L&H&A Chapter 6

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Advantages of Term Life Insurance for Consumers: (3 things)

1. Term insurance provides the largest amount of coverage for the least amount of premium. 2. Term insurance is appropriate for a person wanting to insure a short-term or long-term debt, such as a car loan or mortgage, respectively. 3. Term insurance is also appropriate for young families or young professionals who require a large amount of coverage, but cannot afford the larger premiums of permanent insurance until later on when their financials are more established.

Level term insurance provides a level face amount throughout the policy period. There are two types of level term:

Annual renewable term and Level premium term.

Of the basic types of whole life insurance, which policy has the lowest premium payment? a. Straight life b. Limited payment c. Single premium d. None of the above

Compared to limited payment and single premium policies, straight life has the lowest premium payment. The correct answer is: Straight life

When considering different types of whole life policies, it is important to know the amount of the premium can vary, depending on the policy chosen. The monthly premium payment would be highest for: a. Current assumption whole life b. 20-payment whole life c. 30-payment whole life d. Continuous premium whole life

Normally the premium payments are higher for a shorter payment period. The correct answer is: 20-payment whole life

There are three main types of life insurance:

Ordinary Life, Industrial Life, and Group Life.

Ordinary whole life insurance premiums are: a. Fixed b. Flexible c. Variable d. Adjustable

Ordinary whole life premiums are fixed. The fixed premiums provide the policy with a guaranteed minimum cash value and fixed death benefit. The correct answer is: Fixed

Gina and Jerry are purchasing life insurance. They decided on policies that would be paid up in 20 years. What type of policies did they purchase? a. Limited payment policies b. Continuous payment policies c. Economatic policies d. Single premium policies

The limited payment policy allows the policyholder(s) to pay for the entire policy in a shorter period of time. The correct answer is: Limited payment policies

What are the two major types of life insurance? a. Term and whole b. Permanent and whole c. Temporary and term d. None of the above

There are two major types of life insurance: permanent (whole) and temporary (term). The correct answer is: Term and whole

Single premium whole life (SPWL)

allows the policyowner to pay the entire premium in one large sum at the outset of the policy, and have coverage for the insured's entire life. Single premium whole life policies are suitable for people who have a large amount of liquid capital to fund a relatively conservative investment.

Higher interest rates allow the insurer to reduce the premium, and lower interest rates require the insurer to raise the premium. The policy has a guaranteed minimum death benefit and a guaranteed minimum rate of return. Premium changes usually occur ______ . Funds are placed in the insurers general account.

annually

A new kind of policy is called the return of premium (ROP) term policy. ROP term policy premiums

are generally higher than a conventional term policy. The longer the term, the lower the premium. Premiums are returned to the insured if no death benefit has been paid and are not taxable.

The living benefit referred to in permanent insurance is ___________.

cash value

Regardless, premiums under the converted policy will be ______ than under the term coverage because the insured is older, and permanent life insurance policies are more expensive than term policies.

higher

In order to provide a level premium, the policy must have a premium that is on average ______ in early policy years in order to offset the _______ premium in the policy's later years.

higher / lower

Level premium term, sometimes referred to as level premium level term, provides a level face amount with level premiums during the _____________.

policy term

ART is guaranteed renewable annually without proof of insurability. ART usually has a maximum age at which the policy is no longer renewable.

The insured is considered statistically dead at the age of ______ , so if the insured is alive at the age of _______ , the face amount will be paid out to the policyowner. The policy is said to mature or _______ if this occurs.

100 / 100 / endow

Common examples of limited payment policies are:

20-pay life or 25-pay life, where premiums are paid for 20 or 25 years, respectively Life paid up at 65, in which case all premiums are paid by the time the insured reaches age 65

Which of the following is not a characteristic of decreasing term life insurance? a. The policy face decreases to zero by the end of the policy period. b. The premium decreases to zero by the end of the policy period. c. The face amount equals zero on the day of policy expiration. d. Decreasing term insurance is often used to insure a mortgage.

Premiums are level in a decreasing term life policy. The policy face decreases to zero by the end of the policy period _ on the day of policy expiration, the face amount equals zero. Decreasing term policies are often called _mortgage reduction insurance_ because they are used to insure a mortgage. The correct answer is: The premium decreases to zero by the end of the policy period.

Term insurance is categorized by all of the following, EXCEPT: a. Temporary protection b. Premiums increase each time the policy is renewed c. Policy cash value grows tax-deferred d. Provides the largest amount of protection for the least amount of premium

Term policies do not accrue cash value. They only provide death protection. The correct answer is: Policy cash value grows tax-deferred

Which of the following is not true regarding the cash value in an ordinary whole life policy? a. It grows tax-deferred. b. It may be used as a policy loan without affecting the death benefit. c. It is a nonforfeiture value that is fully guaranteed to the policyowner. d. It can be used to pay policy premiums.

Unpaid policy loans are deducted from the policy death benefit upon maturation. The correct answer is: It may be used as a policy loan without affecting the death benefit.

Which type of life insurance provides living benefits? a. Whole b. Term c. Conventional d. No life insurance policy provides living benefits.

Whole life insurance provides living benefits, including cash values and policy loans. The correct answer is: Whole

If the policy is renewed after the term expires, the policy premiums will be based on the insured's attained _____, or the insured's present _____ at the time the policy is renewed.

age / age

If the policyowner decides to stop paying premiums, they have the option of cashing out the policy for its ___________________________. If the cash value is depleted and premium payments are no longer paid, the policy will lapse.

cash surrender value

Depending on the terms of the conversion option, the policyowner may ______ which age to use.

choose

In all these types of policies, the premium is usually level (_______) throughout the policy term. The element that varies in each of these types of term life insurance is the ________. If the policy is renewed or converted, the premium is increased because the insured is older, requiring a higher premium.

constant / face amount

The attained age is the insured's age upon _______.

conversion

The cash value in permanent policies grows (accrues interest) tax-_____________.

deferred

Industrial Life

encompasses home service insurance. Home service life insurance is issued in very small face amounts, such as $1,000 to $5,000. The premiums are paid weekly or monthly.

Increasing term insurance provides an increasing __________ with level premiums. The increase occurs at certain intervals over the policy period. Increasing term insurance is not as common as other types of term insurance.

face amount

In most cases, the death benefit (___________________) is equivalent to the face amount. However, as you begin to learn about more complex life insurance policies, you will see that this is not always the case.

policy proceeds

Term insurance aka _____________________:

temporary protection Term insurance is the simplest form of life insurance. It provides pure death protection if the insured dies within the policy period. By "pure death protection" it is meant that the policy does not have living benefits such as cash accrual and policy loans.

Which of the following policies has a level face amount with level premiums? a. Level premium term b. Convertible term c. Decreasing term d. Annual renewable term

Level premium term, also called level premium level term, has a level face amount and level premiums. Premiums tend to be higher than annual renewable term because they are level throughout the policy period. The correct answer is: Level premium term

One large sum premium is less overall compared to the premium installments over the course of the insured's life due to less administrative costs - only one payment needs to be processed. On the downside, ??

if the insured dies soon after the single premium was paid, then the cost of the protection is extremely high for the policyowner compared to if premiums had been paid in installments over the course of the insured's life.

Annual renewable term (ART) or yearly renewable term (YRT) provides a level face amount with an __________ premium.

increasing

Most policies use the ______ age upon conversion.

attained

All people will eventually die; the risk lies in the timing.

