Life Insurance Policies (3)
Whole life policies endow at the insured's age ____, which means the cash value created by the accumulation of premium is scheduled to equal the face amount of the policy at age ___
100
Who regulates variable life policies?
Securities and Exchange Commission and the Insurance Department
Variable life insurance
a level fixed premium, investment-based product. Has a guaranteed minimum death benefit
Modified life
a type of whole life policy that charges a lower premium (similar to term rates) in the first few policy years, usually the first 3 to 5 years, and then a higher level premium for the remainder of the insured's life
Interest-sensitive whole life (current assumption life)
a whole life policy that provides a guaranteed death benefit to age 100
A universal life policy has two components:
an insurance component and a cash account
In a group life insurance policy, the employer may not select the
beneficiary
Premium and interest provide
cash value
Term policies provides the greatest amount of
coverage for the lowest premium as compared to any other form of protection
What type of insurance policies is most commonly used in credit life insurance?
decreasing term
Limited-pay whole life
designed so that the premiums for coverage will be completely paid-up well before age 100. This type of policy has a shorter premium-paying period that straight life insurance so the annual premium will be higher
Survivorship life policy is often used to
offset the liability of the estate tax upon the death of the last insured
Indexed whole life (equity index whole life) insurance
the cash value is dependent upon the performance of the equity index, such as S&P 500 although there is a guaranteed minimum interest rate
Death benefit
the death benefit is guaranteed and also remains level for life
What life insurance policy would be considered interest sensitive?
universal life
When would a 20-pay whole life policy endow?
when the insured reaches age 100
Which policy would have an IRS required corridor or gap between the cash value and the death benefit?
Option A
Universal life offers one of two death benefit options to the policy owner:
Option A and Option B
Decreasing term policy
a level premium and a death benefit that decreases each year over the duration of the policy term
Target premium
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
Joint life (first-to-die)
a single policy that is designed to insure two or more lives
The death benefit under the Universal life option B (Increasing Death Benefit)
gradually increases each year by the amount that the cash value increases. Allows the beneficiary to collect both the death benefit and cash value upon the death of the insured
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
The following are key characteristics of whole life insurance:
level premium, death benefit, cash value, living benefits
Limited pay whole life premiums are all paid by the time
the insured reaches age 65
Survivorship life (second-to-die)
it insures tow or more lives for a premium that is base on a joint age. It pays on the last death rather than upon the first death
As well as being a flexible premium policy, universal life is also an interest-sensitive policy. Although the insurer guarantees a _____ interest rate, there is also potential for the policy owner to get a ______ interest rate, which is not guaranteed in the contract but may be higher because of current market conditions
contract, current
Decreasing term coverage is commonly purchased to
insure the payment of a mortgage or other debts if the insured dies prematurely. The amount of coverage thereby decreased as the outstanding loan balance decreases each year
Credit life insurance
insures the life of a debtor and is designed to pay the amount due on a loan if the debtor dies before the loan is repaid
Cash values have a guaranteed
interest rate
Cash value
the cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 (the policy maturity date), and is paid out to the policy owner
The policy owner of an adjustable life policy wants to increase the death benefit. What is correct regarding this change?
the death benefit can be increased by providing evidence of insurability
Jumping juvenile policy
the face amount increases at a predetermined age, often are 21. The face amount jumps but the premium remains level
Term level insurance
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
In credit life insurance the creditor is
the policy owner
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
Universal life insurance (flexible premium adjustable life)
the policy owner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to cover the monthly deductions for cost of insurance
Straight life (also referred to as ordinary life or continuous premium whole life)
the policy owner pays the premium from the time the policy is issued until the insured's death or age 100 (whichever comes first). Of the common whole life policies, straight life will have the lowest annual premium
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
It is more commonly found as joint whole life, which functions similarly to an individual whole life policy with two major exceptions:
the premium is based on a joint average age that is between the ages of the insureds, the death benefit is paid upon the first death only
The cost of coverage on group plans is based on
the ratio of men and women in the group
An insured purchased a life insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash value could change from those shown in the policy at issue time. The policy is an
interest-sensitive whole life
In an adjustable life policy what can't be changed?
the type of investment
What is NOT a characteristic of a group life insurance plan?
there is a requirement to prove insurability on the part of the participants
What is the purpose of establishing the target premium for a universal life policy?
to keep the policy in force
There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term:
level, increasing, decreasing
Minimum premium
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
Although adjustable life policies contain most of the common features of other whole life policies, the cash value of an adjustable life policy only developed when
the premiums paid are more than the cost of the 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
Adjustable life
developed in an effort to provide the policy owner with the best of both worlds (term and permanent coverage). The insurer typically determines how much coverage is needed and the affordable amount of premium. The policy owner has the option of converting from term to whole life or vice versa.
In a single employer group plan, what is the name of the policy issued to the employer?
master contract
Since the premium can be adjusted in Universal life, the insect companies may give the policy owner a choice to pay either of the two types of premiums:
minimum premium and target premium
What is NOT true about group insurance?
participants in the policy each receive a policy
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 savings element (or cash value)
If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may
require evidence of insurability
If an agent wishes to sell variable life policies, what license must the agent obtain?
securities
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
Graded-premium whole life
somewhat similar to modified life int that premiums start out relatively low and then level off at a point in the future
Which policy would be classified as a traditional level premium contract?
straight life
The face amount in Adjustable life is
flexible; set by policy owner with proof of insurability
Permanent life insurance
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 as long as the premium is paid
Term insurance
temporary protection because it only provides coverage for a specific period of time
The insured needs to maintain enough cash value to
support all costs (insurance cost, term policy, withdrawals/loans)
Joint life policies can be in the form of
term insurance or permanent insurance
Option A (the level death benefit)
gradually increasing cash value and a level death benefit
The insurance component of a universal life policy is always
annually renewable term insurance
A Universal life insurance policy is best described as an
annually renewable term policy with a cash value account
Juvenile Life
any life insurance written on the life of a minor
Single premium whole life
designed to provide a level death benefit to the insured's age 100 for one-time, lump-sum payment. The policy is completely paid-up after one premium and generate immediate cash
The cash value, also called nonforfeiture value, doe not usually
accumulate until the third policy year and it grows tax deferred
The death protection component of Universal Life Insurance is always
annually renewable term
What type of life insurance is most commonly used for group plans?
annually renewable term
