ExamFX Chapters 4-8 Notes
Whole life policies endow when the insured reaches what age?
100
How many premium rates does Indeterminate Premium Whole Life have ?
2 Guaranteed Level Premium Nonguaranteed Lower Premium
What are some common versions of limited-pay life?
20-pay life; whereby coverage is completely paid for in 20 years Life paid-up at 65 (LP-65); whereby the coverage is completely paid up for by the insured's age 65
How many basic types of term coverage are available?
3
How many special coverages are there?
6
When does the Return of Premium rider expire?
60 years old
What do traditional term policies offer?
A low-cost, simple death benefit for a specified term but have no investment component or cash value. When the term is over, the policy expired and the insured is without coverage.
Cash Value
A policy's savings element or living benefit
Flexible Premium Policies
Allow the policyowner to pay more or less than the planned premium
Renewable Provision
Allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability
Juvenile Life Insurance
Any life insurance written on the life of a minor
Payor Benefit Rider
Is primarily used with juvenile policies (any life insurance written on the life of a minor)
Term Insurance
Is temporary protection because it only provides coverage for a specific period of time
What is the main feature of Indexed Whole Life insurance?
Is that the cash value is dependent upon the performance of the equity index, such as S&P 500 although there is guaranteed minimum interest rate
Level Term Insurance
Is the most common type of temporary protection purchased. The word level refers to the death benefit that does not change throughout the life of the policy.
Modified Life
Is the type of whole life policy that charges a lower premium (similar to term rates) in the first few policy year, usually the first 3 to 5 years and then a higher level premium for the remainder of the insured's life
Is the decreasing term policy renewable?
It is usually not renewable since the death benefit is $0 at the end of the policy term
Return of Premium
It provides that at death prior to a given age, not only is the original face amount payable, but an amount equal to all the premium previously paid is also payable to the beneficiary
First to die
Joint Life
What are the basic types of term coverage available?
Level Increasing Decreasing
What are the key characteristics of whole life insurance?
Level Premium Death Benefit Cash Value Living Benefits
Which policy has a shorter premium-paying period than straight life insurance?
Limited Payment
What are the special coverages?
Mortgage Redemption Family Protection, Family Policy, Family Rider Policies linked to indexes Juvenile policies Return of Premium Joint Life and Survivorship policies
What is cash value also know called?
Nonforfeiture value, does not usually accumulate until the third policy year and it grows tax deferred
What can function like the waiver of premium rider?
Payor Benefit Rider
Lapse
Policy termination due to nonpayment of premium
Level Premium Term
Provides a level death benefit and a level premium during the policy term
Whole Life Insurance
Provides lifetime protection, and includes a saving element (or cash value)
Convertible Provision
Provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability
The premium for the new term policy will be based on the insured current age
Renewable Provision
What special features do most term insurance policies have?
Renewable, Convertible, or Renewable and Convertible (R&C)
The policy is completely paid-up after one premium and generates immediate cash
Single Premium Whole Life (SPWL)
What is also referred to as ordinary life or continuous premium whole life?
Straight Life
What are the basic forms of whole life insurance?
Straight Whole Life Limited-Pay Whole Life Single Premium Whole Life
Second to die (last survivor)
Survivorship Life
What is the difference between Joint and Survivorship Life?
Survivorship life pays the last death rather than upon the first death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life, which pay upon the first death
Which categories do life insurance policies fall under?
Temporary and Permanent protection
What is also known as pure life insurance?
Term Insurance
Face Amount
The amount of benefit stated in the life insurance policy
Death Benefit
The death benefit is guaranteed and also remains level for life
Annually Renewable Term (ART)
The death benefit remains level and the policy may be guaranteed to be renewable each year without proof of insurability
What do term policies provide?
The greatest amount of coverage for the lowest premium as compared to any other form of protection. (Also known as Pure Death Protection)
Attained Age
The insured's age at the time the policy is renewed or replaced
A $100,000 10-year level term policy will provide a $100,000 death benefit if the insured dies any time during the 10-year period. What will the premium be based on once the term policy renews at the end of the 10-year period?
The insured's attained age at the time of renewal
Living Benefits
The policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered.
Straight Whole Life (Continuous Premium)
The policyowner pays the premium from the time the policy is issued until the insured's death or age 100 (whichever occurs first)
Level Premium
The premium for whole life policies is based on the issue age; therefore, it remains the same throughout the life of the policy
What happens to the ART premium as it renews every year?
The premium increases annually according to the attained age, as the probability of death increases
What does an ROP policy offer?
The pure protection of a term policy, but if the insured remains healthy and is still alive once the term limit expires, the insurance company guarantees a return of premium
Indeterminate Level Premium
This premium term policy contains a provision that provides a current premium scale (non guaranteed) and a maximum premium scale (guaranteed), beyond which premiums cannot be raised
What is another reason why the Payor Benefit Rider will be used?
