Chapter 8

Question 1

Human Life Value

Answer 1

The Present Value of that portion of a person’s estimated future earnings that will be used to support dependents

Question 2

Yearly Renewable Term Insurance

Answer 2

A plan that provides a level amount of insurance for 1 year, renewable for a stated number of years, with the premium at each renewal date rising at an increasing rate that reflects the rise in the mortality rate over time

Question 3

Cash Value Life Insurance

Answer 3

A type of life insurance under which premiums are sufficient not only to pay the insurer’s death claims and expenses but also to build up a savings fund within the policy

Question 4

Legal Reserve

Answer 4

The minimum amount of the reserve, as specified by state law, that a life insurer must maintain to meet its assumed future claim costs under a clock of policies. It is discounted for future premium and investment income under those policies

Question 5

Net Amount at Risk

Answer 5

In a life insurance policy, the difference between the policy’s face amount and the reserve at any point in time

Question 6

Modified Whole Life Insurance

Answer 6

A form of whole life insurance in which a level premium lower than that for conventional whole life insurance is charged for the first few policy years and a higher level premium is charged thereafter

Question 7

Renewability

Answer 7

A feature frequently found in individual term life insurance that allows the policy owner to renew the policy for another period of protection, up to a state point in time, without having to show evidence of insurability.

Question 8

Ordinary Life Insurance

Answer 8

A form of whole life insurance for which premiums are based on the assumption that they will be paid until the insured’s death and that provides a guaranteed cash value

Question 9

Limited-Payment Life Insurance

Answer 9

A form of whole life insurance for which premiums are based on the assumption that they will be paid for only a specified number of years or until a specified age of the insured.

Question 10

Single-Premium Whole Life Policy

Answer 10

A form of whole life insurance that is full paid-up upon the payment of a single premium.

Question 11

Vanishing Premium

Answer 11

Whole Life Insurance approach designed so that if experience is favorable, the accumulation account eventually equals or exceeds the net single premium necessary to pay up the contract.

Question 12

Endowment Life Insurnace

Answer 12

A type of life insurance policy that pays the face amount if the insured dies during a specified period of time and also pays the face amount if he or she lives to the end of that period.

Question 13

Current-Assumption Whole-Life Insurance

Answer 13

A nonparticipating whole life insurance policy in which premium rates are redetermined by the insurer periodically, based on its then-current assumptions as to mortality, interest, and expenses.

Question 14

Whole Life Insurance

Answer 14

A form of life insurance that provides death benefits upon the death of the insured, no matter when that occurs, if the policy is kept in force by the policy owner.

Question 15

Surrender Charge

Answer 15

A fee imposed on the owners of certain types of life insurance policies and annuities at the time they surrender their contracts.

Question 16

Reentry Term Insurance

Answer 16

A form of renewable term life insurance under which one renewal rate schedule is used if the insured can prove continuing insurability. and a higher schedule is used if the insured cannot prove continuing insurability.

Question 17

Convertibility

Answer 17

A feature in term life insurance that allows the policy owner to replace the term coverage with permanent individual life insurance without having to show evidence of insurability. In group insurance, the right is available only at certain times, including termination of the insured from the group or from an eligible class within the group.

Question 18

Decreasing Term Insurance

Answer 18

A form of term life insurance in which the amount of insurance systematically decreases from year to year

Question 19

Increasing Term Insurance

Answer 19

A form of term life insurance in which the amount of insurance systematically increases from year to year

Question 20

Participating Policy

Answer 20

A type of life insurance policy that can pay dividends to the policy owner

Question 21

Nonparticipating Policy

Answer 21

A type of life insurance policy that pays no dividends to the policy owner

Question 22

Variable Life Insurance

Answer 22

A type of life insurance in which the policy owner directs how the cash value will be invested and bears the investment risk, and in which the death benefit is linked to the investment performance of the policy.

Question 23

Universal Life Insurance

Answer 23

A type of life insurance policy characterized by flexible premiums, a shift is some investment risk to the policy owner even though the policy owner is not allowed to direct the investment portfolio, the ability to withdraw part of the cash value.

Question 24

Variable Universal Life Insurance

Answer 24

A type of life insurance hat combines the premium flexibility features of universal life insurance with the policy owner directed investments aspects of variable life insurance.

Question 25

Indexed Universal Life Insurance

Answer 25

A type of universal life insurance in which interest is credited based on an external index, such as the S&P 500

Question 26

Survivorship (Second-to-Die) Policy

Answer 26

A type of life insurance policy that covers two or more persons in which the proceeds are payable on the death of the last person to die

Question 27

Probationary Period

Answer 27

In group insurance, a period at the start of a person’s employment during which the person is not eligible to participate in the group insurance plan