Life Insurance Exam Prep

Interest-sensitive whole life

(Also referreed to as current consumption) This Is a whole life policy that provides a guaranteed death benefit at age 100. The insurer sets the initial premium based on current assumptions about risk, interest and expense. If the actual values change, the company will lower or raise the premium at designated intervals.

Insurer

A company that issues an insurance policy

Permanent

A general term used to refer to various forms of life insurance policies that build cahs value and remain in effect for the entore life of the insured, or until age 100, as long as the premium is paid.

Graded Premium Whole Life

A graded premium whole life policy typically starts with a premium that is approximately 50% or lower than the premium of a straight life policy. The premium then gradually increases each year for a period of usually 5-10 years, and then remains level thereafter.

Agent/Producer

A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer

Applicant or proposed insured

A person applying for insurance

Insured

A person covered by an insurance policy; may or may not be the policy owner

Beneficiary

A person who receives the benefits of an insurance policy

Cash Value

A policy's savings element or living benefit

Decreasing Term

A type of life insurance that features a level premium and a death benefit that decreases each year over the duration of the policy.

Renewable

Allows the policy owner the right to renew the coverage at the expiration date without evidence of insurability.

Universal Life

Also known as Flexible Premium Adjustable Life. * The policy owner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again. * Since the premium can be adjusted, the insurance companies may give the policy owner a choice to pay either of the two types of premiums: 1) The minimum premium is the amount needed to keep the policy in force for the current year. Paying the minimum premium will make the policy perform as an annually renewable term product. * The target premium is a recommended amount that

Adjustible Life

An adjustable life policy can assume the form of either term insurance or permanent insurance. The insured typically determines how much coverage is needed and the affordable amount of premium. The insurer will the determine the approproate type of insurance to meet the insured's needs.

Return of Premium

An increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.

Nonforfeiture Values

Benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses

Limited Pay Whole Life

Designed so that the premiums for coverage will be completely paid-up before the insured person turns 100 years old. Some of the more common versions of limited-pay life are 20-pay life, where the coverage is completely paid off in 20 years, and paid-up at 65, where the coverage is completely paid off by the time the insured person turns 65 years old. This policy is suited for those who do not want to be paying premiums beyons a certian point in time.

Endowment

Endowment policies are another type of whole life insurance that have all the same features as reguar whole life policies whith a slight variation in the maturity date. They provide a permanent, level death protection if the insured should die prematurely, and they accumulate cash values. Premiums can be paid up until the endowment date, for a limited period of time, or in a lump single sum. The sooner the policy endows, the higher the premium will be.

Variable Products

Fixed life insurance or annuities are contracts that offer guaranteed minimum or fixed benefits that are stated in the contract. * Variable life insurance or annuities are contracts in which cash values accumulate based upon a specific portfolio of stocks without guaranteed of performance. * Variable annuities keep pace with inflation and are determined by the value of securities backing it. * Variable insurance ( also referred to as variable whole life insurance) is a level, fixed premium, investment-based product. * Like traditional forms of life insurance, these policies have fixed premiums and a guaranteed minimum death benefit. The cash value of the policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. * The policy owner bears the investment risk in variable contracts.

Flexible Premium Policies

Flexible premium policies allwo the policy owner to pay more or less than the planned premium

Indeterminate Premium Whole Life Policy

Has a premium rate that may vary from year to year. These policies specify to twp premium rates: a guaranteed level premium stated in the contract (maximum premium), and a nonguaranteed lower premium rate that the policy owner actually pays for a set period of time. After the initial period (usually 2-3 years) the insurer establishes a new rate which could be raised, kept the same or lowered, based on the company's espected mortality, expense and investments. The premium, however, can be higher than the guaranteed maximum.

Policy maturity

In life policies, the time when the face value is paid out

Single Premium Whole Life

Is designed to provide a level death benefit to the insured's age 100 for a one time lump sum payment. The policy is completely paid-up after one premium and generates immediate cash.

Increasing Term

Level premiums and a death benefit that increases each year over the duration of the policy term

Tgree Basic Types of Term Coverage

Level, Increasing, and Decreasing

Lapse

Policy terminiation 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 incluides a savings element, or cash value. This policy endows at the insured's age of 100, which means the cash value created by the accumulation of premium is scheduled to equal the face amount of the policy at age 100.

Term Insurance

Provides the greatest amount of coverage for the lowest premium. (Usually has a maximum age above which coverage will not be offered and cannot be renewed)

Forms of Whole Life Insurance

Straight Whole Life, Limited-Pay Whole Life, and Single Premium whole life.

Term Insurance

Temporary protection because it only provides coverage for a specific period of time. Also known as pure life insurance.

Face Amount

The amount of benefit stated in the life insurance policy

Death Benefit

The amount paid upon the death of the insured in a life insurance policy

Straight Life Insurance

The basic whole life policy, the policy owner pays the premium from the time the policty is issued until the insured's death or at age 100. Also referred to as ordinary life or continuous premium whole life. Straight life will have the lowest annual premium.

Indexed Whole Life

The cash value is dependent upon the performance of the equity index, although there is a guaranteed minimum interest rate. The policy's face amount increases annually to keep pace with inflation (As the consumer price index increases) without requiring evidence of insurability. Indexed whole-life policies are classified depending on whether the policy owner or the insurer assumes the inflation risk. If the policy owner assumes the risk, the policy premiums increase with the increases in the face amount. if the insurer assumes the risk, the premium remains level.

Cash Value

The cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reached age 100 ( the policy maturity date), and is paid out to the policy owner. ( The insured and the policy owner do not have to be the same person)

Attained Age

The insured's age at the time the policy is issued or renewed

Adverse Selection

The insuring of risks that are more prone than the average risk

Premium

The money paid to the insurance company for the insurance policy

Level Term Insurance

The most common type or temporary insurance. Level refers to the death benefit that does NOT change throughouty the life of the policy.

Policyowner

The person entitled to exercise the rights and privileges in the policy

Living Benefits

The policy owner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered. The cash value, also called nonforfeiture value, dows not usually accumulate until the third policy year adn it grows tax deffered.

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.

Level Premium

The premium that does not change throughout the life of a policy

Annually Renewable Term (ART)

The purest form of term insurance. The death benefit remains level, and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probability of death increases.

Endow

To have the cash value of a whole life policy reach the contractual face amount

Variable Universal Life Insurance

Type of insurance combines many features of the whole life with the flexible premium of universal life and the investment component of variable life, making it a securities version of the universal life insurance

Deferred

Withheld or postponed until a specified time or event in the future

Modified Life

a whole life policy in which premiums are lower for the first three to five years and higher thereafter. The higher subsequent premium is typically higher than a straight life premium would be for the same age and amount of coverage.

Securities

financial instruments that may trade for value (for example, stocks, bonds, options)

Convertible

provides the policy owner with the right to convert the policy to a permanent insurance policy without evidence of insurability

Death Benefit

the death benefit is guaranteed and also remains level for life