Chapter 8: Introduction to Life Insurance

Question 1

Human Life Value

Answer 1

A person’s human life value is derived from earning capacity and the financial dependence of other lives on that earning capacity. More precisely, a person’s human life value can be measured in terms of the present value of that portion of estimated future earnings, which, if he or she lives long enough to achieve all of the earnings, will be used to support dependents.

Question 2

Yearly renewable term insurance

Answer 2

• Yearly renewable term insurance provides protection for a period of 1 year.
• No medical examination or other evidence of insurability to renew.
• Premiums are derived by the increasing age of the insured.
• Simplest form of life insurance

Question 3

Cash Value Life Insurance

Answer 3

• Permanent
• Builds a reserve
• Premiums are level
• Can be participating or nonparticipating

Question 4

Net amount at risk

Answer 4

Difference between the face amount of the policy and

the reserve. i.e. $100,000 face value minus $30,000 in cash value leaves $70,000 net amount at risk.

Question 5

Return of premium term insurance

Answer 5

return of premium term insurance, returns all premiums if the insured is still alive at the end of the policy term. A portion of the premium may also be returned if the policy is surrendered during the policy term after some minimum time period has elapsed.

Question 6

Renewability

Answer 6

Renewability refers to the right to renew the contract without a medical examination or other evidence of insurability.

Question 7

Reentry Term Insurance

Answer 7

Re-entry term insurance is a type of life insurance contract that offers low rates for a fixed period, and which will continue to offer low rates if the policyholder passes periodic medical examinations.

Question 8

Convertibility

Answer 8

Convertibility is the policyowner’s right to replace term coverage with permanent individual coverage, within a specified time frame, without having to show evidence
of insurability.

Question 9

Increasing term insurance

Answer 9

Increasing term insurance is intended to increase insurance protection in order to keep pace with
inflation or to meet additional future responsibilities which the insured expects to have.

Question 10

Participating versus Nonparticipating

Answer 10

• A participating policy is a life insurance policy
  that may pay dividends.
• A nonparticipating policy does not pay dividends.

Question 11

Ordinary Life Insurance

Answer 11

Ordinary Life Insurance. Ordinary life insurance (also called continuous-premium whole life) is a type of whole life insurance with premiums that are assumed to be paid until the insured’s death.

Question 12

Endowment life insurance

Answer 12

Endowment life insurance policies are a variation of cash value life insurance. They not only provide level death benefits and cash values that increase with duration so that a policy’s cash value equals its death benefit at maturity, but they also allow the purchaser
to specify the policy’s maturity date.

Question 13

Current Assumption Whole Life Insurance

Answer 13

Basically Universal Life insurance

A current assumption whole life insurance (CAWL) policy is a whole life policy with a premium charge that varies with changes in the insurer’s actual or anticipated mortality, expense, and investment earnings experience. The insurer makes actuarial assumptions regarding the policy’s mortality, investment returns, and expenses.

Question 14

Legal Reserve

Answer 14

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 block of policies. It is discounted for future premium and investment income under those policies.

Question 15

Universal Life

Answer 15

• Flexible premiums.
• Shift of some investment risk to the policyowner even though the policyowner does not direct the investment portfolio.
• Ability to withdraw part of the cash value without having the withdrawal treated as a policy loan.
• Choice of level or increasing death benefit designs.

Question 16

Attained Age vs Original Age

Answer 16

If the term policy is converted as of the current date, conversion is usually referred to as the attained age method because the current age determines the premium rate. A conversion using the original date of the term policy is referred to as the original age method or a retroactive conversion.

Question 17

Participating vs non-participating

Answer 17

Participating policy - pays a dividend

non-participating - does not pay a dividend