Life Insurance Policies
In a joint life policy, when is the death benefit paid?
upon the FIRST death
if an insured skips a premium payment on a universal life policy, the missing premium may be deducted from where?
the policy's cash value the policy will NOT lapse
what type of life insurance policy is Life Paid-up at age 65?
Limited-pay whole life
In term policies, what happens to the premium throughout the term of the policy?
the premium remains level
Who is entitled to the cash values in a life insurance policy?
the policyowner
What type of insurance provides lifetime (permanent) protection and accumulates cash value?
Whole life insurance
in annually renewable term policies, what is the annual premium based upon?
the insured's attained age
Agents selling variable life insurance products must
-be registered with FINRA -be licensed by the state to sell life insurance -have received a securities license
in variable universal life insurance, to what policy component does the term variable refer?
cash value and death benefit
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
what is the purpose of establishing the target premium for a universal life policy?
to prevent the policy from lapsing
Between adjustable life and universal life policies, which one provides more flexibility to the policyowner?
universal life
what type of life insurance policy provides permanent protection?
whole life
Term Life Insurance
Insurance that provides financial protection from losses resulting from a death during a definite period, or term. Also known as pure life insurance.
Who is insured under a juvenile life policy?
a minor
An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called a. Single premium whole life b. Modified Endowment Contract (MEC) c. Level term life d. Graded premium whole life
a. Single premium whole life Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception
Adjustable Life vs. Universal Life vs. Variable Life : Premium
adjustable- can be increased or decreased by policyowners universal- flexible; minimum or target variable- fixed (if Whole Life); flexible (if Universal Life)
An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it? a. Graded Premium Life b. Limited-pay Life c. Variable Life d. Adjustable Life
b. Limited-pay Life In limited-pay policies, the premiums for coverage will be completely paid-up well before age 100, usually after a specified number of years
Which of the following life insurance policies allows a policyowner to take out a loan from the policy's cash value? a. Decreasing term life b. Variable universal life c. Increasing term life d. Credit term life
b. Variable universal life Variable universal life policies have cash value, so they allow policy loans. Term insurance policies do not have cash value
Fixed life insurance products
contracts that offer guaranteed minimum or fixed benefits
when the amount of insurance is increased in an adjustable life policy, what will the insurer require from the insured?
evidence of insurability
also known as flexible premium adjustable life
universal life insurance
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? a. Nothing b. $50,000 c. $100,000 d. $200,000
c. $100,000 In joint life policies, the death benefit is paid upon the first death only
what happens to the cash value when a whole life insurance policy matures?
cash value is paid to the policyowner
What does "level" refer to in level term insurance?
face amount
face amount
the amount of benefit stated in the life insurance policy
Under Option B in a universal life policy, what happens to the death benefit?
the death benefit increases each year by the amount of the cash value increases
cash value
a policy's savings element or living benefit
Whole life policies provide protection until the insured reaches what age?
age 100
Adjustable Life
Life insurance which permits changes in the face amount, premium amount, period of protection, and the duration of the premium payment period. (best of both worlds; term and permanent coverage)
If an employee wants to join group life insurance coverage outside of the open enrollment period, what would the employee have to provide?
evidence of insurability
________ insurance has no cash value
term insurance
Securities
financial instruments that may trade for value (for example, stocks, bonds, options)
An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have?
Variable
Adjustable Life vs. Universal Life vs. Variable Life : Key Features
adjustable- can be Term or Whole life; can convert from one to the other universal- permanent insurance with renewable term protection component variable- permanent insurance
the policyowner of a whole life insurance policy is also the insured. what age must the insured attain in order to receive the policy's face amount?
age 100
Nonforfeiture Values
benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses
what type of policy issues certificates of insurance to the insureds?
group policy
Universal Life Insurance
a flexible premium policy that provides lifetime protection. has two components: an insurance component and a cash account. (also an interest-sensitive policy)
Variable life insurance
a level, fixed premium investment-based product. Guaranteed minimum death benefit Cash value is not guaranteed and fluctuates with the performance of the portfolio in which premiums have been invested by insurer
To sell variable life insurance policies, an agent must receive all of the following EXCEPT a. a securities license b. a life insurance license c. SEC registration d. FINRA registration
c. SEC registration Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.
Decreasing Term Insurance
term insurance in which the annual premium remains constant but the face amount (death benefit) of the policy declines each year over the duration of the policy term. commonly purchased to insure the payment of a mortgage or other debts if the insured dies prematurely.
