Chapter 04: Life Insurance Policies
Describe an endowment.
Endowments have heavy cash savings, intended for future uses such as retirement or college funding.
____________ pay a living benefit at end of a set timeframe or a death benefit should death occur during that timeframe.
Endowments pay a living benefit at end of a set timeframe or a death benefit should death occur during that timeframe.
What life insurance policy uses dividends to purchase one-year term insurance to supplement a reducing death benefit?
Enhance ordinary or economatic life
What WL product has a guaranteed minimum return and opportunity for CV growth based on the performance of a stock index?
Equity-Index Whole Life
True or False: Term insurance builds cash value.
FALSE
True or False: Upon death, the cash value is payable in addition to the whole life death benefit.
FALSE
True or False: A 20-year family maintenance income policy pays for 5 years if insured dies 15 years after policy issue.
False. Regardless of the date of death, the policy will pay for 20 years since it uses level term insurance.
For how long will the premium on a 20-year level term policy remain level?
For 20 years
What are the advantages of term insurance?
It is initially less expensive than whole life, it may offset debts, and ensures insurability.
Does a term life policy have cash value?
No. Term life is pure insurance.
What are the two UL death benefit options?
Options A and B
As a client ages, what happens to her premium payments in a variable life policy?
Payments in a variable life policy remain fixed (level).
Identify the acronym: VL
Variable Life
What policy combines variable life with flexible premiums?
Variable Universal Life
What is an unbundled premium?
When a UL life policyowner receives an annual statement breaking down all of the policy expenses and charges
What is another name for interest-sensitive whole life insurance?
Current assumption whole life
What type of insurance policy is most often used as a mortgage redemption policy?
Decreasing term insurance
Decreasing term insurance has a ____________ death benefit.
Decreasing term insurance has a decreasing death benefit.
Decreasing term insurance has a _______ premium and a ____________ death benefit.
Decreasing term insurance has a level premium and a decreasing death benefit.
Which life insurance policy has a cash value that is invested in securities and has the potential for greater growth?
A variable life policy
What is single-pay whole life?
A whole life policy with a one-time premium and coverage provided until age 100 or death
What is 10-pay whole life?
A whole life policy with premiums paid for 10 years and coverage provided until age 100 or death
Who is the owner of a juvenile insurance policy?
The parent or legal guardian
Describe a Family Policy.
The policy provides whole life benefits on the breadwinner, with level term insurance on spouse and dependents.
The premium on a universal life policy may be __________.
The premium on a universal life policy may be flexible.
The premium on an annually renewable level term policy increases ___________.
The premium on an annually renewable level term policy increases each year.
Which whole life payment option would have the highest annual premium - 10, 20, or 30 pay?
10 Pay. The fewer the payments, the greater each payment must be for the policy to mature.
A 10-year level term policy provides coverage for ____ years.
A 10-year level term policy provides coverage for 10 years.
A 20-year endowment will mature at the end of ____ years.
A 20-year endowment will mature at the end of 20 years.
A 5-year level term policy will renew every 5 years subject to ____________________________.
A 5-year level term policy will renew every 5 years subject to maximum age limitations.
What policy combines whole life insurance and a decreasing term rider providing coverage on the breadwinner?
A Family Income policy
Name the policy that combines whole life insurance and a level term rider providing coverage on the breadwinner.
A Family Maintenance plan
Which policy pays a death benefit and concludes or ends on the death of any insured party listed on the contract?
A Joint Life policy
What nontraditional life insurance policy has a flexible death benefit and a rate of return that is interest-sensitive?
A universal life policy
A VL contract has a guaranteed minimum ________________.
A VL contract has a guaranteed minimum death benefit.
A VL policy has a _____________ minimum death benefit, but the cash value is ________________.
A VL policy has a guaranteed minimum death benefit, but the cash value is not guaranteed.
A VL policy has a _______ premium and a cash value that is ________________.
A VL policy has a level premium and a cash value that is not guaranteed.
A WL death benefit and premium both remain _______ for the life of the policy.
A WL death benefit and premium both remain level for the life of the policy.
A jumping juvenile policy has a death benefit that increases to ___ times its stated value with no premium increase.
A jumping juvenile policy has a death benefit that increases to 5 times its stated value with no premium increase.
A jumping juvenile policy may also be called ___________________________.
A jumping juvenile policy may also be called juvenile life insurance.
A level term policy has a _______ death benefit and premiums will increase at the ______________ period.
A level term policy has a level death benefit and premiums will increase at the next renewal period.
What two licenses are required to sell variable products?
A life insurance and FINRA license
Describe a whole life policy.
A policy providing death benefit protection for life or to age 100, cash value, level death benefit, and level premium
Describe an Adjustable Life policy.
A policy that offers the ability to change the death benefit based on a person's needs
What is original age or retroactive conversion?
A type of conversion that uses the age of the original policy purchase.
What is straight life or continuous premium life?
Additional ways to describe ordinary whole life
What happens at age 100?
Age 100 is the age at which many insurers calculate the policy's cash value as equal to its death benefit.
Which life policy has cash value gains that mirror or are tied to a stock market index, such as the S&P 500?
