Interest-Sensitive and Combination Plan Products

If X selects Option A (level death benefit) of a universal life policy with an initial face amount of $60,000, when the cash value is $15,000, the actual death benefit will be 0- $45,000. 0- $60,000. 0- $75,000. 0- $80,000.

x- $60,000 Under Option A the death benefit is the face amount, unless the cash value is too great a portion of the death benefit. In this example, the cash value is reasonable in relation to the death benefit so the death benefit is the face amount.

All of the following are true of universal life policy and variable universal life policy premiums EXCEPT 0- they are fixed. 0- they may be skipped. 0- they may vary in amount. 0- they may vary as to payment frequency.

x- they are fixed. In any universal life policy or variable universal life policy, within certain limitations, premiums may be paid in any amount and at any frequency as long as there is enough cash value to keep the policy from lapsing.

A joint life and last survivor (survivorship life) policy 0- generally pays the death benefit when all the insureds have died. 0- must be term insurance. 0- has a higher premium than a comparable joint life policy. 0- generally pays the death benefit when one insured has died.

x- generally pays the death benefit when all the insureds have died. Joint life and last survivor insurance pays when the last surviving insured has died. It can be term or permanent insurance. It has a lower premium than does joint life insurance, as the insurer will not have to pay the proceeds as early (it will pay after all insureds have died rather than after the death of the first insured).

For Example

Dell has an interest-sensitive policy. It has a guaranteed interest rate of 4%. Based on that rate his cash value should be $5,000. This year, the insurer reports current interest rates are 2%. Because the 4% rate was guaranteed, his account will be credited with 4% interest, and his premium will not rise above the maximum specified. Dell liked the policy better five years ago, when current rates were 7% and his account was credited with 7% interest.

All of the following are true of variable life insurance EXCEPT 0- there is a minimum guaranteed cash value, but no maximum. 0- there is a minimum guaranteed death benefit, but no maximum. 0- as the policyowner assumes the investment risk, the policy is a security. 0- death benefits increase only if the net investment return of the separate account exceeds the assumed interest rate

x- there is a minimum guaranteed cash value, but no maximum. While there is a minimum guaranteed death benefit, there is no minimum guaranteed cash value. The cash value is determined daily and is based on the investment return of the separate account.

death benefit options

Universal life insurance policies offer two death benefit options: Option A with a level death benefit and Option B with an increasing death benefit. The policyowner must choose one initially but may change from one to the other at any time. The death benefit in Option A is the policy face amount, just like it is in a whole life policy. It equals the total of the cash value plus the insurance protection or "amount at risk." As the cash value increases, the insurance protection decreases. For Example Paul has a universal life policy with a face amount of $100,000. He selected Option A. Initially, the policy had zero cash value and $100,000 insurance. After 10 years, the cash value built up to $13,000, so the insurance element was $87,000. Regardless of when Paul dies, the policy will pay $100,000 as a death benefit.

transparent.

This means the policyowner is able to see how his premium is used and the changes in the benefits provided. He is given a disclosure annually of the premiums paid, the death benefits, the interest credited, the mortality charge debited, the expenses debited, and any loan balance and cash value.

Option B death benefit

equals the policy face amount plus the cash value. The policy face amount is the protection amount and is level. But the death benefit will increase as the cash value increases. Since the death benefit and amount at risk are greater under Option B than under Option A for policies of the same face amount, Option B has the higher premium. For Example Lisa has a universal life policy with a face amount of $100,000. Initially, it had zero cash value and $100,000 insurance. After 10 years, the cash value had built up to $13,000, but her insurance element remained $100,000. Since Lisa had selected Option B, if she had died then, the policy would have paid $113,000 ($100,000 plus the cash value) as a death benefit. When Lisa's cash value grows to $93,000, her insurance element will still be $100,000, and her death benefit will be $193,000.

A universal life policy goes into a grace period when 0- the cash value is zero. 0- the premium is past due. 0- the premium is 30 days late. 0- the premium paid is less than the scheduled amount.

x- the cash value is zero. Since premiums for universal life policies are paid from the cash value account, these policies stay in force until there is no money in the account to pay the premiums. The other types of policies require premium payments and go into the grace period if the premium is not paid when due.

