Life Insurance Chapter 3- Types of Life Policies

Which of the following is INCORRECT regarding a $100,000 20-year level term policy?

At the end of 20 years, the policy's cash value will equal $100,000. Term policies do not develop cash values. All the other statements are true.

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100.

All of the following are the types of term insurance depending on how the face amount changes during the policy term EXCEPT

Renewable There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may fluctuate.

If an agent wishes to sell variable life policies, what license must the agent obtain?

Securities License

Which of the following types of insurance policies would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources?

Term Life Term insurance provides a death benefit only; cost per $1,000 of coverage is less than other types of policies that create cash values.

Which of the following determines the cash value of a variable life policy?

The performance of the policy portfolio The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.

Which of the following Life Insurance policies would be considered interest sensitive?

Universal Life

Which of the following terms best describe the coverage provided by term policies, as compared to any other form of protection?

Greatest Term policies provide for the greatest amount of coverage for the lowest premium, as compared to any other form of protection.

Which Universal Life option has a gradually increasing cash value and a level death benefit?

Option A Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures.

The death protection component of Universal Life Insurance is always

Annually Renewable Term A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

Which of the following is an example of a limited-pay life policy?

Life Paid-up at Age 65

At age 30, an applicant wants to start an insurance program, but realizing that his insurance needs will likely change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs?

Adjustable Life Adjustable life policies allow for increases or decreases in the face amount or premium, so long as the premium is sufficient to pay for the mortality. Any increase in face amount requires proof of insurability.

Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?

Option B Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.

An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy?

She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan. If a person has life insurance under a group plan and then leaves the group, he/she may convert group coverage to individual coverage within 31 days of leaving the plan without proof of insurability.

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing Term A decreasing term policy's face amount decreases as the amount of debt is reduced.

What is the purpose of establishing the target premium for a universal life policy?

To keep the policy in force The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that?

Joint Life Policy Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends.

If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this?

Jumping juvenile policy While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21).

The premium of a survivorship life policy compared with that of a joint life policy would be

Lower Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.

All of the following are true regarding a decreasing term policy EXCEPT A The death benefit is $0 at the end of the policy term. B The contract pays only in the event of death during the term and there is no cash value. C The face amount steadily declines throughout the duration of the contract. D The payable premium amount steadily declines throughout the duration of the contract.

The payable premium amount steadily declines throughout the duration of the contract. Premiums remain level with a decreasing term policy; only the face amount decreases.

All of the following entities regulate variable life policies EXCEPT

The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.

Which component increases in the increasing term insurance?

Death Benefit Increasing term features level annual premiums and a death benefit that increases each year over the duration of the policy term.

Which of the following types of insurance policies is most commonly used in credit life insurance?

Decreasing term Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. It is usually written as decreasing term insurance.

Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid

For 20 years or until death, whichever occurs first. Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.

What characteristic makes whole life permanent protection?

Coverage until death or age 100 Whole Life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured or till the insured's age 100.

The death benefit under the Universal Life Option B

Gradually increases each year by the amount that the cash value increases. Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases.

An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?

It will increase because the insured will be 5 years older than when the policy was originally purchased. The premium will remain level during the entire level premium term policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal.

To sell variable life insurance policies, an agent must receive all of the following EXCEPT

SEC Registration Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.

Which of the following statements about group life is correct?

The cost of coverage is based on the ratio of men and women in the group. Group life insurance can be converted to an individual whole life, not a term, policy; the group life insurance premiums are usually lower than those of an individual policy; the group sponsor receives a master contract, while the participants receive certificates of insurance. The cost of the coverage is based on the average age of the group and the ratio of men to women.

When would a 20-pay whole life policy endow?

When the insured reaches age 100 A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.