An Indexed Life Insurance policy
What life insurance policy pays a benefit at the earlier of death or the end of a specified period?
An endowment
What is a lump-sum premium?
Another name for single-pay whole life
At what age does a whole life policy mature?
At age 100
At what age is a whole life policy's cash value assumed to equal its death benefit?
At age 100
Why is whole life insurance more expensive than term insurance?
Because of the building up of cash value
Cash value generally begins to build within a whole life policy sometime in the ______ year.
Cash value generally begins to build within a whole life policy sometime in the third year.
Cash value increases with every _________ payment after the _______ year.
Cash value increases with every premium payment after the third year.
What is attained or actual age conversion?
Conversion where new policy premiums are based on a person's current age
Name the ability to change from a term policy to a whole life policy without providing evidence of insurability?
Convertibility
How long will coverage be provided under a 10-pay whole life product?
Coverage will continue until death or age 100
______ Life Insurance is purchased to protect a borrower if a lender dies and cannot repay a loan.
Credit Life Insurance is purchased to protect a borrower if a lender dies and cannot repay a loan.
What type of policy protects the bank in the event a borrower dies?
Credit life
Generally, credit insurance uses ______________term.
Generally, credit insurance uses decreasing term.
When converting policies, what must remain constant?
Generally, the death benefit must remain constant.
What whole life product has lower premiums that increase each year for the first 3 to 5 years of the policy?
Graded premium whole life
In a group credit policy, the bank is both the _____________ and the _____________.
In a group credit policy, the bank is both the policyowner and the beneficiary.
What is another name for a "First to Die" policy?
Joint Life
What are loan option and cash surrender?
Methods available to the policyowner to obtain or access the policy's cash value
What whole life product has lower premiums for the first 3 to 5 years of the contract, with a one-time premium increase?
Modified premium whole life
Most credit life policies utilize ____________ term insurance and coverage may not exceed the ___________________.
Most credit life policies utilize decreasing term insurance and coverage may not exceed the amount of the loan.
What age is used to determine level term policy renewals?
Premiums are based on a person's actual age, and renewal premiums will increase.
Premiums on a VL policy are _______.
Premiums on a VL policy are fixed.
Which WL payment option would have the lowest overall premium over the policy life-- 10-pay, 20-pay, or single-pay?
Single-pay
The cash value of a whole life policy grows at a minimum interest rate of ___% to ___%.
The cash value of a whole life policy grows at a minimum interest rate of 3% to 4%.
Straight life has a ________________ and _______ premium.
Straight life has a predetermined and level premium.
What is another name for a Second or Last to Die policy?
Survivorship Life
Which policy pays a death benefit, but only after the last remaining policy insured dies?
Survivorship life
True or False: A universal life policy allows for partial withdrawals of the cash value.
TRUE
True or False: A whole life policy never requires renewal.
TRUE
True or False: Regardless of cash value performance, VL policies have a guaranteed minimum death benefit.
TRUE
True or False: Term insurance is temporary, but whole life is permanent.
TRUE
What are the disadvantages of term insurance?
Temporary protection, no cash value, premiums increase with each renewal (level term)
Which type of insurance provides temporary protection?
Term insurance
Term insurance is described as ______ protection.
Term insurance is described as pure protection.
What is the renewability feature?
The ability to renew a term policy without having to provide evidence of insurability
The cash value and potential death benefit of a VL policy vary _______.
The cash value and potential death benefit of a VL policy vary daily.
What is policy equity?
The cash value in a whole life policy
The cash value of a single premium whole life policy will equal the death benefit at age _____.
The cash value of a single premium whole life policy will equal the death benefit at age 100.
The death benefit and premium in a whole life contract are _______ throughout the owner's lifetime.
The death benefit and premium in a whole life contract are level throughout the owner's lifetime.
The death benefit of a term policy is payable only if death occurs during the _______________ period.
The death benefit of a term policy is payable only if death occurs during the term coverage period.
What is predetermined in a whole life contract?
The death benefit, cash values, premiums, nonforfeiture and surrender values
What is cash value?
The equity that grows inside a permanent policy
What is the target premium?
The initial premium established to fund a UL policy
Who assumes the investment risk in a traditional insurance contract?
The insurance company
What does term insurance provide?
The maximum amount of protection with the lowest initial outlay of premiums
True or False: A 20-year family income policy will pay for 7 years if insured dies 13 years after policy issue.
True. The policy will pay the 7 years of remaining benefit as it uses decreasing term insurance.
Describe an Equity Index Life policy.
Usually a UL policy with cash value tied to an equity index account; offers a guaranteed minimum rate of return
Whole life is a combination of term protection and ____________.
Whole life is a combination of term protection and cash value.
Whole life premium rates are based on a rate per $_______ of coverage.
Whole life premium rates are based on a rate per $1,000 of coverage.
Whole life premiums remain _______ for the life of the policy.
Whole life premiums remain level for the life of the policy.
Can the death benefit of a variable life policy increase over time?
Yes, assuming the underlying investments outperform expectations and increase in value.
Does a variable life policy have a guaranteed minimum death benefit?
Yes. Regardless of account performance, the minimum DB is paid (typically, the initial DB listed on the policy's face).