Credit life insurance is intended to cover the life of a debtor in the event the debtor dies prior to paying off a debt. The creditor owns the credit life insurance policy and is the beneficiary. The debtor is the insured individual with the debt. Credit life insurance pays the amount of the outstanding debt.

SECTION 5: Variable Products

Section 4: Flexible Policies

Features of variable universal life:

1. Flexible premiums 2. Cash value based on investment in separate account 3. Policyowners choose sub-account investments 4. Access to cash values (policy loans and withdrawals) 5. Death protection deducted from cash value 6. Death benefit option 1 or option 2

Changes the policyowner can make to a Universal Life Policy: 3 things

1. Increase or decrease premiums 2. Skip premium payments 3. Increase or decrease policy face amount

Interest rates provided by the general account are fixed and conservative, in the _____________ range.

3% - 5%

Universal life policies have a guaranteed minimum rate, typically around ____, that the policy is guaranteed to earn.

Universal life policies offer higher yields than ordinary whole life insurance. Universal life interest rates range from __________. Ordinary whole life may earn _____________.

8% - 12% 3% - 6%

Some universal policies permit a cash withdrawal. All of the following are true statements about universal life, EXCEPT: a. It is treated as a loan. b. It will reduce the cash value. c. It is not subject to interest. d. Repayment is treated like a premium payment.

A cash withdrawal from a universal life policy is NOT treated as a loan. The correct answer is: It is treated as a loan.

Prospectus

A document that must be given to policyowners of variable insurance products which describes the investments, charges on the contract and policy features

Example: Assume a $100,000 policy requires net level premiums of $8,000 per year for seven years in order to pay up the policy (no more premium payments required to fund the policy) or a total of $56,000 in seven years. This means that the policy owner's cumulative premiums paid into the policy:

Cannot be greater than $56,000 in seven years or it will fail the seven-pay test, No longer qualify as life insurance, and Become a modified endowment contract, which has adverse tax consequences.

______________________ = Nonguaranteed Rate

Current Rate

In a universal life insurance policy, the two most common adjustments made during a month are: a. Decrease premium and increase death benefit b. Shorten premium-paying period and decrease premium c. Lengthen premium-paying period and increase death benefit d. Cost of death protection deducted and current interest rate credited

Each month, the cost of the death protection is deducted from the cash value, and the current interest rate is credited. The correct answer is: Cost of death protection deducted and current interest rate credited

Which policy works the same way as universal life, but has an interest rate that is tied to the stock market index? a. Equity indexed universal life b. Adjustable life c. Flexible premium adjustable life insurance d. Universal life

Equity indexed universal life works the same way as universal life insurance except the interest rate is tied to the stock market index which has the potential to offer greater cash value growth than universal life insurance. The correct answer is: Equity indexed universal life

Insurance producers selling variable products must be registered with ________ by passing the series 6 or 7 examinations.

FINRA

Gerald wants a life insurance policy in which he can choose the investment vehicle. Which policy would you recommend to him? a. Ordinary whole b. Variable life c. Universal life d. Adjustable life

Gerald would be able to choose where he wants his premiums invested with a variable life insurance policy. The correct answer is: Variable life

Variable Products = _____________________

Have Separate Accounts

Example: Let's say John purchased a universal life policy a few years ago and the death benefit in the policy at that time was $200,000.

If the current cash value on the policy is $50,000, and John selected death benefit option 2, his current death benefit would be $250,000 ($200,000 face amount + $50,000 cash value).

___________ policies have premiums that fluctuate between the current rate and maximum rate, as stated in the policy. a. Increasing b. Interim c. Indeterminate premium d. Decreasing

Indeterminate premium policies have premiums that fluctuate between the current rate and maximum rate, as stated in the policy. The fluctuating premiums account for the insurer's actual mortality expense and investment experience. The correct answer is: Indeterminate premium

All of the following statements are correct regarding variable universal life contract charges and fees, EXCEPT: a. Sales and loading charges are deducted from the policy's cash value. b. The full cost of death protection is deducted from the policy's cash value. c. Insurers must provide policyowner's with an annual statement of charges and interest earned. d. Interest earned is credited to the death benefit.

Interest earned is credited to the cash value. The correct answer is: Interest earned is credited to the death benefit.

Universal Life = Buy Term & ____________________

Invest the Difference

_____ policies provide life insurance protection on the lives of minors. In the insurance industry, minors are those under age _______ . The purpose of juvenile policies is to protect the insurability of children. Some childhood diseases or disabilities may make a child uninsurable later in life. Juvenile policies solve this problem.

Juvenile / age 15

For what reason would the insurance company raise the death benefit of a universal life policy? a. Prevent the cash value from growing too quickly b. Require the policyowner to pay higher premiums c. To accommodate lower cash value growth d. To allow the policy to become a MEC

Life insurance policies must comply with the seven-pay test in order to keep their tax-exempt status. If the cash value is growing too quickly, the insurer will increase the policy's death benefit so the policy does not become a MEC. The correct answer is: Prevent the cash value from growing too quickly

12% Rule =

No Rate Greater Than 12% Can Be Used In Selling Policies

An adjustable life policy allows the policyowner to make all of the following changes, EXCEPT: a. Invest premiums in a separate account b. Change the length of the coverage period c. Increase or decrease the premium d. Change the length of the premium-paying period

Only variable life policies allow policyowner's to invest premiums in the insurer's separate account. The correct answer is: Invest premiums in a separate account

There are two death benefit options for universal life policy owners:

Option A (Option 1) pays a designated amount specified by the policy owner. Option B (Option 2) pays an increasing death benefit.

Minimum premium

Paying the minimum premium will keep the policy in force by paying the cost of death protection, and the policy will resemble term life.

What happens when a universal life policyholder pays the target premium? a. The face amount will automatically increase. b. The face amount will automatically decrease. c. The policy will resemble term life insurance. d. The policy will resemble whole life insurance.

Paying the target premium will build cash value in the policy, and the policy will resemble whole life insurance. The correct answer is: The policy will resemble whole life insurance.

Target premium

Paying the target premium will build cash value in the policy, and the policy will resemble whole life.

The three basic types of whole life insurance are: Each type is based on how the premium is paid.

Straight whole life, Limited payment whole life, and Single premium whole life.

Just like whole life policies, as long as there is cash value in the account, universal life policies allow the policyowner to:

Take out policy loans and Withdraw cash.

Two premiums are quoted to the policy owner?

Target Premium and Minimum Premium

Because variable contracts are equity products, they are subject to various regulations. Which of the following applies to variable contracts? a. NAIC regulations b. The 12% rule c. Flexible premium amounts d. Insurance regulations only

The 12% rule prevents producers from using illustrations with projected interest rates greater than 12% to induce people to purchase policies. They are not bound by NAIC, and they are regulated as both insurance and securities. The correct answer is: The 12% rule

What is the primary purpose of the Securities Act of 1933? a. Defines a securities product b. Regulates sales representatives' duties c. Requires insurer to maintain a separate account for variable investments d. Sets a cap for sales fees

The Securities Act of 1933 defines a securities product. The correct answer is: Defines a securities product

Which of the following laws defined a security product? a. Securities Act of 1933 b. Securities Act of 1934 c. Investment Company Act of 1940 d. None of the above

The Securities Act of 1933 ruled that applicants for a variable product must receive a prospectus. It also laid out a clear definition of a security product. The correct answer is: Securities Act of 1933

All of the following are guaranteed features in a variable life insurance policy, EXCEPT: a. Death benefit b. Cash value c. Premium rate d. Period of death protection

The cash value is invested in the insurer's separate account, and is, therefore, not guaranteed. The correct answer is: Cash value

Family income policies consist of whole life and: a. Increasing term b. Decreasing term c. Level term d. Renewable term

The correct answer is: Decreasing term Family income insurance combines whole life insurance and decreasing term.

