Life and Health License - IL (Chapter 3)

What is a joint life policy? What is the difference between first to die and second to die?

A whole life policy that is written to cover 2 or more lives. The death benefit is paid upon the first insured to die and the policy terminates, or the death benefit is not paid until the last insured dies.

What is a rider?

An added benefit attached to the policy that supplements existing coverage.

What is cash value on a whole life insurance policy?

Cash accumulation in the policy that can be accessed through a policy loan or cancellation (surrender) of the policy.

What is a life settlement?

It is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its death benefit.

What is universal life insurance?

It offers both insurance protection and a savings element (cash value) that grows on a tax-deferred basis. Mortality charges are deducted monthly from the policy's cash value. Expense charges to cover administrative costs are also deducted monthly from the cash value. Interest is credited to the cash value on a monthly basis at the current interest rate but will never be less than the guaranteed minimum rate established at the time the policy was issued.

What is whole life insurance?

Permanent protection that matures (endows) at the insured's age of 100. It offers cash value and living benefits.

What is a limited payment whole life policy?

Premium payments are for a specified time (20-Pay Life or 30-Pay Life) or to a specified age (Life Paid up at 65).

What is a general account?

Premiums are paid into and interest is credited into the general cash value account. This account has a guaranteed rate of return.

What is a family rider for a term policy?

Provides a combination of coverages on the spouse and children.

What is a nonfamily rider for a term policy?

Provides coverage for another person, other than a spouse or child, such as a business partner. Insurable interest must exist at the time the rider is added.

What is a child rider for a term policy?

Provides level term coverage on the life of all of the insured's children. This rider is usually offered at one premium rate and will cover newborns after 14 days of life and adopted children who can be added to the coverage without increasing the premium.

What is the spouse rider for a term policy?

Provides level term coverage on the life of the insured's spouse.

What is term life insurance?

Temporary life insurance for a specified period of time. Ot does not offer cash value or living benefits.

What does it mean when a policy endows?

The cash value equals the face amount of the policy

What does it mean if a term policy is renewable?

The contract will renew on the renewal date without evidence of insurability.

What is a level term policy?

The death benefit and the premium remain the same during the term.

What is the accidental death benefit rider?

The policy will pay double or triple the face amount only if the insured's death was a result of an accident and only if death occurs before a specific age and within 90 days of the accident.

What is a straight life whole policy?

The premium is level and payable to age 100 or death of the insured, whichever comes first.

What is the accidental death and dismemberment rider?

The rider pays 100% of the amount of the rider, known as the principal sum, upon accidental death. If the insured suffers an accidental dismemberment loss, such as loss of a limb or eyesight, the rider pays 50% of the rider amount, known as the capital sum. Double dismemberment pays 100%.

What is an indexed life policy?

These base interest crediting on one or more "strategies" linked to the performance of a known stock or similar index (such as S&P 500), which is not under the control of the insurance company.

What is a variable life policy?

A whole life policy with certain benefits that will vary based on market conditions. There are benefits such as a fixed premium and a general and separate account.

What is a viatical settlement?

An agreement between a third-party and a policyowner with a life-threatening or terminal illness, where the third-party purchases the policy at 60 to 80% of the face amount.

What is a separate account?

An invested in equity securities as offered by the insurance company at the policyholder's discretion. Cash value will fluctuate based on market conditions and is not guaranteed.

Why might a corridor of insurance be used?

Due to high interest rates, the policy would endow too quickly. The company would essentially increase the face value so it will endow at age 100.

Why would there be a waiver of premium?

If the insured becomes totally disabled, the insurer will waive premiums for the duration of the disability or the end of the policy, whichever occurs first. To qualify for the waiver, the insured must be disabled for a waiting period of 3-6 months.

What is the payor benefit rider?

If the payor (policyowner) dies or becomes disabled and is unable to make the premium payments, the insurer will waive the premium payments for a specified period of time.

What is Stranger/Investor Originated Life Insurance? (STOLI/IOLI)

Occurs when a person (investor, producer, or broker) with no insurable interest in the life of another induces that individual to purchase a life insurance policy with the sole intent of becoming a beneficiary and profiting upon the death of the insured. It is generally considered illegal.

What is the long-term care rider?

Provides up to 100% of the policy benefits if the insured qualifies for long-term care benefits as defined in the rider, such as the inability to perform 2 out of 6 activities of daily living.

What is a decreasing term policy?

The death benefit decreases over the life of the policy but the premium remains level.

What is an increasing term policy?

The death benefit increases over the life of the policy, while the premium remains level.

What is the face amount of a life insurance policy?

The death benefit payable on the policy if the insured dies before the policy ends.

What is an annually renewable term policy?

The death benefit remains level and the premiums increase yearly as the policy renews up to a specified age.

What is a single premium whole life policy?

The entire premium is paid in a lump sum at the time of purchase and creates immediate cash value.

What is an interest-sensitive whole life policy?

The insurance company can change the premiums or interest rate being credited to the account based on current money market rates. The policy has a guaranteed minimum death benefit, but may increase based on the growth of the cash value. If current rates increase, either the policyowner pays a reduced premium or the cash value will increase at a faster rate.

What does it mean if a term policy is convertible?

The insured can convert the existing term policy to a permanent policy without evidence of insurability during the conversion period specified in the contract.

What is an adjustable face amount for a universal life policy?

The insured can increase or decrease the face amount of the policy.

What is a partial withdrawal from a whole life policy?

This is a permanent deduction of the cash value of the policy and cannot be reversed. This may also be taxable.

What is the waiver of monthly deduction rider?

This is a rider for universal life policies that waives the deduction of the monthly cost of insurance and expense charges.

What is a variable universal life policy?

This is the same as a universal life policy with the addition of a separate account.

What is a return of premium term policy?

This policy is written as increasing term insurance and provides for an additional death benefit that equals a full refund of premiums if the insured is still living at the end of the term.