this provision, the proceeds of a policy are held by the insurance company and earn interest. The insured has the right to withdraw the funds left on deposit with the insurer at any time. The beneficiary may withdraw only a limited amount each year.

Paid-Up Option

This option actually allows the policyowner to pay up the policy early. For example, the insured has a 20-pay life policy. By using the dividends over the life of the policy, it may be paid up after 16 or 17 years instead of the full 20 years.

Fixed Period Option

This settlement option involves liquidating the proceeds and interest over a period of years, without reference to a life contingency (paid even if the beneficiary dies). It provides for the payment of policy proceeds in equal installments over a definite period of months or years.

a refund annuity option

Thomas has chosen to receive the settlement from his wife's $100,000 life insurance policy according to the life income option. Under the option he chooses, he will receive an income for his life and his daughter will receive payments if he dies before receiving $100,000 in income. Thomas has selected

The policy will lapse, and Tina will be able to select a nonforfeiture option to receive value for the cash value built up in the policy.

Tina has a whole life insurance policy on her life that has been in effect for 15 years. Tina and her husband review their insurance coverage and decide that this policy, which was purchased before their marriage, is no longer necessary for their financial future. If Tina decides to stop paying the premiums, what will happen?

Fixed Amount Option

Under this settlement option, the amount of income is the primary concern rather than a period of time (e.g., fixed-period) during which policy proceeds and interest earned are to be liquidated. Under this option, a fixed amount of income is designated to be paid at specific intervals (e.g., $2,000 per month). This amount is continued until the proceeds and any interest earned are exhausted.

Interest Only

Under this settlement option, the policy owner may leave policy proceeds with the insurer to earn interest. The proceeds are left with the insurer, and the interest is paid to the beneficiary on an installment basis. This settlement option

the joint and survivorship life income option

Walter is the beneficiary of his mother's life insurance policy. He wants to make sure the proceeds will last not only as long as he lives but also as long as his wife is alive. Walter should select

Morbidity

Which of the following factors does NOT affect the payment of dividends? -Assumed Interest -Mortality -Morbidity -Operating expenses

joint and survivorship life income option

occurs when, if at the death of the first party the second party is still living, installments are continued during the latter's lifetime.

Life income with period certain

occurs where installments are payable as long as the primary beneficiary lives, but should this beneficiary die before a predetermined number of years, the insurer will continue the installment to a second beneficiary until the end of the certain period.

Pure life income option

provides installment payments for as long as the primary beneficiary lives, with no return (refund) of principal guaranteed.