Ch 10 Smartbook

interest-adjusted index

*Used to compare policy costs *Lower index=lower cost policy

Term Life Insurance

-AKA Pure Life Insurance -Lower premium, increases with renewal -Pays a benefit only if you die during the period it covers -If you stop paying premiums the insurance stops -If you opt for a term insurance policy, as your children become independent and your assets increase, you can reduce your coverage. -Is temporary insurance -Basic, no frills

Universal Life Insurance

-Cash value can be invested and is guaranteed a certain minimum return -Allows loans or withdrawals to be made from the cash value -Allows more direct control than whole life policies

Captive Insurance Agent

-May be paid on salary or commission -limited to just one companies insurance products

Whole Life Insurance

-Pay a specified premium as long as you live -Accumulates a cash value, which is not invested -Allows for only loans to be taken from cash value

Life insurance proceeds can be used wisely to: -purchase new large gifts -pay off home mortgage or debts -provide education or income for children -establish a name for yourself -establish regular income for survivors

-pay off home mortgage or debts -provide education or income for children -establish regular income for survivors

Independent Insurance Agent

-typically paid on comission -not limited to one company -may be temped to direct consumer to products that pay higher commissions to them

Mortality and expense charges are usually about ______ % on annuities

1.25 %

If suicide occurs during the first _______ years the policy is in force, only the amount of _________ paid are paid to the beneficiary.

2, premiums

Surrender charges usually decline gradually over a period of ___ to ____ years

7 to 10

True or False: The sooner a person is likely to die, the lower the premiums she will have to pay.

False *Reason: Higher premiums are charged for those likely to die soon because the company will need to pay more quickly and will have less time to collect investment earnings on the premiums.

What characteristics should you consider in an insurance company? Name recognition Popularity among your friends Political views Financial stability Professionally qualified representatives

Financial stability Professionally qualified representatives

Easy Method

Gross Salary x 7 x .70

Which household has the highest need for life insurance?

Households with small children

(Participating/Nonparticipating) policies do not provide policy dividends.

Nonparticipating

Administrative fees may be a flat fee or a percentage of the _______ value

account

The nonforfeiture clause is a provision that prevents the forfeiture of ________ benefits if you choose to drop your insurance policy.

accrued

Premiums for whole life insurance policies are determined based upon the health and the ______ of the insured when it is purchased.

age

A contract that provides a regular income for as long as a person lives is called a(n):

annuity

The amount received after giving up a whole life type of insurance policy is called the:

cash value

Under universal life insurance, part of your premium goes into an investment account that earns interest; this accumulates is referred to as

cash value

The option that allows you to change your term policy into a whole life policy without an additional medical examination is called a:

conversion option

A policy that pays the beneficiary less as time passes is a:

decreasing term insurance policy

A benefit under which the company pays twice the face value of the policy if the insured's death results from an accident is called a:

double indemnity

An incontestability clause states that the insurer cannot ________ the policy if it is in force for a specified period.

drop/cancel/terminate

Which method uses an equation of 70 percent of your salary for seven years?

easy method

One of the main factors when determining which companies to buy policies from is whether or not the company is _______ stable

financially

Which of the following is NOT a charge you pay when buying a variable annuity? Surrender charges Administrative fees Mortality and expense risk charge Front-end load

front end load

A provision stating that the insurer cannot cancel a policy after a specific period, often two years, is called a(n)

incontestability clause

______ income earned on annuities is tax free during accumulation.

interest

A document attached to a policy that ________ its coverage is called a rider.

modifies

One of the many common uses of life insurance proceeds is to pay off a home ______ and other debts at the time of death.

mortgage or loan

Your stage in the life cycle and type of household help determine your _______ for life insurance

need

If you choose to drop a policy, a provision that allows the insured not to forfeit all accrued benefits is called a(n):

nonforfeiture clause

Life insurance that does not provide policy dividends is also called a nonpar, or ______ policy.

nonparticipating

The primary factor for determining premiums for whole life insurance policies is the:

person's age when the policy is purchased

Life insurance is when a person joins a risk-sharing group known as an insurance company and purchases a contract also called an insurance _______

policy

With a(n) ________ term option, you can continue your existing term insurance coverage for another term.

renewable

The primary reason to buy an annuity is to give you:

retirement income for life

Cash-value policies provide a death benefit (insurance) and a(n) ______ account

savings

The easy method is based on the assumption that it will take ______ years to adjust to financial consequences of death.

seven or 7

Life expectancy in the United States has been:

steadily increasing

Multiyear level term insurance is also called:

straight term insurance.

Interest earned on annuities is:

tax free

A conversion option allows you to change a(n) _____ policy to a(n) ________ coverage life policy.

term, whole

If a policyholder dies by suicide three years after purchasing the policy, the beneficiary will receive:

the proceeds of the policy.

Multiyear level term insurance, rather than annual renewable term insurance, is advantageous because it allows you to pay:

the same premium for the life of the policy

Double indemnity is a benefit under which the company pays _____ the face value of a policy if the insured's death results from an accident.

twice

_______ life insurance is essentially a term policy with a cash value.

universal

A whole life policy that combines term insurance and investment elements is called:

universal life

A plan where the policyholder pays the same premium for as long as they live is called a(n):

whole life policy

When you buy life insurance, you agree to pay a monthly premium to an insurance company, in return for a sum of money paid to:

your beneficiary.