D has a life policy that has a death benefit that increases every year. This is a _____ policy. 0- universal life - Option A 0- universal life - Option B 0- term life insurance 0- whole llife insurance

x- universal life - Option B The death benefit in Option B equals the policy face amount plus the cash value. The policy face amount is the protection amount and is level, but the death benefit will increase as the cash value increases.

Z's life insurance policy lets him choose from available investments for the cash value. Z's policy is 0- universal life insurance. 0- variable life insurance. 0- interest sensitive whole life insurance. 0- cash value whole life insurance.

x- variable life insurance. Variable policies allow the insured to select investments for his cash value. Remember, "variable" means benefits vary based on investment performance.

Universal life insurance 0- requires premium payments at least once each year. 0- guarantees a high rate of interest indefinitely. 0- always involves a cash account and decreasing term insurance coverage. 0- allows the policyowner to increase or decrease premiums and death benefits.

x- allows the policyowner to increase or decrease premiums and death benefits. Universal life insurance has three primary characteristics: (1) Flexible premium: the premium can be increased, decreased or skipped (as long as there is enough money in the cash value account to cover the premium). (2) Adjustable benefit: the death benefit may be decreased or increased (generally with proof of insurability). (3) Cash values: there is a guaranteed minimum rate of interest earned (the guaranteed rate), but the account is credited with the current rate (the guaranteed rate plus the excess interest earned by the insurer). Therefore, the policyowner can vary his premium payments. The insurance premiums need not be paid as long as there is enough in the cash value account to cover the cost of the insurance. The guaranteed rate is fairly low. The policy provides annual renewable term coverage, not decreasing term coverage.

Review 1

An interest-sensitive whole life policy is a whole life policy. The policy differs from ordinary whole life in that it has a guaranteed maximum premium and guaranteed minimum cash value based on a guaranteed minimum interest rate. If the current interest rate (the interest rate being earned at the time of rate adjustment) exceeds the guaranteed minimum rate, the policyowner may have the excess interest added to the cash value or used to reduce premiums. Universal life insurance is an adjustable life policy with a flexible premium. This nontraditional policy is commonly called "flexible premium adjustable life" because the policy is adjustable since the policyowner can change the death benefit from time to time (generally with proof of insurability required for an increase in the benefit) and the premium is flexible because the policyowner can change the amount and timing of premium payments at any time. As with other cash value policies, the cash value account is credited with interest. There is a guaranteed minimum rate of interest (guaranteed rate) specified in the policy, but some or all of the account is credited with the current market interest rate (the guaranteed rate plus excess interest earned by the insurer). The current rate applied to the cash value account is tied to an index of rates for government securities or bonds and generally adjusted once each year. Universal life insurance policies offer two death benefit options: Option A with a level death benefit and Option B with an increasing death benefit. The policyowner must choose one initially but may change from one to the other at any time. The death benefit in Option A is the policy face amount, just like it is in a whole life policy. It equals the total of the cash value plus the insurance protection or "amount at risk." As the cash value increases, the insurance protection decreases. The death benefit in Option B equals the policy face amount plus the cash value. The policy face amount is the protection amount and is level. But the death benefit will increase as the cash value increases.

Q wants to sell variable life insurance, variable universal life insurance or variable annuities. In order to do this, Q 0- must only be registered to sell securities. 0- must only be licensed to sell life insurance. 0- must be licensed to sell life insurance and registered with the FINRA to sell securities. 0- may either be licensed to sell life insurance or registered with the FINRA to sell securities.

x- must be licensed to sell life insurance and registered with the FINRA to sell securities. To sell any type of life insurance or annuities, a person must be licensed to sell life insurance. To sell any type of variable life or variable annuities, a person must also be registered with the FINRA (Financial Industry Regulatory Authority) to sell securities.

If W buys a universal life policy 0- her benefits are variable. 0- she must pay fixed premiums to keep the policy in force. 0- the face amount of her policy may change based on investment performance. 0- she will have coverage as long as there is sufficient cash value to pay the cost of the insurance.

x- she will have coverage as long as there is sufficient cash value to pay the cost of the insurance. With any universal life product, premiums are based on term insurance rates and are flexible. The cost of the insurance is taken from the cash value, so the insurance will last as long as there is cash value to cover its cost. Any policy with the descriptive words "variable" or "investment performance" indicate a variable insurance policy. With universal life, benefits are adjustable by the insured, but not variable (based on investment performance).