Modified life insurance performs the same basic purpose as: a. Ordinary whole life b. Survivorship life c. Graded premium whole life d. Variable universal life

The correct answer is: Graded premium whole life Both modified life and graded premium whole life have lower premiums in the early policy years, after which they jump to a higher level. These policies make permanent life insurance affordable for younger people who cannot afford the higher cost of whole life insurance premiums right away, but can afford the premiums several years later.

Which of the following policies combines convertible term and whole life, and has lower premiums in the early years which increase to a higher level after a certain number of years? a. Economatic b. Graded premium c. Index-linked d. Modified whole

The correct answer is: Modified whole Modified whole life policies use convertible term and whole life to provide permanent protection that has lower premiums during the early policy years. After a certain number of years, the premiums are raised to a higher level.

Which policy will pay benefits on the death of the second insured? a. Survivorship life policy b. First-to-die c. Modified whole life d. Current assumption whole life

The correct answer is: Survivorship life policy A survivorship life policy, or second-to-die policy, pays life insurance proceeds on the death of the second insured.

Which policy has fixed premiums, a guaranteed minimum death benefit and nonguaranteed cash values? a. Whole life b. Universal life c. Variable whole life d. Variable universal life

These are all characteristics of variable whole life insurance. Universal life and variable universal life insurance have flexible premiums. The correct answer is: Variable whole life

Which of the following statements incorrectly describes cash value in an ordinary whole life policy? a. Cash value can be used to pay premiums. b. Cash value grows on a tax-deferred basis. c. Cash value may be used as a policy loan, without affecting the death benefit. d. Cash value is a nonforfeiture value.

Unpaid policy loans are deducted from the policy death benefit upon maturation. The correct answer is: Cash value may be used as a policy loan, without affecting the death benefit.

A Securities License is required to sell ______ Products.

Variable

____________ has fixed premiums. __________ and VUL have flexible premiums.

Variable life Universal life

With respect to whole life insurance, which of the following statements is false? a. Whole life insurance cash values may be withdrawn in part, or in whole. b. A policyowner may stop paying premiums and surrender the policy for its cash value. c. If the policy cash values are depleted and no more premium payments are made, the policy will lapse. d. None of the above

Whole life insurance cash values are a nonforfeiture value that the policyowner may withdraw in part or in whole. If all policy cash values are withdrawn and no further premium payments are made, the policy will lapse. The policyowner may cease paying premiums and surrender the policy for its cash value. The correct answer is: None of the above

Variable universal life (VUL) is a mixture of:

Whole life insurance, Universal life insurance and Variable life insurance.

Which of the following best describes option 1 under a universal life policy? a. The death benefit is the policy face amount or policy cash value, but not both. b. The death benefit is a designated amount specified by the policy owner. c. The death benefit is only the face amount. d. The death benefit is only the cash value.

With option 1, the policy pays a designated amount specified by the policy owner. The correct answer is: The death benefit is a designated amount specified by the policy owner.

However, cash value in an adjustable life policy only __________ when the amount of the premium paid is greater than the cost of coverage.

accrues

Variable products premiums are invested in more __________ investments such as stocks and securities, requiring the insurer to keep a separate account.

aggressive

In this way, universal life policies are simply ______________ with a cash value account

annual renewable term

Securities Act of 1933

applicants must receive a prospectus, and defines a security product

Minimum Deposit policies instead of

are cash value life insurance policies that have first-year loan values available for borrowing immediately upon payment of the first year premium, having to wait 3 years for the cash value to occur.

Universal life insurance is often described as a policy that lets the policy owner "______________."

buy term and invest the difference

Universal life insurance is often described as a policy that lets the policyowner "_____________________."

buy term and invest the difference

Option 2: Increasing Death Benefit - Policy Face Amount Plus Cash Value Option 2 pays the policy face amount plus _________, which consists of _____________________. Per compliance with _______, policy cash value must not be excessively larger than the level term insurance protection in order to keep the policy's classification as life insurance.

cash values level term and increasing cash values TAMRA

VUL policies have a level death benefit until the policy's cash values reach the ________, at which point the variable death benefit applies, providing a variable death benefit according to investments in the separate account.

corridor

VUL - This minimum amount

covers the cost of death protection

The cash value may not always earn the current interest rate, in which case the minimum interest rate would be ______________. Insurers establish the current interest rate: Quarterly or Annually.

credited

With a level death benefit the policyowner designates a ___________ that will remain constant. Growing cash values will replace a corresponding amount of pure death protection until the _________is reached. Once policy cash values reach the corridor, the death benefit will __________ to keep the policy tax-sheltered. With the variable death benefit, the policyowner chooses an amount of pure death protection that remains constant.

death benefit amount corridor increase

With universal life: sales, administrative, and loading charges are deducted from the policy's cash value along with the cost of ________________. The interest rate is credited to the cash value. Insurers are required to provide policyowners with an annual statement itemizing the charges and interest earned.

death protection

As long as there is enough cash value to cover the cost of insurance protection, the policyowner can ___________ premium payments. The coverage will then resemble term insurance.

decrease or skip

Often, back-end loading _________________________over a period of years: In the first or second years, the charge may by 10%; In the 10th or 11th year, the charge may be zero.

decreases

The corridor is an additional amount of pure life insurance in the form of _______________, which is used to increase the policy's death benefit, so the policy does not exceed a certain maximum ratio of cash value to death benefit set by the IRS.

decreasing term

However, instead of _________ , _______ is used to provide income payments that are paid from the date of the insured's death, as long as the insured dies by a _________ . Family maintenance policies are issued on the life of the primary breadwinner, not the entire family. The income payments are provided to the family for a number of years, usually 10, 15, or 20 years.

decreasing term / level term/ certain age or time

There are two adjustments made to the policy's cash value each month: Cost of death protection ___________ Current interest rate _________.

deducted credited

When the premium is decreased or the face amount increased, the insured is typically required to provide __________________.

evidence of insurability

The death benefit fluctuates based on the investment ________ in the insurer's separate account. Within the insurer's separate account, policyowners have a choice of __________ in which to invest funds.

experience sub-accounts

These policies pay double or triple a policy's face amount if the insured dies during a certain period, as specified in the policy. At the end of the specified period, only the __________ is paid upon the insured's death. Multiple protection policies are ______ and _______ insurance. The level term insurance funds the multiple protections.

face amount / whole life and level term

Industrial life insurance is primarily intended to pay the insured's _________ and ____________.

final expenses and cost of burial

There is a special kind of juvenile policy that can multiply the face value of the policy by _______ when the child reaches majority. An example of juvenile insurance is ______ , sometimes referred to as estate builder insurance.

five / jumping juvenile

Equity indexed universal life policies have a ______ guaranteed interest rate and a nonguaranteed indexed rate which can reach yields of 15% - 20% or more. This allows policyowners to reap the benefits of indirectly participating in the _________. Typically, insurers use the _______________.

fixed stock index S&P 500 Index

Universal life is sometimes referred to as _________________________ or __________________ and is a spinoff of __________________

flexible premium adjustable life insurance unbundled insurance whole life insurance

Single premium policy is not "_______________", meaning costs of administering the policy are not deducted from the initial premium. Instead, a surrender charge is levied if the policy is surrendered during its first 10 years.