Why are policy loans not available on term insurance?
there is no cash value to borrow against
what is the major difference between the most common types of whole life policies: Straight Life, Limited Payment, and Single Premium?
premium payment mode
Universal life death benefits
Option A: level death benefit Option B: increasing death benefit
What type of premium is charged on a straight life policy?
a level premium for the life of the insured
All of the following are characteristics of a group life insurance plan EXCEPT a. There is a requirement to prove insurability on the part of the participants b. The participants receive a Certificate of Insurance as their proof of insurance c. A minimum number of participants is required in order to underwrite the plan d. The cost of the plan is determined by the average age of the group
a. There is a requirement to prove insurability on the part of the participants There is NOT a requirement to prove insurability. There is NO individual underwriting for group life insurance.
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 a. Until the policyowner's age 100, when the policy matures b. For 20 years of until death, whichever occurs first c. Until the policyowner reaches age 65 d. For at least 20 years
b. For 20 years or until death, whichever occurs first Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.
All of the following could own group life insurance EXCEPT a. a debtor group b. a group needing low-cost life insurance c. a group sponsored by an employer d. an alumni group
b. a group needing low-cost life insurance Groups purchasing group life insurance must be formed for a reason other than purchasing insurance
Which of the following policies would be classified as a traditional level premium contract? a. Universal Life b. Variable Universal Life c. Straight Life d. Adjustable Life
c. Straight Life Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured
All of the following are true regarding a decreasing term policy EXCEPT a. the death benefit is $0 at the end of the policy term b. the contract pays only in the event of death during the term and there is no cash value c. the face amount steadily declines throughout the duration of the contract d. the payable premium amount steadily declines throughout the duration of the contract
d. the payable premium amount steadily declines throughout the duration of the contract Premiums remain level with a decreasing term policy; only the face amount decreases
Which of the following types of policies allows for a flexible premium and a variable investment component? a. guaranteed issue variable life insurance b. variable whole life insurance c. whole life insurance d. variable universal life insurance
d. variable universal life insurance a variable universal life insurance policy combines a flexible premium with an investment component that allows for potentially great returns.
Policy maturity
in life policies, the time when the face value is paid out
What universal life option has a gradually increasing cash value and a level death benefit?
option A
Who owns a group life insurance contract?
The employer (also known as the sponsor of the group)
Which of the following is called a "second-to-die" policy? a. Family income b. Juvenile life c. Joint life d. Survivorship life
d. Survivorship life Survivorship life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age
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
An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation? a. Variable life b. Universal life c. Whole life d. Decreasing term
d. Decreasing term A decreasing term policy's face amount decreases as the amount of debt is reduced
Which of the following is an example of a limited-pay life policy? a. Renewable Term to Age 70 b. Level Term Life c. Straight Life d. Life Paid-up at Age 65
d. Life Paid-up at Age 65 Limited Pay Whole Life premiums are all paid by the the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.
deferred
withheld or postponed until a specified time or event in the future
Level Term insurance
The most common type of temporary protection purchased. The word "level" refers to the death benefit that does NOT change throughout the life of the policy
What type of premium do both Universal Life and Variable Universal Life policies have? a. Increasing b. Flexible c. Level fixed d. Decreasing
b. Flexible Variable Universal Life, unlike Universal Life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, as long as there is enough value in the policy to fund the death benefit.
A Straight Life policy has what type of premium? a. An increasing annual premium for the life of the insured b. A decreasing annual premium for the life of the insured c. A variable annual premium for the life of the insured d. A level annual premium for the life of the insured
d. A level annual premium for the life of the insured Straight Life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit
The death protection component of a universal life policy is expressed as what type of coverage?
annually renewable term
At age 30, an applicant wants to start an insurance program, but realizing that his insurance needs will likely change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs? a. single premium whole life b. interest-sensitive whole life c. decreasing term d. adjustable life
d. adjustable life Adjustable life policies allow for increases or decreases in the face amount or premium, so long as the premium is sufficient to pay for the mortality. Any increase in face amount requires proof of insurability
Regarding taxation, how does the cash value of a universal life policy accumulate?
tax deferred
what type of life insurance policy offers pure death protection?
term
Provides the greatest amount of coverage for the lowest premium
term insurance
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 variable contracts, the policyowner bears what?
the policyowner bears the investment risk (assets in a separate account)
what happens to the premium in an annually renewable term life policy?