With universal life insurance, the policyowner pays

a target or recommended premium amount. But he may pay whatever and whenever he wishes. Whatever is paid is credited to his cash value account. From the cash value account, the insurer will deduct (charge) the cost of annual renewal term insurance. As a result, premium payments can be increased, decreased or even skipped as long as there is enough cash value to cover the premium. If there is not enough cash value, the policy will lapse if the policyowner does not pay a premium into the cash value account before the end of the grace period (a period during which an insurer must accept premium payments before canceling the policy). Grace Period A period during which an insurer must accept premium payments before canceling a policy. As with other cash value policies, the cash value account is credited with interest. There is a guaranteed minimum rate of interest (guaranteed rate) specified in the policy, but some or all of the account is credited with the current market interest rate (the guaranteed rate plus excess interest earned by the insurer). The current rate applied to the cash value account is tied to an index of rates for government securities or bonds and generally adjusted once each year.

survivorship life policy

also has two or more persons who are named as insureds; however, it will pay the death benefit after the death of the last surviving insured (the second to die). The premium is less than the sum of individual policies on each insured, and less than that for a comparable joint life policy, as the insurer will not have to pay proceeds as soon. It is useful in family and business situations where the family or business could survive after one death but could not survive financially after the death of all insureds or where the death of the surviving insured will create a much greater estate tax than the death of the first insured. For Example Paul and his wife, Pauleen, got a $100,000 survivorship life policy. If Paul dies first, Pauleen will get nothing. If Pauleen dies first, Paul will get nothing. Once they have both died, their daughter, Paulette, will get $100,000.

Which of these has fixed premiums and a death benefit based on the investment experience of the separate account? 0- Universal life 0- Variable universal life 0- Variable life 0- Whole life

x- Variable life A variable life policy has fixed premiums and a variable death benefit. Under a variable life policy, the insurer invests in "equity securities" (e.g., stock). The death benefit will increase or decrease (but not below the guaranteed face amount) based on the performance of the investments. Note, this differs from variable universal life in that this has fixed premiums; variable universal life has flexible premiums.

Universal life insurance

is an adjustable life policy with a flexible premium. This nontraditional policy is commonly called "flexible premium adjustable life" because: the policy is adjustable since the policyowner can change the death benefit from time to time (generally with proof of insurability required for an increase in the benefit). the premium is flexible because the policyowner can change the amount and timing of premium payments at any time. For Example When Ida bought her universal life policy with a face amount of $500,000, she was a partner in a law firm representing corporate polluters and making lots of money. After a year, she decided to decrease the coverage to $450,000, but at the same time she increased her premium payments to build up cash value faster. Then Ida met Tater Hoe. Ever since Tater was a tot, he had his eye on Ida. When Ida agreed to become Mrs. Hoe and their son, Spud, was born, Ida decided to stay home until Spud was in school. At that time she decided to increase her coverage back to $500,000 (but had to show she was still insurable). She also decreased her premiums, since she is no longer "in the chips."

Which of these has flexible premiums and a cash value based on the current interest rate? 0- Universal life 0- Variable universal life 0- Variable life 0- Whole life

x- Universal life Universal life has flexible premiums and a cash value based on an interest rate determined from an interest index used by the insurer. Variable policies have a cash value based on investment returns.

Review 2

Variable whole life insurance is another type of whole life policy. Just like the other whole life policies, it covers the insured to age 100. Premiums may be single, limited-pay or continuous. The variable feature of this policy is that the policy benefits (i.e., the face amount and cash value) will vary throughout the policy term. They will vary because they are based on returns on investments made with the cash value. The cash value is placed in a separate account. A separate account is an account which consists mostly of common stock and other securities-based investments. It is separate from the insurer's general account (which has mostly safe, conservative investments) used to fund traditional life insurance policies. In order to sell any type of variable insurance product, the producer must hold both a life insurance and securities license issued through FINRA. Equity-indexed life insurance policies have two versions: Equity-Indexed Whole Life and Equity-Indexed Universal Life. Equity-indexed policies are permanent life insurance policies that allow the policyholders to tie accumulation values within the cash value accounts to a stock market index. Indexed life insurance policies typically contain a minimum guaranteed fixed interest rate component along with the indexed account option tied to the specific market selected by the insurer, most commonly the Standard and Poors 500 Composite Index A joint life policy is a permanent life insurance policy in which there are two or more persons named as insureds. Each insured is normally the beneficiary of the other. The policy pays the entire face amount as soon as one insured dies. (As a result, it is often called a "first-to-die" policy.) A survivorship life policy also has two or more persons who are named as insureds. But it will pay the death benefit after the death of the last surviving insured (the second, or last to die). The premium is less than the sum of individual policies on each insured, and less than that for a comparable joint life policy, as the insurer will not have to pay proceeds as soon.