front-end loaded

The cash value in the policy must continually cover the cost of death protection (cannot reach zero); otherwise, the policy will expire after its_______________ lapses.

grace period

Unlike ordinary policies, the agent may collect premiums _________ from the industrial life policyowner.

in person

In addition, converting a term policy into a whole life policy with the same face value would result in an ______ of premiums.

increase

Index-linked whole life policies have face amounts that ________ with respect to inflation without requiring the insured to undergo a medical exam or provide proof of insurability.

increase /

Universal life policies allow the policyowner to ________ (with proof of insurability) and _______ the death benefit without having to replace or purchase another life insurance policy or have another policy issued.

increase and decrease

Example: A person wants to buy $200,000 worth of permanent coverage, but cannot afford the premiums. Economatic whole life allows the policyowner to purchase a portion of whole life, say $150,000 worth, and the remaining $50,000 as term coverage. In this way, the policyowner has purchased $200,000 worth of coverage at a lower cost (recall: term is _________ than permanent protection).

less expensive

Option 1: Designated Amount The death benefit is ________, consisting of the policy's cash values and pure insurance until the corridor kicks in, which allows for an _________________death benefit, so the policy does not fail the _______-pay test, turning into a MEC.

level increasing seven

Universal life policy reserves are usually invested in ______________

long-term securities

An insurer's general account is for ___________, in which premium dollars are invested in conservative funds such as bonds and certificates of deposit.

non-variable products

If the policyowner dies or becomes disabled and cannot pay the premiums, the policy may lapse. For this reason, juvenile policies often include a _________, stating that if the policyowner becomes disabled or dies before the insured reaches a certain age, in most cases age 21, the policy premiums are waived until the insured reaches such age.

payor rider

Variable life insurance provides __________ protection; it has _______ level premiums and a guaranteed minimum death benefit, just like ordinary whole life, but differs in that it offers ______ interest rates, defending the policyowner against the effects of inflation.

permanent fixed higher

The __________ amount is based on the amount of premium the insured can afford to pay on a weekly basis.

policy face

Variable life policies have a guaranteed minimum death benefit, which is the ____________, but the policy cash value is not guaranteed since it is tied to the separate account. Therefore, the death benefit will increase or decrease over time according to the investment performance.

policy face amount

Adjustable Life

policy from the past a mixture of whole and term insurance, consisting of a whole life base with a term rider.

The death benefit is comprised of the ___________ and the amount of _______________ specified by the policyowner.

policy's cash value pure insurance

Since the insurance company does not insure the separate account, the investment risk is borne upon the _____________.

policyowner

The ____________ chooses the amount of coverage needed and how much premium they can pay. The ___________ takes that information and determines what mix of term and whole life is most appropriate.

policyowner insurer

Furthermore, universal life policies allow for adjusting the __________ up or down and increasing the face amount up or down.

premium

A family plan policy is sold in _______ units and insures __________ a family.

proportioned / each member of The primary breadwinner is insured with whole life coverage in an amount usually fourfold that of their spouse, and fivefold that of the children. Example: Ann is the primary breadwinner and her coverage may be $100,000, her husband's coverage would be $25,000, and each child would have $20,000 worth of coverage.

Applicants for variable products must receive a _________ at the time of policy application, which: 1. Describes the investments, 2. Any charges imposed on the contract owner, and 3. Policy features to help the applicant make an appropriate purchase.

prospectus

Variable insurance

provides a way for policyowners to earn higher investment returns on life insurance policy cash values

The original, or issue age, is the age of the insured upon _______ of the term policy.

purchase

Variable life insurance products are _______________ and are regulated by the Securities and Exchange Commission (SEC). Agents selling variable products must have a ______________ and __________________.

securities contracts life insurance and a FINRA representative license

The interest rate is variable because it is linked to the insurer's ______________account, which fluctuates according to its investment performance.

separate

The primary difference between adjustable life and universal life is that the policy owner can __________________ as long as there is enough cash value in the policy to cover the cost of death protection.

skip premium payments

Because industrial life policy face amounts are so __________, the policy typically doesn't have a suicide provision, cash value or settlement options.

small

Industrial life insurance

sold to factory and industrial workers, typically in face amounts of $5,000 or less.

Limited Payment whole life (LP)

the insured is covered for their entire life, but premiums are paid for a limited time. Limited payment policies are suitable for clients who do not want to pay premiums for their entire lives or people who are nearing retirement with liquid capital who don't already have permanent life insurance.

Flexible premiums allow

the policyowner to vary the amount of the premium payment

Due to the amount of the agent's commission in the first year and the expenses associated with effectuating a life insurance policy, permanent policies do not accrue cash value until the _______ policy year.

third

Flexible premium policies sometimes referred to as _____________________ offer life insurance w/:

traditional life insurance policies 1. Flexible cash values 2. Face amounts 3. Premium-paying period 4. Period of protection

Family maintenance policies combine _______ and ________.

whole life / level term Just like the family income policy, the whole life coverage insures the entire life of the primary breadwinner.

Juvenile policies can be __________ insurance, depending on an applicant's needs. Usually parents purchase juvenile policies for their children. The parent is the policyowner, applicant and pays the premiums on the policy. The insured's signature is not required on a juvenile policy because he is a minor.

whole or term life

Equity indexed universal life

works the same way as universal life insurance, except the interest rate is tied to the stock market index, which has the potential to offer greater cash value growth than universal life insurance.

The endowment policy provides a death benefit upon _______ the of the insured. If the insured is alive at the end of the premium-paying period, then the insurer pays the face amount to the policyowner.

death

Ordinary Life

encompasses several types of individual life insurance, such as: Temporary (term), Permanent (whole), Universal, Variable and Other interest-sensitive plans. Premiums are paid: Monthly, Quarterly, Semiannually, or Annually. Term life insurance provides only a death benefit within a specified period of time. Whole life insurance provides death and living benefits.

Economatic whole life insurance, also referred to as ___________ , combines a whole life policy with a term rider in which dividends are earned and used to buy paid-up coverage. Typically, a decreasing term rider is used.

enhanced ordinary life or extra ordinary life /

The policy cash value must ________ the face amount by the end of the policy period. Premiums for endowment policies tend to be ______ to build cash value more quickly for an earlier policy maturation date.

equal / higher

Renewable term insurance allows the policyowner to renew the term policy after the designated term ______ , without having to prove insurability. The renewal premium will be based on the insured's attained age, so the premium will be higher. Because of this, renewable term insurance is sometimes said to have step-rate premiums. Typically, renewable term policies have an age limit to which the term policy can be renewed, such as 75 or 85. This is stated in the policy.

expires

Term life insurance is issued based on the __________, sometimes referred to as the ________, which is the amount of coverage the policy provides.

face amount, face value

Indeterminate premium policies

have premiums that fluctuate between the current rate and maximum rate, as stated in the policy. The fluctuating premiums account for the insurer's actual mortality expense and investment experience. Premiums are typically lower in the early policy years.

Permanent life insurance policies are issued based on

the insured's original, or issue age.

Which term policy has level premiums and a level face amount? a. Annual renewable term b. Decreasing term c. Increasing term d. Level premium term

All of the following characterize term life insurance, EXCEPT: a. Term life insurance provides the largest amount of coverage for the lowest amount of premium. b. Term life insurance provides pure death protection. c. Term life insurance provides living benefits (cash accrual). d. Term life insurance usually cannot be renewed beyond a certain age, usually 75.

