Chapter 10

A Whole Life policy provides life insurance only to age:

100 It is commonly stated that whole life covers the insured for her or his whole life - however, really the policy only provides coverage to age 100.

Which policy will provide a 30-year-old with protection to age 100 and develop cash value quickest?

15-Pay Whole Life 430-year-old the 15 pay whole life policy will build cash value much quicker than the paid up at 65 policy because it requires more money to be paid into the cash value account earlier

Mandy (age 25) is interested in having Life Insurance in force when she dies, but she doesn't want to have to pay premiums when she's retired. What would you recommend?

A Limited Pay Whole Life policy

Which policy will require the highest premium check?

A Single-Pay Whole Life Policy

For which of the following clients would Single Premium Whoke Life be most appropriate?

A wealth, older widower, with a large estate to protect

A Limited Pay Whole Life policy provides

Age 100

When does a Whole Life policy mature?

Age 100 or Death of the insured, whichever comes first The word mature means that the policy pays the face value. It will do that whenever the insured dies. It will also do that when the insured reaches age 100 and the face value is paid to the owner.

Which will have a premium that increases each year?

Annually Renewable Term Life

A policy loan is actually made:

By the insurance company itself The insurance company doesn't take the money out of the cash value account. Instead, the insurance company loans, the insured other company funds if the loan was actually taken out of the cash value account the account wouldn't grow that year and the cash value table would have to be changed. This is a key exam point!

Why is age 100 significant in a Whole Life policy?

Coverage ceases at age 100.

What happens to a Whole Life policy when the Insured reaches age 100?

Coverage terminates it "matures" because the cash value is equal to the death benefit.

A life policy pays the face amount when the policy:

Endows See page 10-2, line 36. When the whole life policy in endows, the cash value account has grown to the point that it equals the death benefit. This is designed to happen at age 100. At that time, the insurer pays the face value to the insured, the 100-year-old insured is taxed on the difference between the face value and the amount of premiums paid. Remember that if the policy endows prior to age 100, the policy is known as an endowment policy.

Which of the following would be a good policy for a new college graduate, who expects her income to increase significantly over the next few years and will have student loans paid off soon?

Graduated (Modified) Premium Life The struggling recent college graduate would opt for the lowest premium and in the early years and then have the payments increase as the graduate's earnings increase. that is exactly what a graded premium policy does. Watch out! A graded premium life policy is sometimes called a modified life policy.

Which of the following would you recommend to a young professional who currently has a limited income and wants life-long coverage?

Graduated Life

Which of the following policies may have a level premium for 3-5 years followed by an increase?

Graduated Life, also known as Modified Life

When comparing Ordinary Life with Limited Pay Life, the Limited Pay Life Policy:

Has a shorter premium payment schedule

A policy owner who has a Convertible Term policy wishes to convert to Whole Life. Will proof of insurability be required?

No We want to encourage clients to switch from term insurance to the better whole life policy. The insurer knows that clients who are in such poor health that they are likely to die soon won't bother to buy the more expensive whole life policy. Thus, no evidence of insurability will be required to convert from term to whole life. However, the insurer will usually require this decision to be made in the first few years, rather than when the turn policy is nearing expiration.

Jay has a Limited Pay Whole Life policy. An advantage of this policy is that it permits Jay to:

Pay premiums only for a predetermined time

A wealthy, elderly woman wants to purchase a Life Insurance policy to protect her estate from the government's death tax. She will most likely purchase:

Single Premium Whole Life The people who are worried about the death tax are invariable the elderly rich. They can usually afford a single premium policy.

Which of the following policies would have the lowest premium in the first year for a 40-year-old?

Straight Life

Which policy provides a death benefit but no living benefit?

Term Life

Alexa buys a 10-Pay Whole Life policy. Assuming she pays all her premiums, how long will she be covered?

Until death or age 100

Annie will be required to provide proof of insurability in each situation EXCEPT?

When applying for a Group Life plan. Group life policies, almost never require a physical (proof of insurability). The presumption is that if Annie is able to work, she is reasonably healthy and it probably isn't worth the money to require a physical. It also helps that group life policies are usually sold for face amounts of $50,000 or less - so the insurer isn't taking a great risk anyway.

Under which of the following situations would Annie NOT need to prove insurability?

When converting from Convertible Term to Whole Life

Which policy provides both insurance coverage and a savings benefit?

Whole Life

If a 30-year-old will live to age 99, which of the following policies will pay a death benefit, and will have cost the lowest total premium outlay?

15-Pay Whole Life If an insured wants the lowest total premium outlay, the solution is to pre-pay the premiums as early as possible. The 15 pay whole life policy (that is same as a paid up at 45 whole life policy) will do this for a 30-year-old.

Which will protect a 30-year-old to age 100 with the lowest annual premium?

Straight Life

Which policy will have the lowest annual premium for a 40-year-old applicant?

Straight Whole Life The policy that requires payments over the longest period of time would have the lowest annual premium. The insured must either pay a little bit each year to age 100 or pay more each year, but make payments for fewer years. On the other hand, if it is paid up early, the annual payments will be higher. The straight whole life policy requires the insured to potentially pay to age 100 - thus it will have the lowest annual premium, but will require the greatest total payment over the life of the policy.

Adam purchases a life policy at age 50 and lives to be 100. Which policy type will require the highest total premium outlay?

Straight life Adam will pay the highest total premium outlay with a straight life policy because he will pay to age 100. The other policies will all be paid up at an earlier date and have more premium in the cash value account to grow to achieve the face value by age 100.

A Whole Life policy's cash value is determined by:

The cash value table contained within the policy

Which of the following is true of a 15-Pay Whole Life policy?

The coverage lasts until the Insured dies or reaches age 100. 15-Pay Whole Life is simply a whole life policy, where the premiums are paid up in 15 years. This increases the amount of the each annual premium, but the cash value still won't equal the face value until age 100. Of course, the insured is covered to age 100 even though the policy premiums are fully paid in 15 years..

Over the course of a Graded (Modified) Premium Whole Life policy:

The premium increases

What changes over the course of a Modified (Graded) Premium Whole Life policy?

The premium increases Ah, yes, an exception to every rule. I have repeatedly said that the premium is level and fixed. The graded premium (modified) whole life policy is the first exception - here we have low premiums in the early years and higher premiums at a later set time.