life insurance
Joe Rushton has a whole life policy for $25,000. He also has a twenty year level term policy equal to the face value of the whole life policy. Joe dies five years after starting the policies. The $25,000 lump sum is paid and:
The $25,000 face value of the term policy --- The benefits of the term policy are paid along with the benefits of the whole life policy. Benefits are paid in a lump sum unless a settlement option has been chosen. Settlement options will be reviewed later.
Which one of the following life insurance policies would commonly pay dividends to the policy owner when there is a surplus in the general investment account?
"Par" policies --- Participating life insurance policies (mutual companies) pay dividends to the policy owner when there is a surplus earnings declared by the board of directors. Stock companies MAY pay dividends, but normally retain the assets to increase their stock price.
What is the name of a statistical table that states how many individuals will die at a certain age?
A mortality table shows the number of deaths at each age in terms of the number of deaths per thousand. All policies issued before 2001, used mortality tables that assume everyone is statistically dead by age 100. Mortality tables released in 2001 assume everyone is statistically dead by age 120. Insurers will be required to use the new tables when developing new products.
Delivery of a life insurance policy is usually considered to be which of the following?
The insured (applicant or client) makes the offer by paying the first premium and completing the application. The acceptance of the offer is when the insurance company agrees to accept the risk and deliver the policy. If the insurance company does not accept the first offer, they may come back with a counter offer requesting an increase in premium payment. This is usually the case for people found to be a substandard risk. Such a counter offer is often referred to as a rated policy. If the applicant does not submit premiums with the application (COD) the application is an invitation to an offer. The insurer makes the offer when the policy is delivered and the owner accepts when the premium is paid.
Which one of the following is not true of an annual renewable term policy?
Insured must complete a medical exam to renew --- Annual renewable term polices renew each year without evidence of insurability. Premiums increase each year based upon the age of the insured.
Joe, a prospective client, is undecided about whether to purchase a $100,000 whole life policy or a life paid-up at 65 policy. In comparing premiums and cash value, Joe's producer should explain which of the following to him?
The life paid-up will have a higher premium and higher cash value. --- A life paid-up policy has a higher premium than whole life which results in a higher cash value. The more premium (money) Joe pays into the policy, the faster the cash value will build.
Craig is 35 years old. He decides to buy a life insurance policy that will provide protection until he is 65 years old but has no cash value. Which of the following types of insurance did he purchase?
30 year term-TERM insurance provides protection for a stated period of time. Term has no cash value. It is pure insurance protection.
Tim Rushton buys a convertible term policy. Five years after he purchases the policy he exercises his conversion privilege. Which of the following will occur?
he premium will increase because of Tim's attained age at conversion, and because he is converting to a higher premium paying policy.-A CONVERTIBLE TERM policy is converted to a higher premium permanent policy at any time without providing evidence of insurability and at the option of the insured. The cost will increase because of: * Attained age * Conversion to a higher premium paying policy
Suzie has just taken out a $25,000 business loan. The principle and interest will be paid off in 20 years. She needs to buy a 20-year life insurance policy to pay off the loan if she dies?. Which policy will adequately cover the loan in the event of her death, and at the lowest cost?
Credit life policy for 20 years ---DECREASING TERM is most often used for business or personal debts. The face value of the term policy decreases as the balance of the loan is being paid off. Decreasing term would provide the lowest cost over the life of the policy to Suzie. Credit life is used for business loans (and other loans such as auto loans). Mortgage protection is used to pay the mortgage value of a home loan. Rules Pertaining to credit life and mortgage protection insurance: Borrower must be the insured Lender must be the beneficiary Face value cannot exceed loan or mortgage balance
Which of the following best describes the term adverse selection?
A deteriorating health condition motivating the insured to increase insurance coverage. ADVERSE SELECTION is sometimes referred to as anti-selection or selection against the insurer. This is when someone in poor health attempts to purchase more insurance.
A policy that allows the death benefit to increase or decrease and extra premiums to be paid is called:
Adjustable life --- This policy may vary in its coverage but the fluctuations only affect the future not the past. Evidence of insurability may not be required for an increase in face value if the face value is being restored after a decrease in face value.
Joanne Johnson owns a 20-pay life policy she purchased at the age of 40. When will the cash value equal the face value?
Age 100 --- A paid-up life policy does not endow (CV = FV) until age 100. This policy is paid-up and Joanne no longer needs to pay premiums after age 60. However, the interest on the cash value continues to accumulate until age 100 when the face value will equal the cash value.
n determining the amount of insurance required, using the needs approach, all of the following are correct, EXCEPT
Needs approach: Method used to analyze the amount necessary to maintain a family in its customary life style should a primary wage earner die. This includes such considerations as: * Immediate needs - burial, inheritance taxes, probate, etc. * Continued income - children, mortgage, education, etc. * Retirement income - for surviving spouse
Russell needs a life insurance policy that will provide coverage for his whole life. He also wants the policy to be economical and have level premiums. Which of the following would best suit his needs?
Ordinary whole life --- STRAIGHT WHOLE LIFE covers to age 100, has level premiums and is the least expensive permanent insurance available. Although term is the lowest cost insurance, it usually does not cover to age 100 and is not considered permanent. Straight whole life is also known as ordinary whole life.
Benjamin is 42 years old and plans to retire at age 65. He wants to buy an insurance policy that will cover his whole life, but will require premiums only until age 65. Which of the following will best suit his needs?
Paid-up at 65 --- Benjamin would need to purchase a life policy paid-up at age 65. The premiums in a paid-up at 65 policy would be higher than the premiums in a straight whole life policy. The higher premiums in the paid-up policy will result in faster growth of the cash value. The interest on the cash value is sufficient to accumulate in the cash value and pay for the insurance protection after age 65. This is a whole life policy and provides protection to age 100 (or 120 in recently issued policies).
What type of policy has a one-time premium payment but provides protection for your whole life?
Single premium whole life --- A single premium whole life policy is paid with one single premium. Like a paid-up policy, the interest from the cash value pays the premiums until age 100. At age 100 the face value equals the cash value and the policy has matured or endowed. If the insured dies, this is also considered to be maturity of a policy. In cash value life products, such as whole life, endowment; etc., when death occurs, the insurance company pays the face value. The purpose of the cash value is to lower the insurer's risk. Generally, as the insured ages and becomes more likely to die (mortality risk), the insurer's financial risk becomes smaller and smaller. If the insured dies, the insurer pays the entire face value but keeps the cash value. If the owner/insured wishes to cancel the policy with a cash value he/she will receive the cash value.
All the following statements are true about a yearly renewable term life insurance contract, EXCEPT
The premium decreases in renewable term due to a decline of the face value-Term insurance provides protection with no cash value. Renewable term may be renewed at the end of the term without having to provide evidence of insurability. This means that no application is submitted at the time of renewal. The client could have poor health but still receive coverage. The premium would increase because of age in relation to mortality tables. The MORTALITY TABLES show the rate of death per 1,000 people. Mortality tables are available for certain occupations and for certain illnesses. Mortality tables show that as we grow older we are closer to death. Premiums will increase to compensate for the increasing probability of death.