Term life insurance provides pure death protection (pays a death benefit only). Whole life insurance (permanent protection) provides life insurance for the entire life of the insured. It also is said to provide a living benefit because it accrues cash value, which is available to the policy owner. The correct answer is: Term life insurance provides living benefits (cash accrual).

When an insured converts their term policy, the permanent policy's premiums will be based on the insured's _______ age or ______ age.

attained / original

Decreasing Term is used with a mortgage. Decreasing Term = Falling Death Benefit

This is best illustrated by comparing term insurance in its purest form, ART, with level premium level term (LPLT) insurance.

Advantages of Term Life Insurance for Insurers: (2 things)

1. For most people term insurance is temporary protection that cannot be renewed beyond a certain age, such as 75. 2. The insurer is betting the insured will live beyond the policy period, so the death benefit will not be paid out.

Applicants are required to sign a separate form affirming that they understand the elements of the indeterminate premium whole life policy including the following:

1) Premium is variable, 2) A lower premium is not guaranteed, 3) The maximum premium as stated in the policy may be charged, and 4) Dividends in participating policies are only paid to policy owners if the insurer declares a dividend.

Drawbacks of Term Life Insurance:

1. No living benefits 2. As a long-term life insurance tool, term insurance can be increasingly expensive. Each time a term policy is renewed, the premium increases. Term renewals use the attained age of the insured to assess mortality, not the original age at policy application. As a person ages, the likelihood of death is greater, and term insurance accounts for this by increasing premiums. 3. If term insurance must be discarded due to expense or the insured has surpassed the maximum age limit, then the insured may be left without any life insurance protection when it is needed most.

After looking at his options, Randy decided on a single premium whole life policy. What is an advantage of this type of policy? a. The cost of protection is low if Randy dies soon after paying the premium. b. Administrative costs are higher on this policy. c. The total premium is lower. d. All of the above

A major advantage of a single premium policy is that the premium is less than it would be if it stretched over several or many years. The correct answer is: The total premium is lower.

What policy year does cash value begin to accumulate in a whole life policy? a. 1st b. 2nd c. 3rd d. 4th

Due to the amount of the agent's commission in the first years and the expenses associated with effectuating a life insurance policy, permanent policies do not accrue cash value until the third policy year. The correct answer is: 3rd

There are three main types of term life insurance:

Level Decreasing Increasing

Differences with a straight life policy: (4 things)

Policy is paid-up prior to the age of 100 Premiums tend to be higher Premium-paying period is shorter Cash value accumulates more quickly

Interim term coverage

provides instantaneous coverage and is intended for people who plan on purchasing permanent life insurance coverage within a year. Interim term is frequently offered to automatically convert to permanent coverage at a specified date in the future. The premium for interim term is based on the insured's age upon application. The premium for permanent coverage is based on the insured's attained age upon conversion to permanent protection.

SECTION 2: whole life insurance

provides permanent life insurance protection for the entire life of the insured in addition to living benefits.

Graded premium whole life is suitable for a ______________ who wants to purchase whole life insurance, but cannot initially afford the higher premiums characteristic of straight life.

young person

With variable life insurance, on the other hand, policyowners have the opportunity to earn ___________ interest rates.

higher

Credit life insurance is usually issued as decreasing term life. As the debt is paid off, the face amount decreases to match the amount of the debt. At any time, the face amount of the policy cannot be greater than the amount of the debt. The debtor usually pays all premiums.

Creditors often require that debtors have life insurance. This is where credit life insurance comes into play. However, creditors cannot stipulate which insurer debtors use to purchase coverage. Other forms of life insurance, aside from credit life, may be used to cover a debt.

Test Point: The survivorship policy is the best option if the death of the first person would not put a financial strain on the family. In other words, the money is not needed immediately. If the survivorship policy is used, the money could be used to pay estate taxes after the second person dies.

The most important points with credit life: The creditor can't make money off a credit policy. The policy can't be for more than the debt. The policy term can't be longer than the debt. The creditor can't force the debtor to buy the policy from them.

This life insurance policy provides death protection for the insured's entire life, but premiums are not paid for the insured's entire life. a. 20-pay life b. Economatic life c. Modified whole life d. Indeterminate premium

Limited payment whole life policies provide life insurance protection for the insured's entire life, but premiums are paid for a limited period of time, such as 20 or 25 years. The correct answer is: 20-pay life

Example: If Jonas, Melvin and Veronica are insured under a $100,000 joint life policy where the policy proceeds are to be split between the survivors and Veronica dies first, then Jonas and Melvin each receive $50,000 and the policy is terminated. If Jonas dies shortly after Veronica, does Melvin receive any extra proceeds? ________________________________

Melvin will not receive any more proceeds.

Which of the following is true with regards to a Variable Universal life policy? a. The policyowner has no say in the investment choices, but can choose the premium payment b. The policyowner controls the investment choices and the premium amounts c. The insurer controls the investment choices in their general account d. The death benefit fluctuates, but only the insurer has a say in premium choices

Variable Universal Life Polices allow the policyowner to control the investment of cash values and select the timing and amount of premium payments. The correct answer is: The policyowner controls the investment choices and the premium amounts

Which life policy offers the owner the opportunity to invest in products such as money -market funds, long -term bonds and the stock market? a. Adjustable Life b. Term Life c. Variable Life d. Universal Life

Variable life offers the policy owner the opportunity to invest in equities, bonds and money - market products. The correct answer is: Variable Life

Credit life policies usually are issued for a period of 10 years or less. Once the debt is paid off, the debtor's coverage terminates. Credit life policies do not have conversion rights. Credit life policies may be issued individually or through a group policy. In individual policies, the creditor is the policyowner and beneficiary. In group credit policies, the creditor owns the master policy and certificates are provided to debtors. Insureds under a group policy must receive a certificate of coverage from the creditor indicating their obligations and policy rights. Group credit policies must maintain a minimum number of insureds at all times, which are typically 100 people. New debtors may not be insured if the participation falls below the required minimum.

The advantage of an adjustable life policy is that the policyowner can adjust several policy features as their needs change without having to apply for a new policy. Changes the policyowner can make to an adjustable life policy? Based on the changes the policyowner is entitled to make, an adjustable life policy could be entirely whole or term, or a mix of both.

1. Raise or lower premium 2. Raise or lower face amount 3. Change coverage period 4. Change premium-paying period

Variable life insurance is regulated by three pieces of legislation:

1. Securities Act of 1933 2. Securities Act of 1934 3. Investment Company Act of 1940

As with whole life, adjustable life policies allow the policy owner to ?

1. Take out policy loans 2. Reinstate the policy 3. Utilize nonforfeiture & settlement options.

To make UL policies more attractive, insurers have added _______________, where if certain minimum premium payments are made for a given period, the policy will remain in force for the guarantee period even if the cash value drops to zero. These provisions are called "_________________" riders.

secondary guarantees No Lapse Guarantee

________ insurance is life insurance used specifically to pay for the cost of a funeral and burial. An individual purchasing pre-need usually buys the policy on himself and the funeral home is the named beneficiary. The face amount increases to accommodate the rising costs of burial.

Pre-need

Emily is a newly-graduated medical student in her residency as a general surgeon. She and her husband have just found out they are expecting twins, and she realizes getting life insurance has become increasingly important for her family. Her starting salary as a resident is $40,000 and she has to begin paying off her medical school loans very soon. Emily likes the idea of permanent life insurance protection, but simply cannot afford the high premiums right now. What policy would you recommend to Emily? a. ART b. Modified whole life c. 20-pay life d. Ordinary whole life

The correct answer is: Modified whole life Modified whole life insurance is straight life with lower initial premiums during the policy's early years which increase after that period to a level that is slightly higher than straight life. This policy would allow Emily to pay lower premiums during her residency, and pay the higher premiums characteristic of permanent life insurance when she is making more money.

