Types of policies
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.
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
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?
Immediate annuity
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.
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.
Nonforfeiture Values
benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses
Liquidation of an estate
converting a person's net worth into a cash flow
Policy maturity
in life policies, the time the face value is paid out
Single Premium Whole Life (SPWL)
involves a large one-time-only premium payment at the beginning of the policy period and from that point on the policy is completely paid for.
Key Characteristics of whole life insurance
level premium, death benefit, cash value, living benefits
Variable Life Insurance
life insurance in which the benefits are a function of the returns being generated on the investments selected by the policyholder Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.
3 basic forms of whole life insurance
straight whole life, limited pay whole life and single-premium whole life
Face Amount
the amount of benefit stated in the life insurance policy
Endow
the cash value of a whole life policy has reached the contractual face amount
Death Benefit
the death benefit is guaranteed and also remains level for life
Attained Age
the insured's age at the time the policy is issued or renewed
Level Premium
the premium that does not change throughout the life of a policy
deferred
withheld or postponed until a specified time or event in the future
Qualified Plan
A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.
Which of the following features of the Indexed Whole Life policy is NOT fixed? A: Cash value growth B: Death benefit C: Policy Period
A: Cash Value growth Under the Indexed Whole Life policy, the premium is fixed, and the death benefit is guaranteed. Cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed.
A domestic insure issuing variable contracts must establish one or more A. Liability accounts B. Separate accounts C. General accounts
B. 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.
Which of the following determines the cash value of a variable life policy? A: The premium mode C: The company's general account B: The performance Of the policy portfolio
B: THE PERFORMANCE OF THE POLICY PORTFOLIO The cash value of a variable life policy is to guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.
Which of the following is NOT true regarding Equity Indexed Annuities? A: They are less risky than variable annuities. B: They earn lower interest rates than fixed annuities. C: The insurance company keeps a percentage of the returns. D: They have guaranteed minimum interest rates.
B: They earn lower interest rates than fixed annuities. Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
Ordinary Whole Life (Straight Life)
Basic policy where policy owner pays the premium from the time the policy is issued until the insured's death or age 100. Will have the lowest annual premium.
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) A: immediate Annuity B: Flexible Annuity C: Equity Indexed Annuity
C: Equity indexed Annuity The interest rates of Equity Indexed Annuities are tied to the Standard and Poor's Index.
cash value
Castle 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. (Remember: the insured and the policy-owner do not have to be the same person.) Cash values are credited to the policy on a regular basis and have a guaranteed interest rate.
Adjustable Life Insurance
Is to provide the policy owner with the best of both worlds (term and permanent coverage) adjustable life policy can assume the form of either term insurance or permanent insurance
A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that?
Joint Life Policy Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends.
Limited Premium Whole Life
Limited pay whole life is 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 than straight life insurance so the annual premium will be higher. Cash value builds up faster for the limited pay policies. Limited. Pay policies are good for those insureds who do not want to be paying premiums beyond a certain point in time.
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 In limited-pay policies, the premiums for coverage will be completely paid-up well before age 100, usually after a specified number of years.
An individual buys a flexible premium deferred life annuity with 20 year period certain. What would his beneficiary receive if he died 5 years after beginning the annuity phase?
Payments for 15 years With any period certain, death of the annuitant within the stated period will provide payments to the beneficiary only for the remainder of the period certain
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.
Which of the following is called a "second-to-die" policy?
Survivorship life. Survivorship life (also referred to as "second-to-die" or "last survivor" policy) 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.
Who bears all of the investment risk in a fixed annuity?
The insurance company. Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.
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 has the flexibility to increase the amount of premium paid into the policy and to later decrease it again. (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.)
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. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
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.
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.
KNOW THIS!
Whole life insurance provides lifetime (permanent) protection and accumulates cash value.
cash value
a policy's savings element or living benefit
suitability
a requirement to determine if an insurance product is appropriate for a customer
Securities
financial instruments that may trade for value (for example, stocks, bonds, options)