Chapter 3 - Types of Insurance Policies
What are the two options that can extend the coverage period of a term life insurance policy?
The option to renew and the option to convert
In the option to convert, if the rate reflects the insured's age at the time when the original term policy was taken out, what is it called?
The original age method
Cash values build up in limited-pay policies faster during what time?
The premium paying years
Why are level term life insurance policies able to offer level premiums?
The premiums are averaged over the term of the policy
Whole life insurance is designed to mature at what age?
100
Increasing term life insurance policies are sometimes tied to what?
A cost of living index
Increasing term life insurance is usually purchased as what?
A cost of living rider to a policy
What does an increasing term life insurance policy provide that increases at periodic intervals over the policy's term?
A death benefit
Whole life insurance combines insurance protection with what?
A savings element
The option to covert gives the insured the right to convert or exchange the term policy for what?
A whole life plan
What is a common type of renewable term insurance?
Annually Renewable Term (ART)
When are premiums set in a whole life insurance policy?
At the time of policy issue
Credit life insurance, sold to cover the outstanding balance on a loan, is based on what?
Decreasing term life insurance
This policy is characterized by cash values that grow at a rapid pace so that the policy matures at a specified date (that is, before age 100).
Endowment life insurance policy
In which type of whole life insurance does 80%-90% of the premium get invested in traditional fixed income securities and the remainder is invested in contracts tied to a stipulated stock index?
Equity index whole life insurance
A guaranteed renewable policy allows the policyowner to renew the term policy before its expiration date without having to provide what?
Evidence of insurability
In this type of whole life insurance, premiums are lower than typical whole life rates during the preliminary period after the policy is issued (usually lasting five to ten years). The premiums will initially increase yearly during the preliminary period then remain level afterwards.
Graded premium whole life insurance
The longer the whole life insurance policy has been ___, the greater the build-up in cash values.
In force
What might be due when a whole life insurance policy is surrendered?
Income taxes
Which type of life insurance is characterized by comparatively small issue amounts, such as $1,000, with premiums collected on a weekly or monthly basis by the agent at the policyowner's home?
Industrial life insurance
What happens to the face amount of a whole life insurance policy throughout the policy's life?
It remains constant
This type of life insurance coverage would best suit a prospective insured who desires permanent insurance but does not want to pay premiums indefinitely.
Limited pay whole life insurance
What is the form of whole life insurance that has level premiums that are limited to a specified number of years?
Limited pay whole life insurance
This type of whole life insurance policy is distinguished by premiums that are lower than typical whole life premiums during the first few years (usually 5) and then higher than typical thereafter:
Modified whole life insurance
What of insurer's is decreasing term life insurance is commonly used to protect?
Mortgage
Which insurance is the principal type of life insurance purchased in the United States?
Ordinary life insurance
What are the three basic kinds of coverage that life insurers issue?
Ordinary, industrial, and group insurance
What is another name for whole life insurance?
Permanent life insurance
The shorter the ___ of the whole life insurance policy, the quicker the cash values grow.
Premium-payment period
Though it is an important part of funding the policy, the cash value is often regarded as a savings element because it represents what?
The amount of money the policyowner will receive if the policy is ever surrendered
What will happen if a whole life insurance policy holder has a loan that is outstanding at the time of his death?
The amount of the loan plus any interest due will be subtracted from the death benefit before it is paid
In the option to convert, if the rate reflects the insured's age at the time of conversion, what is it called?
The attained age method
In group life insurance, who is underwriting based on?
The group
For whole life insureds that live to age 100, what will happen?
The insurance company will issue checks for the full value of their policies
The option to convert involves the issuance of a whole life policy at a premium rate reflecting what?
The insured's age
The amount of premium for a whole life insurance policy is calculated, in part, on what basis?
The number of years between the insured's age and age 100.
In a level term life insurance policy, if the insured lives beyond the term period, what will happen to the policy's benefits?
The policy expires and no benefits are payable
Who do cash values belong to?
The policyowner
In a renewable policy, what will happen to the premiums for the renewal period?
They will be higher
Which type of life insurance provides permanent protection for one's entire life-from the date of issue to the date of the insured's death?
Whole life insurance
In what terms can the period for which term life insurance policies be defined by?
Years or age
Which type of life insurance provides low-cost insurance protection for a specified period and pays a benefit only if the insured dies during that period?
Term life insurance
Which type of life insurance provides the greatest amount of death benefit per dollar of initial cash outlay?
Term life insurance
What are decreasing term life insurance policies characterized by?
Benefit amounts that decrease gradually over the term of protection and have level premiums
Industrial life insurance is often marketed and purchased as what?
Burial insurance
What is the saving element of a whole life insurance policy known as?
Cash value
What are the two features of whole life insurance that distinguish it from term insurance?
Cash values and maturity at age 100
The option to convert and the option to renew are typically what?
Combined into a single term policy
The larger the ___ of the whole life insurance policy, the larger the cash values.
Face amount
Which type of life insurance is written for employer, employee groups, associations, unions, and creditors to provide coverage for a number of individuals under one contract?
Group life insurance
Whole life insurance plans are credited with a certain guaranteed rate of what?
Interest
What happens to the premium of a whole life insurance policy throughout the policy's life?
It remains constant
A whole life insurance policy has a ___ premium approach.
Level
Which type of term life insurance provides a level amount of protection for a specified period, after which the policy expires?
Level term life insurance
What are the three basic forms of term life insurance?
Level term, decreasing term, and increasing term life insurance
What is the form of whole life insurance that involves a large one-time only premium payment at the beginning of the policy period?
Single-premium whole life insurance
In an increasing term life insurance policy, the amount of increase is usually stated as what?
Specific amounts or a percentage of the original amount
What is the form of whole life insurance that provides permanent level protection with level premiums from the time the policy is issued until the insured's death (or age 100)?
Straight whole life insurance
What are three notable forms of whole life plans?
Straight whole life insurance, limited pay whole life insurance, and single premium whole life insurance
What is another name for term life insurance?
Temporary life insurance
In this type of life insurance, the initial premium is lower than for an equivalent amount of whole life insurance:
Term life insurance