Life Insurance - Chapter 3: Life Insurance Policies
A policy that becomes a Modified Endowment Contract (MEC)
will lose many of its tax advantages
This type of term life policy most likely contains a renewability featue.
10 year convertible term
What kind of life insurance starts outs as temporary coverage but can later be modified to permanent coverage without evidence of insurability?
Convertible Term
Which of the following combination plans is designated to protect a insured from an unpaid mortgage balance upon premature death?
Joint Life
The Combination of Whole Life and _____ Term insurance is referred to as a Family Income Policy
Level
Limited Pay Whole Life
Level premiums limited to certain time period, less than life.
Which type of policy is considered to be overfunded, as stated by IRS guidelines?
Modified Endowment Contract -- a contract that does not meet the 7pay test is considered this
Whole Life policy with other insured rider
Q would like to purchase 100k of permanent protection on his wife & 50k of term coverage on himself under the same policy --- what kind of policy would Q purchase?
T has a term policy that allows him to continue the coverage after expiration of the initial policy period. What type of term coverage is this?
Renewable
What type of life insurance are credit policies issued as?
Term
Whole Life insurance is sometimes referred to as "Straight Life". What does the word Straight indicate when using this phrase?
The duration of premium payments
What type of life insurance incorporates flexible premiums and an adjustable death benefit?
Universal Life
In order to sell a ____ Life Policy, a producer is required to register with the (FINRA) Financial Industry Regulatory Authority
Variable
A life policy with a death benefit that can fluctuate according to the performance of its underlying investment portfolio is referred to as
Variable Life
Life insurance immediately creates an estate upon the death of an insured. Which policy is characterized by a guarantee minimum death benefit?
Variable life b/c the variable nature of a variable whole life insurance is its death benefit --- if investment is poor, the death benefit will not go lower than the policy's guaranteed minimum
This is an element of variable whole life policy
a fixed, level premium
Family Maintenance Policy
a kind of insurance policy that pays a specified monthly income to a beneficiary for 30 yrs and then pays a lump sum benefit at the end of that 30 yrs
Family Maintenance Policy
a policy that supplies an income stream over a set period of time that starts when the insured dies
Industrial Life Insurance
a type of insurance in which the policies are sold in small amounts and an agent of the company collects the premiums at the insured's home -- burial coverage
Whole Life insurance policies are contractually guaranteed to provide what?
cash value that will ultimately replace the death benefit -- nonforfeiture benefit options -- premiums that remain fixed for the life of the policy
S is covered by a whole life policy. Which insurance product can cover his children?
child term rider
Variable Products
do not guarantee contract cash values, policyowner who assumes the investment risk. Variable life insurance contracts do not make any promises as to either interest rates or minimum cash values. What these products do offer is the potential to realize investment gains that exceed those available with traditional life insurance policies. This is done by allowing policyowners to direct the investment of the funds that back their variable contracts through separate account options.
Conversion Provision
gives the insured the right to convert or exchange the term policy for a whole life plan without the evidence of insurability
Term Life
has a TERM date -- only good for a limited time. inexpensive & attractive to large policies -- IF insured dies too soon
Variable Life Products require a producer to
hold a life insurance license and a securities license
Universal Life
incorporates flexible premiums and an adjustable death benefit
Who has the option to renew a Renewable Term Policy
insured
Ordinary (Straight) Whole Life
is individual life insurance that includes many types of TERM and PERMANENT insurance and is usually paid with monthly premiums. Is the principal type of life insurance purchased in the United States.
What kind of premium does a Whole Life policy have?
level
Decreasing term
may NOT have the automatic premium loan provision attached to it
Convertible Term Insurance
offers policyholders the option of exchanging a term policy for a whole(permanent) policy without evidence of insurability
Single Premium Whole Life
offers the highest initial cash value -- allows the insured to pay the entire premium in one lump sum and have coverage his entire life
cash value
the amount of money a whole life policyholder would receive if the policy were surrendered before death or maturity
Under a Graded Premium Whole Life Policy,
the increases each year during the early years of the contract (usually 5 years) and remains the same after that time
A universal policy is sometimes referred to as an unbundled life policy because the owner cans see what?
the interest earned -- expense charges -- and cost of insurance
Under a Renewable Term policy,
the renewal premium is calculated on the basis of the insured's attained age
Stranger Owned Life Insurance (STOLI) is when a person purchase life insurance only to sell to a
third-party with no insurable interest
Equity Indexed Life Insurance
this is a perm life insurance that allows policy holders to tie accumulation values to the stock market index -- cash value has a minimum rate of accumulation -- if the gain on the index goes beyond the policys min rate of return, the cash value will mirror that of the index -- its tied to an equity index such as the S&P500
Term Life Insurance Policy matures(pay out the face amount)...
upon the insureds death during the term of the policy
N is a 40-year old applicant who would like to retire at age 70. He is looking to buy a life insurance policy with level premiums, permanent protection, and be paid-up at retirement. Which of policy should N purchase?
30 Pay Life
P owns a $25k life policy that pays the face amount to him if her lives to age 70, or to his beneficiary if he dies before age 70. What kind of policy does P own?
Endowment at age 70
What type of life policy covers two people and pays upon the death of the last insured?
Survivorship
Ten Year Endowment
T would like to be assured 10k is available in 10 years to replace a roof on his house -- what kind of 10k policy should T purchase?
You must have a FINRA securities registration in order to sell...
Variable Life -- Universal Variable Life -- Variable Annuity
A variable insurance policy
does not guarantee a return on its investment accounts
MEC (modified endowment contract)
when a life insurance policy exceeds certain IRS table values, this is the result
Additional coverage can be added to a Whole Life policy by adding a(n)
Decreasing term rider
D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed?
Level Term
These are required to be in a whole life policy ...
policy loan interest rate -- policy premium -- policy cash value table
Whole Life
policy protects over entire lifetime beneficiary receives face value of contract upon death -- permanent protection WHEN the insured dies
whole life insurance
provides living and death benefits for entire life -- includes benefits like cash value and policy loans (like buying a house, once its paid for you still own it)
increase face amount
requires the policyowner to provide proof of insurability in an adjustable life policy
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?
variable life
Term Life policies that have the ability to be converted to permanent coverage may do so during a specific time period. This conversion period...?
varies according to the contract