Which policy pays a death benefit only upon the death of the last person insured? a. Joint life b. First-to-die c. Survivorship life policy d. Juvenile policy

The correct answer is: Survivorship life policy With a survivorship life policy the policy proceeds are only paid upon the death of the last person insured.

Which of the following policies allows the policyowner to buy term and direct the investments made in the cash value account? a. Variable b. Universal c. Variable universal life d. Equity indexed universal life

Variable universal life is universal life insurance with a separate account. The correct answer is: Variable universal life

What happens when the cash value of a life insurance policy equals the face value? a. Taxes must be paid on the interest accumulation. b. Premiums must be increased so the policy does not become a MEC. c. The policy endows. d. The policy is void.

When the cash value in a life insurance policy equals the face amount, the policy endows, or pays out. Life insurance policies may not endow earlier than the insured's 95th birthday. The correct answer is: The policy endows.

For a life expectancy term insurance contract, the number of years that the term policy will be in force is determined by the ______________________ for insured's age and sex classification.

average life expectancy

The higher nonguaranteed rate the policy cash value may earn is called the _________________ and is comprised of the minimum rate and the excess interest experienced by the insurer.

current rate

Universal life policies are similar to _________ in that they both provide __________ and __________.

whole life death protection cash value

Example: A man purchases a family maintenance policy at the age of 25. The policy states that if he dies before the age of 40, then income payments will be paid to his family for ______. If the man dies at the age of 36, then the level term coverage pays out monthly income installments to the family for _____

10 years / 10 years

The income period is chosen by the policyowner, and reflects the period of time that the family would be most vulnerable to financial instability if the insured died prematurely. Typical income periods are ______ years and coincide with the period of time that the children are young and dependent. If the insured dies during the income period, then the decreasing term coverage pays out _______ installment income to the family for the remaining number of years in the income period.

10, 15, or 20 / monthly

What policy provides flexible premiums, cash values, face amounts, premium-paying period and length of coverage? a. Adjustable life b. Whole life c. Equity indexed universal life d. Term life

Adjustable life insurance policies allow policyowner's to raise or lower the premium and face amount, and change the coverage period and premium-paying period. The correct answer is: Adjustable life

All of the following are advantages of whole life insurance, EXCEPT: a. Life insurance protection is provided for the insured's entire life. b. Premiums are level. c. The policy has living benefits _ grows cash value. d. The premium-paying period may extend beyond the income-earning years.

Because permanent (whole) life insurance protects the insured for their entire life, premiums are due each year until the insured dies. This may prove to be expensive when the insured is retired, and does not earn an income. The correct answer is: The premium-paying period may extend beyond the income-earning years.

Why are whole life policies more expensive than some other insurance options? a. They must cover cash values, net insurance and mortality costs, as well as expenses. b. They last a really long time. c. The policyholders are high risk. d. Whole life is generally not more expensive.

Because whole life policies include cash values in addition to net insurance, the premiums must cover mortality costs, expenses and the savings amount. The correct answer is: They must cover cash values, net insurance and mortality costs, as well as expenses.

Sandra wants to have flexibility with her life insurance policy to accommodate changes in her situation. She should consider: a. Convertible term b. Adjustable life c. Limited payment d. Economatic

The adjustable life policy offers flexibility on a variety of characteristics of the policy. The correct answer is: Adjustable life

What policy can be described as annual renewable term with a cash value account? a. Universal life b. Adjustable life c. Decreasing term d. Modified whole life

The cash value in a universal life policy must continually cover the cost of death protection (cannot reach zero); otherwise, the policy will expire after its grace period lapses. In this way, universal life policies are simply annual renewable term with a cash value account. The correct answer is: Universal life

Charlotte takes out a $14,000 loan. How much credit life insurance can the creditor take out on Charlotte? a. $767,011 b. $14,000 plus interest c. $7,000 d. $28,000

The correct answer is: $14,000 plus interest The amount of credit life insurance can at no time exceed the balance of the debt.

Judy wants to purchase whole life insurance, but cannot afford straight life insurance premiums. Her agent recommends she purchase economatic whole life. If Judy wants $500,000 of whole life coverage, which of the following is a possible arrangement? a. $500,000 term; $0 whole b. $350,000 term c. $400,000 whole; $100,000 term d. $500,000 whole; $0 term

The correct answer is: $400,000 whole; $100,000 term With an economatic whole life policy, the policyowner purchases a mix of whole and term, permitting less expensive premiums. Dividends are used to purchase paid-up permanent coverage, which converts the term rider to permanent coverage. Therefore, a portion of whole life coverage is purchased with a decreasing term rider. The best choice is an economatic policy comprised of $400,000 whole life, with a $100,000 decreasing term rider.

All of the following are true regarding credit life insurance, EXCEPT: a. At any time, the face amount of the policy cannot be greater than the amount of the debt. b. Straight life or economatic life insurance may be used to cover a debt. c. Credit life policies are typically issued for a period of 10 years or less. d. Credit life insurance is only sold through a group policy.

The correct answer is: Credit life insurance is only sold through a group policy. As the debt is paid off, the face amount decreases to match the amount of the debt. At any time, the face amount of the policy cannot be greater than the amount of the debt. Credit life policies may be issued individually or through a group policy. Credit life policies usually are issued for a period of 10 years or less. Other forms of life insurance, aside from credit life, may be used to cover a debt.

Who is the beneficiary of a credit life policy? a. Insurer b. Insured c. Creditor d. Debtor

The correct answer is: Creditor Credit life insurance is issued on the life of the person who has the debt (debtor) and the creditor owns and is the beneficiary of the policy.

A policy known as interest-sensitive whole life is: a. Modified whole life b. Economatic whole life c. Current assumption whole life d. Graded premium whole life

The correct answer is: Current assumption whole life Current assumption whole life is also known as interest-sensitive whole life.

A policy with flexible premiums based on a changing current interest rate is: a. Modified endowment contract b. Straight whole life c. Current assumption whole life d. Joint life

The correct answer is: Current assumption whole life Current assumption whole life provides flexible (varying) premiums based on a changing current interest rate.

Which of the following life insurance policies is not an example of third party ownership? a. Split-dollar plan b. Key employee life insurance c. Group life d. Economatic

The correct answer is: Economatic With a split-dollar plan and key person, the employer owns, and is the beneficiary of the life insurance policy, and the employee is the insured. In group life, employees are insureds, but do not own the policy _ the employer owns the policy.

A policy that combines whole life with a term rider, where dividends are earned and used to buy paid-up coverage is: a. Modified whole life b. Economatic whole life c. Current assumption whole life d. Graded premium whole life

The correct answer is: Economatic whole life Economatic whole life insurance, also referred to as Enhanced Ordinary Life or Extra Ordinary Life, combines a whole life policy with a term rider in which dividends are earned and used to buy paid-up coverage.

Which policy has a face amount that increases by five times the original policy face when the insured child reaches the age of 21? a. Family protection plan b. Estate builder c. Ordinary whole life d. Universal life

The correct answer is: Estate builder The face amount of an estate builder (jumping juvenile) policy increases to five times the original policy face amount upon the child's 21st birthday.