The universal life policy option that provides a level death benefit is 0- Option A. 0- Option B. 0- Option C. 0- Option D.

0- Option A. Option A provides a level benefit, as the cash value is included in the benefit, just as in whole life. Option B provides an increasing benefit, as the insurance amount is level and the cash value is added to that to create the death benefit.

Variable universal life (or flexible premium variable life)

Insurers use various tables that determine how much premium to charge for an insured risk and are required to adhere to laws governing how much they can charge an insured for coverage. Insurers are required to disclose various aspects in the policy that show how premiums are charged for the coverage. Normally associated with renewable term and universal life insurance policies, this policy information includes disclosure of the following: - The "guaranteed maximum (renewal) premium" is the maximum premium that can be charged in any given policy period after the initial policy period. - The "initial level premium" is the premium for the first policy period and is normally the premium charged when the policy is first issued. - The "guaranteed initial level premium" is the maximum premium the insurer may charge during the initial policy period.

All of the following are true of the interest-sensitive whole life insurance policy EXCEPT 0- the premium amount billed to the policyowner will never change during the term of the contract. 0- cash values accumulate at current interest rates. 0- guaranteed minimum interest rates are provided. 0- it has a minimum guaranteed cash value.

x- the premium amount billed to the policyowner will never change during the term of the contract. Interest-sensitive whole life insurance provides for guaranteed minimum interest rates and guaranteed minimum cash value, but cash value may accumulate at current interest rates, or have the excess interest used to reduce premiums. While the policyowner has the right to have the excess interest be used to pay premium, if there is not enough excess interest to pay the entire premium, the owner will receive a billing for the difference. Therefore, the amount billed to the insured could change over the life of the policy.

Spring Thyme decided to get her financial affairs in order. She wanted to have a plan in place in the event of her husband's death. When she brought the subject up to her husband, Justin, he thought they should plan on her death as well. They contacted Rusty Spade, a life insurance agent they had met the week before at the bingo parlor. In the course of their interview with Rusty, a number of issues were raised. Justin would be paid $300,000 upon the death of Spring if the Thymes purchased which of the following? - $600,000 survivorship - $300,000 survivorship - $300,000 joint life - $300,000 second-to-die

- $300,000 joint life A joint life policy is a first-to-die policy. Upon the death of one insured, the face amount is paid to the other. A survivorship life policy is a second-to-die policy, which pays the face amount upon the death of the last survivor. With such a policy neither spouse would receive any of the proceeds, as they must both die before the proceeds will be paid. A survivorship life policy is a second-to-die policy, which pays the face amount upon the death of the last survivor. With such a policy neither spouse would receive any of the proceeds, as they must both die before the proceeds will be paid. A second-to-die policy or survivorship life policy pays the face amount upon the death of the last survivor. With such a policy neither spouse would receive any of the proceeds, as they must both die before the proceeds will be paid.

Spring Thyme decided to get her financial affairs in order. She wanted to have a plan in place in the event of her husband's death. When she brought the subject up to her husband, Justin, he thought they should plan on her death as well. They contacted Rusty Spade, a life insurance agent they had met the week before at the bingo parlor. In the course of their interview with Rusty, a number of issues were raised. If they decided they would like to have $300,000 universal life coverage on each of them, which of the following options would be the least expensive? - an individual $300,000 on each - $300,000 joint - $300,000 survivorship - $300,000 first-to-die

- $300,000 survivorship the survivorship life policy will pay only after both insureds have died, so it is expected to be the latest to pay off, and therefore has the lowest premium. A joint life policy is a first-to-die policy. It will pay as soon as one of the insureds dies, so it is more expensive than the survivorship life A first-to-die policy or joint life policy will pay as soon as one of the insureds dies, so it is more expensive than the survivorship life policy, which will not pay until both insureds have died. While one individual policy is less expensive than a multiple life policy, the premiums for two such policies, which provide for payment of $600,000 upon the death of both, would total more than the premium for one $300,000 multiple life policy.

unbundled.

