Flash cards: Types of Life Policies
An individual purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy?
$100,000 This is because in joint life policies, the death benefit is paid upon the first death only.
An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined, and the cash value fell to $10,000. If the insured dies, how much will be paid out?
$50,000. The cash value of a variable life insurance policy is not guaranteed. However, even if investments devalue significantly, they cannot be lower than the initial guaranteed benefit amount.
A policy states that it will pay a specified face amount if the insured dies during the 20 year premium-paying period and nothing if death occurs after the 20 year period. What type of policy is this?
20-year level term
A straight Life policy has what type of premium?
A level annual premium for the life of the insured This is because Straight Life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit.
What type of premium is charged on a straight life policy?
A level premium for the life of the insured
What type of license(s) is/are required to sell variable annuities?
A life insurance license and a securities license
What are the two phases of an annuity?
Accumulation and annuitization (or pay-in and pay-out)
Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be
Adjusted to the insured's age at the time of renewal
Whole life policies provide protection until the insured reaches what age?
Age 100
In flexible premium payment annuities, the term flexible refers to what?
Amount of premium
The death protection component of a universal life policy is expressed as what type of coverage?
Annual Renewable Term
Who receives income payments from an annuity?
Annuitant
Whose life expectancy is taken into consideration in an annuity contract?
Annuitant
If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?
Annuitant's estate
In an annuity, the accumulated money is converted into a stream of income during which phase?
Annuitization period
An individual has a contract that will provide him with a certain amount of income for the rest of his life. However, this is not a life insurance policy. What type of contract does this person have?
Annuity
In variable universal life insurance, to what policy component does the term "variable" refer?
Cash value and death benefit
What happens to the cash value when a whole life insurance policy matures?
Cash value is paid to the policyowner
An individual has just borrowed $10,000 on a 5-year note from his bank. The note is due in installments. What type of life insurance policy would be best suited to this situation?
Decreasing term
What type of life insurance is best suited to cover a mortgage?
Decreasing term
If the annuitant dies before the annuitization period starts, what will the beneficiary receive?
Either the amount paid into the annuity or the cash value, whichever is greater
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)
Equity indexed annuity
What type of annuity credits its interest based upon an index such as S&P 500?
Equity indexed annuity
What does the term "level" refer to in level term insurance?
Face amount
What policy component must decrease in decreasing term insurance?
Face amount (death benefit)
An annuity purchased with multiple payments that begins income payments after one year from the moment of purchase is known as what type of annuity?
Flexible premium deferred annuity
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid for what time period?
For 20 years or until the insured's death, whichever occurs first.
How long will a life annuity with a 15-year period certain pay?
For the life of the annuitant unless he/she dies within the first 15 years of the annuitization period; then the payments will last for 15 years
The death benefit under the Universal Life Option B
Gradually increases each year by the amount that the cash value increases Because under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases.
What are the two classifications of annuities according to the time when annuity payments begin?
Immediate and deferred
What type of annuity can be purchased with a single premium?
Immediate annuity
During partial withdrawal from a universal life policy, which portion will be taxed?
Interest earned on the withdrawn cash value
If annuity provides a set amount of income for two or more persons with income ceasing upon the first death, what type of annuity is that?
Joint life annuity
Mortality tables are used by insurance companies to predict what?
Life expectancy and the death rates for specific groups of individuals
What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?
Life income with period certain
A whole life policy that requires that the Policyowner only pays premiums for a specified number of years is known as what kind of policy?
Limited pay whole life
What type of life insurance is Life Paid-up ay Age 65?
Limited-pay Whole Life
How soon can income payments begin in an immediate annuity?
No later than 1 year from the time of annuity purchase
With a single premium deferred annuity, when will the annuity payments become available?
No sooner than 1 year after the annuity purchase
Can a business or a corporation be an annuitant?
No, an annuitant must always be a natural person
What universal life option has a gradually increasing cash value and a level death benefit?
Option A
What are the death benefit options in universal life policies?
Option A - level death benefit, and Option B - increasing death benefit
What type of life insurance offers an applicant a cash value element?
Permanent insurance (usually, whole life)
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death?
Pure life A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors.
What type of whole life insurance policies only requires a payment of premium at its inception, and in addition to providing insurance protection for the life of the insured, endows at the insured's age 100?
Single premium whole life
What type of whole life insurance policy generates immediate cash value?
Single premium whole life
What type of annuity is suitable for someone who want to select the benefit option that will pay the largest amount only for as long as the annuitant lives?
Straight Life
What type of life insurance policy offers pure death protection?
Term life insurance
Who is entitled to the cash values in a life insurance policy?
The Policyowner
What elements of an adjustable life policy can be changed by the policy owners?
The amount and payment period of the premium, the face amount, and the period for protection
Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?
The annuitant receives payments from the annuity during the annuitization period; the beneficiary receives benefits after the annuitant's death
If the annuitant dies during the accumulation period, who will receive the annuity benefits?
The beneficiary
Whole life insurance policies mature when the insured reaches the age of 100. If the owner of a whole life policy (the insured) dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary?
The full death benefit
An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term?
The insured may renew the policy for another 10 years, but at a higher premium rate.
In annually renewable term policies, what is the annual premium based upon?
The insured's attained age
Who bears the investment risk in a fixed annuity?
The insurer
What is the difference between a single premium and a flexible premium payment option in a deferred annuity?
The number of payments that purchase the annuity
All of the following are true regarding a decreasing term policy EXCEPT
The payable premium amount steadly declines throughout the duration of the contract. This is because the premiums remain level with a decreasing term policy; only the face amount decreases.
The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as
The policy contains sufficient cash value to cover the cost of insurance.
Which of the following statements is correct regarding a whole life policy?
The policyowner is entitled to policy loans
What happens to the premium in an annually renewable term life policy?
The premium increases with each renewal
How is the premium determined in a joint life insurance policy?
The premium is based on the average age of the insureds.
All of the following are true about variable products EXCEPT
The premiums are invested in the insurer's general account. Money is invested in a separate account similar to a mutual fund.
Why are policy loans not available on term insurance?
There is no cash value to borrow against
What is the purposes of establishing the target premium for a universal life policy?
To prevent the policy from lapsing
What is the main reason for purchasing an annuity?
To provide income that the annuitant cannot outlive
Under Option B in a universal life policy, what happens to the death benefit?
Under Option B, the death benefit increases each year by the amount of the cash value increases
In what type of life insurance policies can the Policyowner skip premium payments without the policy lapsing?
Universal Life
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium?
Universal Life This is because 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.
In a joint life policy, when is the death benefit paid?
Upon the first death
What type of annuity requires an agent to have a securities license?
Variable annuity
Which of the following life insurance policies allows a policyowner to take out a loan from the policy's cash value?
Variable universal life
Which of the following types of policies allows for a flexible premium and a variable investment component?
Variable universal life insurance
When would a 20-pay whole life policy endow?
When the insured reaches age 100
When does an adjustable life policy accumulate cash value?
When the premiums paid are more than the cost of the policy
What type of insurance would perform the function of cash accumulation?
Whole life insurance
What type of life insurance policy provides permanent protection?
whole life