Which policy's, income period, begins on the date the policy is issued? a. Family income b. Family maintenance c. Family protection plan d. Jumping juvenile

The correct answer is: Family income Family income policies have an income period which begins the day that the policy is issued. Family protection plans and jumping juvenile plans do not have income periods.

This policy insures the primary breadwinner with whole life and level term: a. Family income policy b. Family maintenance policy c. Protection plan d. Juvenile policy

The correct answer is: Family maintenance policy Unlike family income policies, family maintenance policies use level term to provide income payments. With family maintenance policies, the income period begins on the date of the insured's death, not the date of policy issuance.

Which policy covers the primary breadwinner with both level term and whole life coverage? a. Family maintenance policy b. Juvenile policy c. Protection plan d. Family income policy

Which policy is a combination of whole life and convertible term, and has lower premiums in early policy years and higher premiums in later years? a. Ordinary whole life b. Modified whole c. Joint life d. Economatic

Which of the following is not a way that an endowment policy can mature? a. Surrender of cash value b. When the cash value equals the face amount, at the end of the policy period c. When the policy period ends, even if the insured is alive d. Upon the death of the insured

The correct answer is: Surrender of cash value There are two scenarios for endowment policy maturation: 1.) upon the insured's death, or 2.) at the end of the policy period, even if the insured is alive. At the end of the policy period, the cash value equals the face amount

Which of the following characteristics does not describe convertible term life insurance policies? a. No matter which age is used, premiums will be higher when the policy is converted. b. Most converted term policies use the insured's attained age to determine the new premium. c. The attained age is the insured's age upon purchase of the term life insurance policy. d. The terms of the conversion option are clearly stated in the policy.

The original age is the insured's age upon purchase of the term life insurance policy. The correct answer is: The attained age is the insured's age upon purchase of the term life insurance policy.

Endowment insurance is similar to level term insurance because it pays a death benefit only if the insured _________. However, with a pure endowment contract the policy only pays a stated amount if the insured is alive at the end of the designated period of time. In this case, a death benefit is not paid. Therefore, an endowment policy combines ________ insurance with _____ pure endowment.

dies during a designated period of time / level term / pure

An _________ policy will pay the face amount under one of two situations: If the insured is alive at the contract maturity date, or If the insured dies during the policy period.

endowment

A ______________ life policy pays the face amount upon the first person's death. After the first person dies, the contract does not provide any further life insurance coverage for the other person. They are often used for ___________________________________________________.

first-to-die joint / First to die joint life policies are often used for business continuation arrangements.

When universal life policies first came out in the 1970s, they were ________________, meaning that sales and administrative charges were ________________________________. Currently, universal life policies use ____________________, meaning that the sales and administrative charges are not deducted until __________________________________ or surrenders the policy for its cash value.

front-end loaded / deducted from the first-year premium back-end loading / the policy owner takes out cash value from the policy

Another regulation regarding variable life policies is the 12% Rule, which states that when soliciting a new policy, the producer may not use an interest rate ____________.

greater than 12%

Death benefit rules: 1. The death benefit will never drop below the _______ _________ face amount. 2. Cash value is figured ______ and varies based on the investment in the separate account. 3. Cash value may be borrowed or withdrawn at any time. Policy loans are subject to interest. 4. If policy loans are not repaid, the death benefits are reduced by the amount of the loan plus interest. 5. Policy loans are typically limited to 75% - 80% of the policy's cash value.

guaranteed minimum daily

Industrial policies have _______ premiums than ordinary policies that can be paid as often as weekly premium payments.

higher

The modern day version of industrial life insurance is referred to as ______________ life insurance.

home service

With traditional whole life insurance, premiums are invested in the __________________________, which contains conservative investments carefully selected and insured by the insurance company.

insurer's general account

Policy loans are subject to _______. If loans are not repaid, the amount of the loan plus interest will reduce the policy face amount. On the other hand, partial withdrawals or cash value surrenders are not subject to interest, but the insurer charges a small service fee.

interest

The income period clock starts "ticking" once the policy is issued, so if the income period is 15 years and the insured dies seven years after the policy is issued, then the family will receive eight years of income installments. This is why the decreasing term coverage is used for the income period benefit - the longer the insured is alive, the _____ coverage is needed. The whole life portion of the policy pays out a _____ death benefit in the amount of the face value, regardless of when the insured dies.

less / lump sum /

If partial withdrawals are repaid, the amount is considered a new premium payment and will be charged ______________. Full surrender of a policy's cash value can be made at any time, and a small service fee is charged.

loading expenses

Graded premium insurance premiums start out ______ and _______ in later years. However, graded premium insurance has several premium increases that occur annually during each year of the step-rate premium period, which is usually the first five or ten years of the policy. After this period, the premiums level off for the remainder of the policy. Similar to modified whole life, graded premium policy cash value accrues more slowly than straight life, and cash values are typically not available until the tenth policy year.

low / increase /

Dividends earned are used to purchase additional permanent coverage until the policyowner has $200,000 worth of permanent coverage and the term rider drops off. Once this occurs, the policyowner has $200,000 worth of permanent coverage, but is paying premiums as if it was only $150,000 of permanent coverage. In this way, the policyowner is paying _________premiums.

lower

Economatic whole life allows an individual to purchase whole life insurance at a ______ cost.

lower

Modified whole life insurance is straight life with _______ initial premiums during the policy's early years, which increase after that period to a level that is slightly higher than straight life. For example, a whole life policy has $1,000 annual premiums for the first five years, which increase to a level $1,600 from the sixth year onward. Modified whole life policies build cash value ______ as compared to straight life. Modified whole life policies are often constructed with convertible term and whole life.

lower / slower

VUL policies are issued with a

minimum scheduled premium based on the policy's initial death benefit

The first policy year does not build much cash value because the producer earns a large commission for selling new policies. Cash value is assessed _________: the insurer deducts the cost of death protection in addition to a small amount for loading expenses. Cash value accrues in the policy when __________________________________________________________________ and loading.

monthly premiums paid cover more than the minimum amount required to pay the death protection

Variable life insurance: 1. Premiums are paid at ______ intervals. 2. If the policyowner does not pay a premium after the policy grace period, the policy will ______. 3. The policy cash value is not ________.

regular lapse guaranteed

Investment Company Act of 1940

requirement for insurers to maintain a separate account for variable investments and establishes a cap for sales fees

Securities Act of 1934

requirement for sales representatives to have a Series 6 license and regulates the duties of sales representatives

Variable products are inherently _____ because the policyowner bears the risk of the choice of investment, and nonguaranteed cash value. Because of these risks, the SEC federally regulates variable products.

riskier

With a ___________ , or survivorship life policy, two lives are insured on one policy, and the policy pays out only upon the death of the _________ insured. Survivorship life policies are frequently used for _______________. The policy proceeds are used to pay estate taxes.

second-to-die/ second / estate planning

Family income policies may be issued as a _______ , or simply term coverage added to a permanent life insurance policy. Family income policies are issued on the life of the primary breadwinner, not the entire family.

special policy

The Consumer Price Index (CPI) is used to determine

the inflationary effect on policies. Insurers provide index-linked policies with annually increasing premiums or offer a premium that is level, but higher, to estimate and account for expected index changes.