In most insurance policies, the policyowner does not see how much of the premium applies to cash value, expenses and mortality charges separately. But in universal life policies, the cash value, expenses and mortality charges are __________________________. This means they are handled and shown separately so the policyowner can choose to vary the amounts to contribute to the premium and to the cash value separately. Mortality Charges Charges included in the insurance premium to cover the cost of paying death claims.

joint life policy

Policies are offered that cover more than one life and policies intended for children. A joint life policy is a permanent life insurance policy in which there are two or more persons named as insureds. Each insured is the beneficiary of the other. The policy pays the entire face amount as soon as one insured dies. (As a result, it is often called a first-to-die policy.) At that time, coverage on the surviving insured is terminated. Some policies will allow the survivor to buy an individual policy without proof of insurability within a specified period after the first death. Joint life policies are generally useful when the death of one insured would cause the need for substantial funds by others (e.g., for a husband and wife or business associates). The premium is greater than that for one individual policy of the same size, but smaller than the sum of the premiums for individual policies covering each insured. For Example Caster and his wife, Lani, got a $100,000 joint life policy, instead of buying two $100,000 policies to insure each other. If Caster dies first, Lani gets $100,000. If Lani dies first, Caster gets $100,000.

interest-sensitive whole life policy

So far, the policies discussed all credit the cash value account with a guaranteed rate of interest. There are other types of policies that provide for the cash value to be credited varying rates of interest, based on what the insurance company is earning on the policies, or to earn returns that can be higher but are not guaranteed. These include interest-sensitive whole life and universal life, which are tied to interest rates, and variable whole life and variable universal life, which are tied to investment returns. An interest-sensitive whole life policy is a whole life policy. Like an ordinary life policy: - this policy has a fixed, level death benefit. - it has premiums due at specified times, so the policy will lapse if they are not paid when due. - the portion of the premium in excess of the amount needed to pay claims and expenses is credited to the cash value account. The policy differs from ordinary whole life in that it has a guaranteed maximum premium and guaranteed minimum cash value based on a guaranteed minimum interest rate. If the current interest rate (the interest rate being earned at the time of rate adjustment) exceeds the guaranteed minimum rate, the policyowner may have the excess interest added to the cash value or used to reduce premiums.

assumed interest rate.

The guaranteed face amount is based on an assumed interest rate. If the value of the separate account increases by an amount greater than the assumed rate, the policy face amount and cash value will increase. If the increase in value is less than the assumed rate, the cash value and face amount will decrease, but the face amount will never decrease to less than the minimum guaranteed face amount. The face amount is recalculated daily or monthly, based on policy provisions. The cash value is determined daily. For Example Paul Barer has a $100,000 continuous premium variable life policy. Each month he pays a $150 premium for coverage guaranteed to be no less than $100,000. To keep his coverage, he will pay that premium until he dies or reaches age 100, as the premium is fixed. After the cost of the guaranteed insurance is deducted from Paul's premium, the remainder is placed in a separate account to earn interest. In Paul's case, the assumed interest rate is 3%. If the earnings in the account have been less than 3%, Paul still will be insured for $100,000, but he may have reduced or even no cash value. If earnings exceed 3%, Paul's coverage will be more than $100,000 and his cash value will grow to reflect the increase. The cash value may be withdrawn at any time upon surrender of the policy, but there is usually a surrender charge for cancellation in the first few policy years.

Variable universal life (or flexible premium variable life)

insurance is a universal life insurance policy with a death benefit and cash value that vary according to the investment performance of the assets underlying the policy. Instead of the cash value earning a rate of interest based on a specified index, the cash value is credited with returns based on the results of investments selected by the policyowner from options made available by the insurer. The policyowner may allocate portions of the premium among any or all of the options and change the allocation with any premium payment. Because funds held in separate accounts in a variable life policy and variable universal life policy are invested primarily in equity-type securities (e.g., stock): - these policies must be registered with the Securities and Exchange Commission (SEC). - an insurance producer selling these policies must be registered with the National Association of Securities Dealers (NASD) and appropriate state securities agency, as well as licensed to sell life insurance. - the purchaser must be given a prospectus, showing his rights, the risks, the fees, etc.

Indexed Universal Life

is a "hybrid" form that gives the policy holder the opportunity to allocate cash value amounts to either a fixed account or an equity index account. These types of universal life typically guarantee the principal amount in the indexed portion, but cap the maximum return that a policy holder can receive in that account.

