Types of Life Policies (chapter 4)

All of the following statements are correct regarding credit life insurance EXCEPT

Benefits are paid to the borrower's beneficiary. - In credit life insurance, the creditor is the beneficiary for the amount of benefit equal to the outstanding balance of the loan.

In Modified Life policies, what happens to the premium?

It is level at the beginning and increases after the first few years - Modified Life policies charge lower premiums (similar to term rates) during the first few policy years, usually the first 3 to 5 years, and then higher level premiums for the remainder of the insured's life. The higher subsequent premiums are typically higher than straight life premiums would be for the same age and amount of coverage.

Which of the following policies would be classified as a traditional level premium contract?

Straight life - Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.

The type of insurance sold to a debtor and designed to pay the amount due on a loan if the debtor dies before the loan is repaid is called

Credit Life - Credit life is most often sold by lenders and is term insurance written with a face amount and term that is matched to the amount and length of the loan period. Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor.

If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this?

Jumping juvenile policy - While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21).

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 - In joint life policies, the death benefit is paid upon the first death only.

What are the two components of a universal policy?

Insurance and cash account - A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher.

A domestic insurer issuing variable contracts must establish one or more

separate accounts - Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

All of the following are true about variable products EXCEPT

the premiums are invested in the insurer's general account - Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk.

Which of the following would be the beneficiary in credit life insurance?

creditor - The creditor is the owner and the beneficiary of the policy.

An applicant wants to buy a life insurance policy in which he can count on receiving the same benefits as stated in the contract. Which type should he buy?

fixed - Fixed life insurance policies offer minimum guaranteed or fixed benefits stated in the contract. Variable life insurance or annuities are contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance.

What do Modified Life and Straight Life policies have in common?

Accumulation of cash value - Modified Life and Graded-Premium Life policies are useful as a compromise between straight life and convertible term insurance since the premium is less than straight life in the early years, but some cash value is being accumulated.