Joint life insurance policies insure the lives of ________ people. Premiums for joint life policies are ______ than if each life was insured on a _________ policy.

two or more / less expensive / separate

VUL is universal life insurance with a separate account. VUL policies have the flexible features of ___________ and the investment choices of ____________. Variable universal life policies are regulated as variable products.

universal life variable life

State insurance departments also regulate variable products. In some states, producers are required to have not only a life and securities license, but also a __________license.

variable

Adjustable life policies are suitable for people with __________ , or those who simply want greater flexibility than a traditional whole life policy can provide. A young family with a need for a large amount of coverage at a low cost would have primarily term coverage. When the children are grown up and larger premiums are more affordable, coverage can be converted to permanent life insurance.

varying incomes

Family income policies combine _______ and ________ .

whole life / decreasing term The whole life coverage insures the entire life of the primary breadwinner while the decreasing term coverage provides income payments to the family if the primary breadwinner dies within the income period.

A limited payment life insurance policy is best suited for: a. Josh, a 25-year old successful entrepreneur with extra funds, who doesn't want to pay life insurance premiums when he retires. b. Kelly, a 40-year single waitress who wants the most insurance protection for the least amount of money. c. Megan and Tom, newlyweds who need a life insurance policy to cover the mortgage on their house. d. Berry, an 18-year old student with limited funds.

Limited payment policies are suitable for clients who do not want to pay premiums for their entire lives or people who are nearing retirement with liquid capital who don't already have permanent life insurance. The correct answer is: Josh, a 25-year old successful entrepreneur with extra funds, who doesn't want to pay life insurance premiums when he retires.

Do the premiums change throughout the insurance term?

The premiums remain level for the life of the insured. In most cases, the face amount of whole life insurance is level.

Convertible term allows

term life policyowners to convert their term insurance into permanent policies without showing proof of insurability.

What part of a mortgage reduction policy decreases over time? a. Policy premiums b. Cash value c. Face amount d. Policy term

A decreasing term policy (used for mortgage reduction insurance) has a decreasing face amount. The correct answer is: Face amount

Compared to straight life, a limited payment life insurance policy is characterized by all of the following, EXCEPT: a. Policy is paid up before the age of 100. b. Premiums are higher. c. Cash value accrues more quickly. d. Premium-paying period is longer.

As the name indicates, a limited payment life insurance policy has a shorter premium-paying period compared to a straight life policy. The correct answer is: Premium-paying period is longer.

Interest-sensitive whole life (also known as _____________ ) provides flexible (varying) premiums based on a changing current interest rate. The insurer may raise or lower the premium within a specified range stated in the policy.

Current assumption whole life

________________ insurance provides a face amount that decreases to zero over the policy period. The face amount equals _______ on the day the policy ______ . The premiums are level. Some decreasing term insurance is convertible, but is usually not renewable upon policy expiration because the face amount is zero at the time of policy expiration.

Decreasing term / zero / expires

SECTION 3: Special Use Policies

Each policy is catered to fit specific needs, but most combine some aspects of whole and term insurance.

______________ whole life policies provide a lower initial premium that can fluctuate up to a maximum premium as stated in the policy. a. Continuous premium b. Straight c. Indeterminate premium d. Limited premium

Indeterminate premium whole life policies provide a lower initial premium that can fluctuate up to a maximum premium as stated in the policy. The correct answer is: Indeterminate premium

Blaine wants a life insurance policy that builds cash value the quickest. Which of the following policies best fits Blaine's needs? a. Reentry term b. 25-pay life c. 40-pay life d. Straight life

Limited pay whole life policies grow cash value faster than ordinary (straight) whole life policies because the premium paying period is restricted to a limited number of years. In this example, the 25-pay life policy grows cash value the fastest because the premium paying period is restricted to 25 years, whereas the 40-pay life policy premium paying period is 40 years, which grows cash value in a longer period of time. The correct answer is: 25-pay life

Judith wants her life insurance policy to grow cash value quickly. Which policy would you recommend to her? a. Straight life b. 25-pay life c. Convertible term d. Reentry term

What are the benefits of a convertible and renewable term life insurance policy? a. Lower premiums for higher face amounts b. Increasing face amount with a level premium c. Decreasing face amount with a level premium d. Proof of insurability is not required to convert or renew coverage.

Renewable and convertible term life policies allow the insured to renew or convert coverage without needing to provide proof of insurability. The correct answer is: Proof of insurability is not required to convert or renew coverage.

All of the following are characteristics of whole life insurance, EXCEPT: a. Whole life insurance is permanent protection providing death protection for the insured's entire life. b. Whole life insurance provides living benefits in addition to permanent life insurance. c. Whole life insurance policies use the insured's age at issue to establish policy premiums. d. The cash value in a permanent life insurance policy is not a nonforfeiture benefit.

The cash value in a whole life policy is a nonforfeiture value, meaning that said funds cannot be forfeited, and the policyowner is entitled to such values. The correct answer is: The cash value in a permanent life insurance policy is not a nonforfeiture benefit.

The conversion option must be specifically noted in the contract, including the ________________ upon which it can be exercised.

terms and conditions

Term to age 65 policies cover the insured to age 65. The premiums are level throughout the term of the policy. At the start of the policy, the policyholder pays a _______ premium than he or she would for a shorter-term policy in order to build up extra cash reserves that keeps the premiums level until policy _______ . The insured has the option of converting the policy to a cash-value policy before the insured reaches a specified age in the policy.

higher / expiration

Group Life.

is written for members of a group, such as: An employer-employee group, Association, Union or Creditor-debtor group. Coverage is provided to the members of the group under one master contract. The group is underwritten as a whole, not on each individual member.

If the original age is used, the premiums will be _______ than if the attained age is used.

lower

Indeterminate premium whole life policies provide a

lower initial premium that can fluctuate up to a maximum premium as stated in the policy. The lower initial premium is guaranteed to the policy owner for a specified period of time. After such period, the insurer has the liberty to charge up to the maximum stated premium.

The convertibility feature in a decreasing term policy allows the policyowner to convert the term coverage to permanent coverage at any point during the policy period at the amount of the coverage at that point in time. A common use for decreasing term insurance is _______________ to pay off the mortgage in the event that the debt is outstanding when the insured dies. As the mortgage is paid off, the amount of the term coverage decreases to match the balance of the mortgage. Decreasing term insurance is not suitable for clients interested in purchasing life insurance to fund an investment.

mortgage protection

The cash value in a permanent life insurance policy is a ____________________, which means the policyowner is guaranteed and fully entitled to it.

nonforfeiture value

Insurers are required to include a statement in the policy that the policy's ________________ premium is lower than a ___________ premium whole life policy with the same amount of coverage and for the same risk class.

nonguaranteed / fixed

Straight Whole Life (Continuous Premium) Straight whole life, sometimes called "____________," is the basic whole life insurance policy, and is the most common type of whole life insurance policy sold. The face amount and premiums are _____________ and payable over the entire life of the insured, up to the age of ____ . Cash values must accrue by the end of the _______ policy year. The insurer guarantees the cash value and death benefit. Compared to limited payment and single premium policies, straight life has the __________ premium.

ordinary life / level / 100 / third / lowest

Endowment contracts mature on a particular date or when the insured reaches a certain age, such as 20 years from the date of purchase or when the insured reaches the age of 65. For this reason, the cash value in an endowment policy must accrue very ______, demanding a significantly ______ premium.

quickly / higher

Reentry term insurance, sometimes referred to as _________ ,

reissue / permits the policyowner to renew a term life policy at the end of the policy period by providing evidence of insurability, so the insured can obtain a lower premium than the renewal premium that is offered without evidence of insurability. In essence, the insured is applying for renewal coverage as if he or she was a new applicant.

Term policies that increase premiums upon renewal are called _________ because the initial premium literally steps up to a ________ each time the policy is _______. Term policies that are renewable or convertible also require a higher premium upon these events.

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