Types of Life Policies Ch2 Texas Life Insurance Exam
Single Life vs. Multiple Life
#Single life annuities cover one life, and annuity payments are made with reference to one life only. #Multiple life annuities cover 2 or more lives. The most common multiple life annuities are joint life, and joint and survivor.
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 (in joint life policies, the death benefit is paid upon the first death only)
The annuitization date is the time when the annuity benefit payouts begin
(trigger for benefits)
A Straight Life policy has what type of premium?
A level annual premium for the life of the insured
A Universal Life insurance policy is best described as a/an
Annually Renewab;e Term policy with a cash value account. (A universal life 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).
Accumulation Period vs. Annuitization Period In an annuity, the accumulated money is converted into a stream of income during which time period?
Annuitization period (the "annuitization period" (annuity period) is the time during which the accumulated money is converted into an stream of income payments to the annuitant.
During partial withdrawal from a universal life policy, which portion will be taxed?
Interest. (During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation)
Which of the following best describes annually renewable term insurance?
It is level term insurance - it offers the most insurance at the lowest cost. The premium increases annually according to age.
Which of the following is TRUE regarding the premium in term policies?
The permium on a term life insurance policy is level throughout the term of the policy. Only the amount of death benefit may change.
Variable premiums purchase ___________ in the fund, which is similar to buying shares in a Mutual Fund
accumulation units
The annuity period is also known as the
annuitizaiton period, liquidation period, or pay-out-period
Which of the following terms best describe the coverage provided by term policies as compared to any other form of protection?
greatest
Shorter life expectancy = higher benefit; longer life expectancy=
lower benefit
Indexed Life An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined, and the cash value fell to $10,000. If the insured dies, how much will be paid out?
$50,000. The cash value of a variable life insurance policy is not guaranteed. However, even if investments devalue significantly, they cannot be lower than the initial guaranteed benefit amount.
The insured is also the policyowner of a whole life policy. What age must the insured attain in order to receive the policy's face amount?
100 (Whole life insurance policies mature when the insured reaches the age of 100. The cash value at that time is scheduled to equal the face amount; therefore, when the insurance company pays the face amount, it also, in effect, pays the cash value.
If an annuitant dies before annuitization occurs, what will the beneficiary receive?
Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount.
Survivorship Life (Second to Die) The premium of a survivorship life policy compared with that of a joint life policy would be
Lower (survivorship pays on the last death rather than 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.
Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive
Nothing; the payments will cease.
Which of the following terms are associated directly with the way an annuity is funded?
Single payment or periodic payments
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?
Universal Life- Option A (Level Death Beenfit) ~ policy must maintain a specific "corridor" or gap between the cash value and the death benefit, as required by the IRS. If the corridor is not maintained, the policy is no longer defined as life insurance for tax purposes.
All of the following are true regarding the convertibility option under a term life insurance policy EXCEPT
Upon conversion, the death benefit of the permanent policy will be reduced by 50%. (upon conversion, the premium of the permanent policy will be based on the insured's attained age)
Annuities In a survivorship life policy, when does the insurer pay the death benefit?
Upon the last death (survivorship life pays on the last death rather than upon the first death)
Pure life annuity provides the highest monthly benefit, but there is no
guarantee that the entire principal will be paid out.
The accumulation period is also known as the
pay-in period
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 ( a joint life policy covering two lives would be the least expensive because the premiums are based on an average age, and it wold pay a death benefit only at the first death.)
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.
During the accumulation period, funds are paid INTO
the annuity
A lucky individual won the state lottery so the state will be sending him a check for the next 25 years. What type of annuity products are they likely to use to provide these benefits? Search Results Main results
Immediate annuity (An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.
Chapter Recap Under which of the following annuity options does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be?
Installments for a fixed period (this option pays for a specific period of time only, and there are no life contingencies.)
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. A 20-year term policy is written to provide a level death benefit for 20 years.
Which of the following is an example of a limited-pay life policy?
Life Paid-up at Age 65 (Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the permium paying period that is limited, no the maturity.)
Single Life vs. Multiple Life Your client is planning to retire. She has accumulated $100,000 in a retirement annuity, and now wants to select the benefit option that will pay out the largest monthly amount for as long as she lives. As her agent, you should recommend
Straight life (with the straight life option, the annuity payments cease at death. However, because there are no other guaranteed that might incur additional charges, this option provides the highest monthly benefits for an individual annuitant.
Which of the following is NOT true regarding the annuitant?
The annuitant cannot be the same person as the annuity owner.
C. Interest-sensitive, Market-sensitive and Adjustable Life Products When would a 20-pay whole life policy endow?
When the insured age reaches 100
Indexed annuities are fixed annuities that invest on a relatively aggressive basis to
aim for higher returns.
In variable contracts, the policyowner bears the investment
risk (assets in a seperate account)
Types of Annuities Which of the following is NOT true regarding the annuitant?
It would not occur in a deferred annuity.
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. (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).
Variable Whole Life 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). - in short, face amount plus cash value.
