Life Insurance: Type of Policies

What kind of policy allows withdrawals or partial surrenders?

Universal Life

A Return of Premium term life policy is written as what type of term coverage?

Increasing

A Universal Life insurance policy has two types of interest rates that are called

Guaranteed and Current.

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.

Both Universal Life and Variable Universal Life have a

flexible premium

The death protection component of Universal Life Insurance is always

Annually Renewable Term

The type of policy that can be changed from one that does not accumulate cash value to the one that does is a

Convertible Term Policy.

W owns a policy in which she is covered as the bread-winner with permanent insurance and with decreasing term insurance in the form of a rider. What type of policy is this?

Family Income Policy

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.

What are the two components of a universal policy?

Insurance and cash account A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher.

Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?

Joint Life

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 insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called

Single premium whole life.

The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as

The policy contains sufficient cash value to cover the cost of insurance.

Variable Life insurance is based on what kind of premium?

level-fixed

Variable life insurance is regulated by

Both the state and federal government, as well as the Insurance Department, and the SEC.

Which special policy combines decreasing term insurance with whole life insurance to provide the insured's family with a monthly income upon the death of the insured, while maintaining permanent coverage until the end of the income payments?

Family Income Policy

An applicant wants to buy a life insurance policy in which he can count on receiving the same benefits as stated in the contract. Which type should he buy?

Fixed Fixed life insurance policies offer minimum guaranteed or fixed benefits stated in the contract. Variable life insurance or annuities are contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance.

In Modified Life policies, what happens to the premium?

It is level at the beginning and increases after the first few years. Modified Life policies charge lower premiums (similar to term rates) during the first few policy years, usually the first 3 to 5 years, and then higher level premiums for the remainder of the insured's life. The higher subsequent premiums are typically higher than straight life premiums would be for the same age and amount of coverage.

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

The insured's premiums will be waived until she is 21. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Family Term Rider

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy

Required a premium increase each renewal. Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.

Single premium whole life requires

the entire premium to be paid in one lump sum at the policy's inception

All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy?

Lower

A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?

Level Term

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?

The death benefit can be increased by providing evidence of insurability.

In a survivorship life policy, when does the insurer pay the death benefit?

Upon the last death

The initial amount of credit life insurance may NOT exceed

The amount to be repaid under the contract.

A young father would like a life insurance policy to provide coverage for all five family members at the lowest cost. Which type of policy would he most likely buy?

Family (Protection) Policy This type of insurance combines protection for all members of a family into one policy. It usually provides a permanent plan of insurance on the 'base insured', and term riders on other members of the family. Because they are all covered under a single policy, there is only one policy fee.

When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy?

They can convert their coverage to permanent life insurance without evidence of insurability.

What do Modified Life and Straight Life policies have in common?

Accumulation of cash value

During partial withdrawal from a universal life policy, which portion will be taxed?

Interest

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

The performance of the policy portfolio

Which type of life insurance policy generates immediate cash value?

Single Premium

Which type of life insurance policy allows the policyowner to pay more or less than the planned premium?

Universal Life The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

All other factors being equal, the least expensive first-year premium payment is found in

Annually Renewable Term

One of the advantages of a family life insurance policy that provides coverage for children is that it

May be converted to permanent insurance for the children without requiring evidence of insurability.

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.

An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it?

Limited-Pay Life

When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy as well as a refund of all of the premiums paid. Which rider is attached to the policy?

Return of Premium The Return of Premium Rider pays the beneficiary not only the face amount of the policy but also the amount that had been paid in premiums. The rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned. The Return of Premium Rider is funded by using increasing term insurance.

A domestic insurer issuing variable contracts must establish one or more

Separate Accounts Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

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.

SEC registration is for...

securities, not agents.

The type of term insurance that provides increasing death benefits as the insured ages is called

Increasing Term

Return of premium (ROP) life insurance is

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

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.

What kind of policy does NOT typically require proof of insurability?

Group insurance

What kind of policy issues certificates of insurance to insureds?

Group insurance

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?

If the father is disabled for more than 6 months Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months.

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

Universal Life As well as being a flexible premium policy, universal life is also an interest-sensitive policy. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest.

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

What does "level" refer to in level term insurance?

face amount

An individual purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy?

$100,000

Universal Life Option A (Level Death Benefit option) policy must maintain...

a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

What type of whole life insurance policy has premiums that are adjusted so that during the first years of the policy, the premiums are lower than those of a straight whole life policy, and in subsequent years the premiums are higher than those of a straight whole life policy?

Modified Lfie

An employer offers group life insurance to its employees for the amount of $10,000. Which of the following is true?

The cost of coverage is a deductible expense by the employer. The cost of coverage paid by the employer in excess of $50,000 is taxed to the employee.

Which policy component decreases in decreasing term insurance?

face amount

The type of insurance sold to a debtor and designed to pay the amount due on a loan if the debtor dies before the loan is repaid is called

Credit Life

Which of the following policies is characterized by a provision where the premiums are lower in the early years of the policy and increase over time to a point where they become level for the remainder of the policy?

Graded premium whole life

Graded-Premium Whole Life policy premiums are typically lower initially, but gradually increase for a period of 5 to 10 years. After the period of increase the premiums will

Be level thereafter.

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

Securities Variable products are governed in part by the Securities and Exchange Commission; therefore, agents selling variable life policies must also secure a securities license.

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

To keep the policy in force

The death benefit under the Universal Life Option B

Gradually increases each year by the amount that the cash value increases.

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?

Universal life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

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.

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

The Family Income Policy provides....

Monthly income upon the death of the insured while maintaining permanent coverage until the end of the income payments by combining decreasing term insurance and whole life insurance.

An insured and his spouse own a home. When the insured dies, the insurer pays the remaining balance on his home loan. Which type of life insurance provision/rider does this describe?

Mortgage Redemption

Which component increases in the increasing term insurance?

Death Benefit

Family (Protection) Policy

This type of insurance combines protection for all members of a family into one policy. It usually provides a permanent plan of insurance on the 'base insured', and term riders on other members of the family. Because they are all covered under a single policy, there is only one policy fee.

A policy which pays monthly income upon the death of the breadwinner for a predetermined number of years after death, plus a lump sum at death, and combines level term and whole life is known as which policy?

Family maintenance

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.

A Universal Life Insurance policy is best described as a/an

Annually Renewable Term policy with a cash value account.

Any domestic insurer issuing variable contracts must establish

one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

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.

Typically, the owner of an adjustable life policy has the following privileges:

Increasing or decreasing the premium Changing the premium-paying period Increasing or decreasing the face amount of coverage Changing the period of protection.

An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term?

The insured may renew the policy for another 10 years, but at a higher premium rate.

The Return of Premium Rider is achieved by using

increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

the owner of an adjustable life policy has the following privileges:

increasing or decreasing the premium changing the premium-paying period increasing or decreasing the face amount of coverage or changing the period of protection.

Straight Life policies

Charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.

An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an

Interest-sensitive Whole Life. Because the cash values are generated by investments, interest rates will affect the amount of the cash value.

Which of the following best describes annually renewable term insurance?

It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.