Types of Life Policies

Both Universal Life and Variable Universal Life have a

Flexible Premium - can be increased or decreased as policy owner chooses.

The death benefit under the Universal Life Option B

Gradually increases each year by the amount that the cash value increases. - allows beneficiary to collect both death benefit & cash value upon on death of insured

A domestic insurer issuing variable contracts must establish one or more

Separate accounts - Insurer much maintain that in each separate account, assets w/ a value equal to reserves & other contract liabilities connected to account.

Credit Life Insurance

The creditor is the beneficiary and policy owner for the amount of benefit equal to the outstanding balance of loan, debtor is the insured.

Limited pay whole life

Premium payments cease at 65, but coverage will continue to his/her death or age 100.

What is purpose of establishing the target premium for a universal life policy?

To keep policy in force

Which of the following is TRUE regarding an indeterminate premium whole life policy

The premium can be raised up to a guaranteed maximum rate - After the initial period, (2-3 years), when lower premium is paid, insurer establishes new rate which could be raised up as stated in policy, kept the same, or lowered.

Universal Life

Allows for policy owner to skip premium payments and policy will not lapse as long as there is sufficient cash value at the time to compensate for nonpayment of premium.

Which of the following is true regarding the insurance amount in a credit life policy?

Creditor can only insure the debtor for the amount owed.

What type of policy issues certificates of insurance to insureds?

Group insurance - Individuals covered by group insurance do not receive a policy

Indexed Universal Life

Policies have some of the same features as Universal life: flexible premiums, adjustable death benefits, an investment component. However, policy's cash value is dependent upon performance of the equity index. Sales of this product DO NOT require a securities license.

Single Premium Whole Life

Requires the entire premium to be paid in one limp sum at the policy's inception.

In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT:

Type of investment

Level Term Policy

A 20-year term policy is written to provide a level death benefit for 20 years.

Payor Benefit Rider

Found in juvenile polices which waivers the premiums if the person paying them (often the parent) is disabled or dies while the child is still a minor. If Payor becomes disabled for 6+ months, insurer will waive premiums until insured (minor) turns 21.

Decreasing Term Policy

Premium remains unchanged or level, while the face amount decreases.

Return of Premium (ROP)

Life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. The return of premium is paid if the death occurs within a specified period of time or if the insured outlives the policy term.

Family Maintenance Policy

A combination of whole life insurance and level term insurance to provide permanent coverage (lump sum payment to beneficiary when the insured dies) and a monthly family maintenance portion for a set period of time following the insured's death.

All other factors being equal, the least expensive first-year premium payment is found in

Annually Renewable Term - Purest form of term insurance, death benefit remains level, but premium increases each year with insured's attained age. - In decreasing policies, face amount decreases, but premium remains constant. - In level term & increasing term policies, premium also remains level. In other words, in all except Annually Renewable, premium payments would not be different from any other year.

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

Jumping Juvenile Policy - Policies provide a low face amount in early years & then increase, usually by 5x amount.

To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal & the insurer charges a fee. What type of policy does the insured most likely have?

Universal life - allows for policy holders to withdraw a limited portion of the policy's cash value, each withdrawal is usually charged, amount & frequency of withdrawals are usually limited. Option A: Gradually increasing cash value, level death benefit

Modified Life

A type of life insurance in which premiums are lower than normal for the first few years of coverage.

Family Policy

Can convert their coverage to permanent life insurance w/o evidence of insurability

Which of the following features of the Indexed Whole life policy is NOT fixed?

Cash value growth - premium is fixed

Which of the following types of insurance policies is most commonly used in credit life insurance?

Decreasing term - Written to insure life of debtor and pay off balance of loan in event of death of debtor, usually written as decreasing term.

Interest Sensitive Whole Life

Depending upon company's investments and their expense factors, cash values could change from those shown in policy at the issue time.

Graded Premium Whole Life

Lower premiums for designated timeframe (typically 5-10 years); payments rise annually thereafter until leveling off.

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

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

Which statements is NOT true regarding a Straight-Life Policy?

Its premium steadily decreases over time, in response to its growing cash value. - Straight Life policies charge a level annual premium throughout insured's life time & provide a level, guaranteed death benefit.

In term policies, what happens to the premium throughout the term of the policy?

Premium always remains level. - There are 3 types of basic term coverage available, based on how the face amount (death benefit) changes during policy term: Level, Increasing, Decreasing. Regardless of type, premium is often level.

What would the premium be like in a Survivorship Life policy as compared to the premium in a Joint Life policy?

Lower - Survivorship insures 2+ lives for a premium that is based on a joint age - Difference: Survivorship pays on the last death rather than upon first death, the joint life expectancy in a sense is extended, resulting in lower premiums than for joint life.