the premium increases with each renewal
Three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term
1. Level 2. increasing 3. decreasing
An insured has a Level Term Life Insurance policy that is guaranteed renewable and also includes a re-entry provision. The re-entry provision would allow the insured to renew the policy and a. Pay a lower renewal premium without evidence of insurability b. Change the type of insurance without evidence of insurability c. Pay a lower renewal premium by proving insurability d. Change the type of insurance by proving insurability
c. Pay a lower renewal premium by proving insurability To receive the lower renewal rate, the insured would have to provide proof of insurability
An Adjustable Life policyowner can change which of the following policy features? a. The mortality expense b. The investment account c. The insured d. The coverage period
d. The coverage period Typically, the owner of an adjustable life policy has the following privileges; increasing or decreasing the premium; changing the premium-paying period; increasing or decreasing the face amount of coverage; or changing the period of protection
endow
to have the cash value of a whole life policy reach the contractual face amount
Increasing Term
level premiums and a death benefit that increases each year over the duration of the policy term. Often used by insurance companies to fund certain riders that provide a refund of premiums. This type of policy is ideal to handle inflation and the increasing cost of living
what are the living benefits of whole life insurance?
loan values
what is the main advantage of converting from group life insurance to individual coverage?
evidence of insurability is not required
what type of policy is typically issued without proof of insurability from the insured?
group policy
attained age
the insured's age at the time the policy is renewed or replaced
how is the premium determined in a joint life insurance policy?
the premium is based on the average age of the insureds
Level premium
the premium that does not change throughout the life of a policy
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.
What are the death benefit options in universal life policies?
Option A- level death benefit Option B- increasing death benefit
Lapse
policy termination due to nonpayment of premium
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 are the characteristics of the group that underwriters will consider before issuing a group life policy?
group's purpose, size, financial strength and turnover
Universal life policies have two types of interest rates. What are they?
guaranteed and current
The premium of a survivorship life policy compared with that of a joint life policy would be a. Half the amount b. Lower c. Higher d. As high
b. Lower Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy is a sense is extended, resulting in a lower premium than that which is typically charged for joint life.
When does an adjustable life policy accumulate cash value?
when the premiums paid are more than the cost of the policy
If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?
whole life
Concerning Juvenile Life insurance, which of the following statements is INCORRECT? a. Usually a parent or guardian is the applicant for insurance on the life of a minor b. It can be a limited premium payment policy c. Juvenile Life is classified as an life insurance written on the life of a minor d. Juvenile Life is classified as any life insurance purchased by a minor
d. Juvenile Life is classified as any life insurance purchased by a minor THIS IS FALSE. Juvenile Life insures the life of a minor. It does not need to be purchased by a minor.
in what type of life insurance policies can the policyowner skip premium payments without the policy lapsing?
universal life
With what type of term policy is the death benefit $0 at the end of the policy term?
decreasing term
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? a. Whole Life b. Ordinary Life c. Joint life d. Decreasing Term
c. Joint Life A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.
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 whole life insurance policy generates immediate cash value?
single premium whole life
Which of the following would help prevent a universal life policy from lapsing? a. Corridor of insurance b. Target premium c. Face amount d. Adjustable premium
b. Target premium The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime
Which of the following Life Insurance policies would be considered interest sensitive? a. Whole life b. Increasing term c. Universal life d. Adjustable life
c. Universal life As well as being a flexible premium policy, universal life is also an interest-sensitive policy. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest
Variable life insurance products
contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance
what type of life insurance is best suited to cover a mortgage?
decreasing term
group life insurance policies are written as what type of insurance?
annually renewable term
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 occurs after the 20 year period. what type of policy is this?
20-year level term
When would a 20-pay whole life policy endow?
When the insured reaches age 100
Which of the following statements about group life is correct? a. The premiums are higher than in an individual policy because there is no medical exam b. The group sponsor receives a Certificate of Insurance c. The policy can be converted to an individual term insurance policy d. The cost of coverage is based on the ratio of men and women in the group
d. The cost of coverage is based on the ratio of men and women in the group Group life insurace can be converted to an individual whole life, not a term, policy; the group life insurance premiums are usually lower than those of an individual policy; the group sponsor receives a master contract, while the participants receive certificates of insurance. The cost of the coverage is based on the average age of the group and the ratio of men to women.
what policy component must decrease in decreasing term insurance?
face amount
