Chapter 2

What does the term "level" refer to in level term insurance?

Face amount

What policy component must decrease in decreasing term insurance?

Face amount

An annuity purchased with multiple payments that begin income payments after one year from the moment of purchase is known as what type of annuity?

Flexible premium deferred annuity

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 occur after the 20-year period. what type of policy is this?

20-year level term

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)

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?

Annually 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

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

Beneficiary

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

What type of annuity credits its interest based upon an index such as S&P 500?

Equity indexed 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.

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, what portion, if any, will be taxed?

Interest earned on the withdrawn cash value

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

What type of life insurance policy is Life Paid-up at Age 65?

Limited-pay Whole Life

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

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 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 wants 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

What elements of an adjustable life policy can be changed by the policyowners?

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.

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

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 options in a deferred annuity?

The number of payments that purchase the annuity

Who is entitled to the cash values in a life insurance policy?

The policyowner

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.

Why are policy loans not available on term insurance?

There is no cash value to borrow against.

What is the purpose 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

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

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 life insurance policy provides permanent protection?

Whole life

What type of insurance would perform the function of cash accumulation?

Whole life insurance