Life Insurance Flashcards
In Canada, you can purchase a life insurance policy in one of two main formats:
- Temporary Insurance - a temporary/term policy
- Permanent Insurance - a policy that can keep in force until death
If an individual purchases a home it may create insurance need. This is an example of which type?
Temporary need: Since the home will have a mortgage that will be paid off, this need would be a temporary need. Therefore, a term policy would fill this insurance requirement.
A client purchased a 10-year gauranteed renewable and convertible life insurance policy. The policy was delivered and a delivery receipt signed five days ago. The client has changed his mind about wanting the life insurance policy.
Can this client cancel the policy and get his money back?
Yes, by using the 10-day right of rescission.
Insurance policies provide a 10-day period after the policy is delivered in which the policyholder can: change his or her mind; cancel the policy; and receive back any money that has been paid.
A client purchased a life insurance policy 37 months ago. The insurance company has just received notice that the client committed suicide. Will the claim be paid?
yes - The policy has been in force for more than two years
Suicide clause - The death benefit will not be paid to the beneficiary of the policy if the life insured dies as a result of suicide within two years of the effective date of the policy
A client purchased a life insurance policy 15 months ago. The client has died and the insurance company has received notice that the client died as a result of a skydiving accident. Upon investigation the insurance company discovers that the client has engaged in skydiving for the past eight years. This information was not disclosed on the application for the life insurance policy.
Will the company pay the death benefit to the beneficiary?
No.
Incontestability - A life insurance policy can be contested if it has not yet been in force for two years. The fact that this client participated in skydiving was not disclosed on the life insurance application. This information would have impacted the underwriting decision of the insurance company.
What are the three features of a renewable term insurance policy?
- The renewal period is guaranteed
- The premium level is guaranteed
- The face amount is guaranteed
This type of policy is guaranteed to be renewed for various renewal periods regardless of the health of the life insured
The face amount remains the same but the premiums increase at each renewal date, which reflects the mortality risk.
ANy premium change is guaranteed to the owner at the time the policy is taken out.
A client is considering purchasing a whole-life policy. What are the three non-forfeiture options that are available on this type of policy?
- Reduced paid-up insurance (RPU)
- Extended term insurance (ETI)
- Automatic premium loan (APL)
Each option provides the policy owner with a way of maintaining insurance coverage. Cash surrender value forfeits insurance coverage
When purchasing a whole-life insurance policy, which type of rider will ensure that you can purchase additional insurance in the future without having to provide evidence of insurability?
The Guaranteed Insurability Benefit, also known as Guaranteed Insurability Option.
A guaranteed insurability benefit guarantees the policy owner the right to increase the amount of life insurance at certain times, over periods of time, or if certain events occur.
What type of insurance should be recommended when insuring a mortgage and is the only financial need?
- 10-year gauranteed renewable and convertible term insurance
- 20-year level term insurance
10-year guaranteed renewable and convertible term insurance
Most mortgages are now renewed at a maximum of 5-year periods. Some mortgages are now renewed for much shorter periods of time. a 10-year guaranteed renewable and convertible term insurance policy will give the coverage needed and will allow some flexibility at renewal dates to adjust the face amount if desired.
A client requires $450,000 of life insurance. This is a permanent need, therefore, you prepare an illustration for $450,000 of non- participation whole-life insurance. The client feels that this premium is beyond his financial means. What alternate permanent life insurance policy would you recommend?
Term-to-100
Term-to-100 offers the distinct advantage of lower premiums relative to premiums for other permanent policies. This is because term-to-100 has no cash value.
What are the differences between Level Cost of Insurance (LCOI), universal life and yearly renewable term (YRT) universal life?
Yearly renewable term mortality costing is less expensive in the early years and allows for faster cash build up in the policy. However, it becomes more expensive in the later years because the mortality cost increases.
Level Cost of Insurance is more expensive in the early years and is cheaper in the later years because the mortality cost remains level.
Universal Life insurance is an interest rate policy that is unique combination of insurance and investment.