Equity-indexed life insurance

is a fixed life insurance policy with a guaranteed interest rate and a "current" market interest rate that will be applied to the cash value. The actual growth of the cash value is tied to a specific equity (stock market) index, most commonly the Standard and Poor's 500 Composite Equity Index. If the market outperforms the guaranteed interest rate shown in the contract, the cash value will grow based on the higher, current market rate tied to that index. The insurer will take a percentage of the growth in the market as its expenses associated with the contract. The insurer will apply a margin or a spread that will be deducted from the gain earned by the index or apply an "asset fee" against the policy's cash value. For Example Bob has an Equity-Indexed life insurance contract that guarantees a minimum of 3% to be applied to his cash value. The equity-index, however, increased by 10% this year. Bob's policy provides that he will receive 80% of the market increase, with the insurer holding back the other 20% as its portion of the growth. As a result, Bob's cash value will grow by an 8% rate (10% growth x 80% of that value). If the cash value increased by $10,000, Bob will receive 80% of that value, or $8,000.

Variable whole life insurance

is another type of whole life policy. Just like the other whole life policies, it covers the insured to age 100. Premiums may be single, limited-pay or continuous. Limited-pay and continuous premiums would be level and fixed, so variable life policies will lapse if a premium is not paid before the end of the grace period. The variable feature of this policy is that the policy benefits (i.e., the face amount and cash value) will vary throughout the policy term. They will vary because they are based on returns on investments made with the cash value. The cash value is placed in a separate account. A separate account is an account which consists mostly of common stock and other securities-based investments. It is separate from the insurer's general account (which has mostly safe, conservative investments) used to fund traditional life insurance policies. These types of investments enable the policyowner to hedge against inflation or to realize returns greater than those normally provided by life insurance. Some policies let the policyowner choose from a number of investment options. However, whether the insurer chooses or the policyowner chooses, the policyowner bears the investment risk (the risk of loss on the investments) and has no guaranteed amount of cash value. There is a minimum guaranteed face amount, so the death benefit may never be less than the guaranteed face amount.

Option A death benefit

is level, unless and until it has to be adjusted to keep a risk corridor. For a life insurance policy to qualify as insurance for federal tax purposes: - its cash value cannot equal the death benefit until age 95. - it must have at least a certain "amount at risk" or insurance protection (called a risk corridor) separating the cash value and death benefit. To maintain the risk corridor, the insurer may increase the death benefit, upon proof of insurability by the insured, or return part of the cash value to the policyowner. For Example Today, Paul's cash value has grown to $93,000, so the insurance element is only $7,000. Paul just received a notice from his insurer stating that he is about to violate the risk corridor and must either increase his death benefit or withdraw cash value.

juvenile life policy

is life insurance covering the life of a minor between the ages of zero through age 17. It is often used to protect the minor's insurability; the purchase of the policy will ensure that the child is insurable for life as long as the premiums are paid, and the low premium rate will be maintained even if the child should later become uninsurable. The policy may also be used to cover last illness and funeral expenses, if the child dies, or create savings from the cash value which may be used later for education or for a gift to the child. The payor of the policy, usually a parent or grandparent, owns the policy until the child reaches the age of maturity as stated in the policy, normally age 18 or 21. Some juvenile policies are written as jumping juvenile insurance or junior estate builder. The term is derived from the fact that, at a specified age, the level of insurance jumps to five times the face amount of the original coverage with no evidence of insurability required or increase in premium. At that age, the child becomes liable for the premiums, and any premium-payor waiver attached to the policy (see Riders Section) is terminated.

The policyowner may borrow funds, using

the cash value account as collateral for the loan, or withdraw cash value without borrowing it. Withdrawals can be partial or total. A partial withdrawal (or partial surrender) will reduce the cash value account and the death benefit by the amount withdrawn. When a partial withdrawal is taken, the amount withdrawn is not charged interest, and there is no provision for repayment. Therefore, if the policyowner wants to put the money back into the policy, the payment is treated as any other premium payment, subject to any front-end loads (charges to cover insurance company sales and administrative expenses). Front-end and back-end loads Charges to cover insurance company sales and administrative expenses Some policies will restrict the right to take a partial withdrawal (e.g., allow it only after five years or only if the cash value or death benefit will be above a specified minimum). When a partial withdrawal is not allowed, the policyowner still may take a full withdrawal by surrendering the policy.