Which policy component decreases in decreasing term insurance?
Face amount (decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term)
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.
Interest Sensitive Whole Life
Interest-sensitive life insurance is a type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant. This is also called current assumption whole life insurance. It also gives the insured the opportunity to either increase the face amount or use the extra cash value to lower future premiums. Premiums can vary to reflect the insurer's changing assumptions with regard to its death, investment, and expense factors. CAWL (current assumption whole life) policies are almost always a MEC due to accelerated premiums.
Indexed Annuities Why is an indexed annuity considered to be a fixed annuity?
It has a guaranteed minimum interest rate (While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.)
Indexed Annuities An agent selling variable annuities must be registered with
FINRA- Becaused variable annuities are considered to be securities, a person must be registerd with the FINRA and hold a securities license in addition to a life agent's license in order to sell variable annuities
Indexed Life
Face amount increases based on the performance of an equity index, such as the S&P 500 with a guaranteed minimum interest rate and fixed premiums
An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy i paid up. What kind of policy is it?
Limited-pay Life
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.
Combination Plans and Variations The death benefit in a avariable universal life policy
Depends on the performance of a separate account (The death benefit is not fixed, and may increase or decrease over the life of the policy depending on the investment performance of the underlying sub-account. It cannot, however, decrease below the initial face amount of the poilcy).
Interest-Sensitive Whole Life The death benefit in a variable universal life policy
Depends on the performance of a seperate account (the death benefit is not fixed and may increase or decrease over the life of the policy depending on the investment performance of the underlying sub-account. It cannot, however, decrease below the initial face amount of the policy.
Single Life vs. Multiple Life The form of life annuity which pays the benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called
Life income with period certain (If the annuitant dies before the period certain, the payments continue to a beneficiary or the estate for the remainder of the period certain.)
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, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.
Accumulation Period cs. Annuitization Period All of the following are true of an annuity owner EXCEPT
The owner must be the party to receive benefits (the owner is the one who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner however does not have to be the one who receives the benefits; it could be the annuitant or the beneficiary.
Survivorship Life (Second to Die) All of the following entities regulate variable life policies EXCEPT
The Guaranty Association (it is regulated by both state and federal government, as well as the Insurance Department, and the SEC)
Types of Annuities Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?
Depreciation period ("the annuitization period" is also referred to as the annuity, liquidation, or pay-out period.
Chapter Recap A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select?
Joint and survivor
Joint Life If a contract provides a set amount of income for two or more persons with the income stopping upon the first death of the insured, it is called a
Joint life annuity (Joint Life annuity settlement option pys benefits to two or more annuitants, but stops upon the death of the first.
During the annuity period, funds are paid OUT
to the annuitant
When an annuity is written, whose life expectancy is taken into account?
Annuitant
Which of the following is a short-term annuity that limits the amounts paid to a specific fixed period or until a specific fixed amount is liquidated?
Annuity certain (this option allow the annuitant to select the time period or the amount of the benefits to be paid out. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date)
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 (has a provision that allows the policyowner to convert to permanent insurance)
Joint Life Policy
Covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured, at which time the policy automatically terminates.
Index Annuities An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n)
Equity Indexed Annuity (the interest rates of Equity Indexed Annuities are tied to the Standard and Poor's Index
What does "level" refer to in level term insurance?
Face amount (Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages.
The death benefit under the Universal Life Option B
Gradually increases each year by the amount that the cash value increases. (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)
Types of Annuities Which of the following is NOT true regarding the accumulation period of an annuity?
It would not occur in a deferred annuity (period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).
Under a pure life annuity, an income is payable by the company
Only for the life of the annuitant (with pure life annuity, income payments cease at the annuitant's death and there is no refund or payments to survivors. Life only or Straight Life).
Which of the following has the right to convert the existing term coverage to permanent insurance?
Policyowner
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death?
Pure life (has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund payments to survivors.
Annuities Certain (Types) Which of the following best describes a pure life annuity settlement option?
Pure life provides payments for as long as the annuitant is alive (Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; however if he/she dies after receiving the first payment, no more payments would be made to any other person. For this reason, pure life has the potential to pay larger monthly benefits than other options.)
Which of the following is NOT one of the three types of term coverage based on what happens to the face amount during the policy term?
Renewable. (Level, Increasing, Decreasing) - Regardless of the type of term insurance purchased, the premium is level throughout the term of the policy.
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 (death benefit only)
Who bears all of the investment risk in a fixed annuity?
The insurance company
If an insured skips a premium payment on a universal life policy, the missing premium may be deducted from the policy's cash value.
The policy will NOT lapse.
Combination Plans and Variations All of the following are true about variable products EXCEPT
The premiums are invested in the insurer's general account (Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk)
Payout Options Which of the following is NOT true regarding Equity Indexed Annuities?
They earn lower interest rates than fixed annuities. (Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns - they have guaranteed minimum interest rates - the insurance company oftens keeps a predetermined percentage of the return and pays the rest to the annuity owner. They are less risky than variable annuities and earn higher interest rates than fixed annuities.