This rider can be used when the owner and the insured are two different individuals
How are ROP policies structured?
To consider the low risk factor of a term policy but at a significant increase in premium cost, sometimes as much as 25% to 50% more
Endow
To have the cash value of a whole life policy reach the contractual face amount
Why is Decreasing Term coverage the most common purchase?
To insure payment of a mortgage or other debts if the insured dies prematurely
When is the Survivorship Life used?
To offset the liability of the estate tax upon the death of the last insured
Adjustable Life
To provide the policyowner with the best of both worlds (term and permanent coverage)
(Family Policy) The spouse has the opportunity to convert his or her (breadwinner) term coverage to permanent up until age 65
True
A decreasing term policy is usually convertible
True
Cash value builds up faster for the limited-pay policies.
True
Regardless, the premium is level throughout the term of the policy; only the amount of the death benefit may fluctuate, depending on the type of term insurance.
True
Straight life has the lowest annual premium
True
Term insurance provides the greatest amount of coverage for the lowest premium.
True
Graded-Premium Whole Life
Typically starts with a premium that is approximately 50% or lower than the premium of a straight life policy
What does family policy provide?
Whole life insurance on the breadwinner of the family and convertible term insurance on the other family members
Deferred
Withheld or postponed until a specified time or event in the future
Can children convert their term coverage?
Yes, children can convert their term coverage to permanent coverage when they turn the age of 21
Term Insurance provides what is known as pure death protection:
- If the insured dies during this term, the policy pays the death benefit to the beneficiary - If the policy is canceled or expires prior to the insured's death, nothing is payable at the end of the term - There is no cash value or other living benefits
Nonforfeiture Values
Benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrounded or lapses
Accumulate
Build up
Indexed whole life policies
Classified depending on whether the policyowner or the insurer assumes the inflation risk. If the policyowner assumes the risk, the policy premiums increase with the increases in the face amount. If insurer assumed the risk, the premium remains level
Family Protection/Family Policy
Combines whole life with term insurance to cover family members in a single policy, providing coverage on every member of a family
Variable Life Insurance Products
Contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance
Fixed Life Insurance Products
Contracts that offer guaranteed minimum or fixed benefits
The premium will be based on the insured's attained age at the time of conversion
Convertible Provision
Limited-Pay Whole Life has a lower annual premium.
False
Return premiums are taxable
False
Term insurance has a cash value.
False
Family Term formula
Family Term = Spouse Term + Children's Term
Increasing Term
Features level premiums and a death benefit that increases each year over the duration of the policy term
Securities
Financial instruments that may trade for value (for example, stocks, bonds, options)
The premium gradually increases each year for a period of usually 5 or 10 years, and then remains level thereafter
Graded-Premium Whole Life
When is the Return of Premium paid to the beneficiary?
If the death occurs within a specified period of time or if the insured outlives the policy term
Payor Benefit Rider
If the payor (usually parent/guaradian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21
Policy Maturity
In life policies, the time when the face value is paid out
Family Term Rider
Incorporates the spouse term rider along with the children's term rider in a single rider. When added to the whole life policy it provides level term life insurance benefits covering the spouse and all of the children in the family
What type of policy is ideal to handle inflation and the increasing cost of living?
Increasing Term Policy
Increasing term is often used by?
Insurance companies to fund certain riders that provide a refund of premiums or a gradual increase in total coverage, such as the cost of living or return of premium riders
Limited-pay policies would be recommended to who?
Insureds who do not want to be paying premiums beyond a certain point in time
Mortgage Redemption Provision
Insures borrowers for an amount equal to their mortgages
Survivorship Life
Insures two or more lives for a premium that is based on a joint age
The insurer set the initial premium based on current assumptions about risk, interest and expense.
Interest-Sensitive Whole Life
What is also referred to as current assumption life?
Interest-Sensitive Whole Life
What are the other types of Whole Life Policies?
Interest-Sensitive Whole Life Modified Life Graded-Premium Whole Life
Permanent Life Insurance
Is a general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured (or until age 100) as long as the premium is paid
Joint Life
Is a single policy that is designed to insure two or more lives
Interest-Sensitive Whole Life
Is a whole life policy that provides a guaranteed death benefit to age 100
Return of Premium (ROP)
Is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premium paid
Limited-Pay Whole Life
Is designed so that the premiums for coverage will be completely paid-up well before age 100
Single Premium Whole Life (SPWL)
Is designed to provide a level death benefit to the insured's age 100 for a one-time, lump-sum payment
Decreasing Term
Is primarily used when the amount of needed protection is time sensitive, or decreases over time