front-end loads or back-end loads

to cover sales and administrative expenses. In front-end-load policies, charges for sales and administrative expenses are deducted from the premiums. In back-end-load policies, the full premium is credited to the cash value account, so there is more rapid cash value accumulation than if the policy had a front-end load. However, in back-end-load policies, service charges may be imposed when cash value is withdrawn, the policy is surrendered, or the coverage is changed. For Example Ida Hoe's universal life policy has a 2.5% front-end load. For every $100 in premiums she pays, $2.50 is taken out for insurer expenses, and $97.50 is put into her cash value account. From that account, each month the insurer deducts the cost of the insurance, based on her age at the time. The remainder stays in the account to earn current interest. Amber has a universal life policy with no front-end load. For every $100 in premiums she pays, $100 is put into her cash value account. From that account, each month the insurer deducts the cost of the insurance, based on her age at the time. The remainder stays in the account to earn current interest, so she has more money earning interest. However, when she withdraws cash value or surrenders the policy, she must pay service charges (back-end loads).

W has selected Option B (increasing death benefit) of a universal life policy with an initial face amount of $60,000. When the cash value is $15,000, the actual death benefit will be 0- $45,000. 0- $60,000. 0- $75,000. 0- $80,000.

x- $75,000. Under Option B the insurance will stay at $60,000. The death benefit will therefore equal $60,000 plus the $15,000 cash value. If this question were about Option A, the answer would be $60,000.

If Y wants a life insurance policy that will enable him to benefit if the stock market goes up, he would want which type of insurance? 0- Retirement income 0- Jumping juvenile 0- Modified life 0- Variable life

x- Variable life In the insurance business the term "variable" is used to describe a product which has benefits based on the value of investments made with part of the premiums. Therefore variable life, variable universal life, and variable annuities all have benefits which increase or decrease based on investment performance.

The current rate of interest credited to a universal life cash value account 0- is always guaranteed. 0- is applied to the entire cash value account. 0- is at all times equal to the index rate to which it is tied. 0- consists of guaranteed interest plus excess interest earned by the insurer.

x- consists of guaranteed interest plus excess interest earned by the insurer. The current rate equals the guaranteed rate plus the excess interest earned by the insurer. Only the guaranteed rate is guaranteed. The current rate is generally adjusted only once each year. Therefore, the index may change, but the current rate will not until the next time for an adjustment. The cost of insurance is deducted from the account before interest is credited, and for most policies the first $1,000 in the account earns only the guaranteed rate rather than the current rate.

The universal life Option A has a death benefit which 0- includes an increasing amount at risk. 0- increases throughout the policy period. 0- is initially level and includes the cash value account. 0- equals the policy face amount plus the cash value account.

x- is initially level and includes the cash value account. Option A provides a level death benefit. This benefit equals the total of the cash value plus the insurance (or protection). Therefore, when the cash value increases, the insurance protection will have to decrease in order for the total benefit to remain level. For example, a policy with a face amount of $10,000 starts out with zero cash value and $10,000 insurance. When the cash value equals $3,000, the insurance will equal $7,000.

A joint life policy will 0- pay the face amount when all of the insureds have died. 0- have different types of coverage for each insured. 0- have different coverage limits for each insured. 0- pay the face amount when one insured dies.

x- pay the face amount when one insured dies. A joint life policy provides the same type of insurance on more than one life. It will pay the face amount when one of the insureds dies. If the policy provides for payment when all of the insureds have died, it is called a survivorship life policy, as it pays when the last surviving insured dies. Coverage is the same for all insureds.

D bought a $100,000 variable life insurance policy. Under D's policy, the death benefit 0- may be more or less than the face amount of the policy. 0- increases whenever the return of the separate account increases. 0- varies based on the insurer's mortality experience and expenses. 0- varies according to the value of the investments in the separate account supporting the contract.

x- varies according to the value of the investments in the separate account supporting the contract. The death benefit will vary based on the value of the separate account. Choice "A" is false as the death benefit can never be less than the face amount of the policy. It may be more than the face amount if the increase in the value of the separate account exceeds the assumed rate of return. Choice "B" is false as the death benefit will only increase if the return on the separate account is greater than the assumed rate of return. Choice "C" is false as only the return affects the death benefit.