Unit 4 Types of Life Insurance Policies

Question 1

face amount

Answer 1

amount of the death benefit. usually found on the first page of the policy

Question 2

living benefits

Answer 2

financial benefits that are available while the insured is still alive

Question 3

characteristics of term insurance

Answer 3

-level term
-decreasing term
-increasing term
-return of premium term
-renewability
-convertibility

Question 4

level term policy

Answer 4

equals the face amount throughout the term of coverage. premium also remains level during the term

Question 5

decreasing term policy

Answer 5

death benefit declines over the coverage period until it reaches the end of the term. premium remains level

Question 6

increasing term policy

Answer 6

death benefit begins near zero and grows over the term of the coverage. premium increases

Question 7

return of premium term

Answer 7

premium higher than regular term policy. premium paid by insurance is paid back if insured is alive at the end of the term

Question 8

renewability

Answer 8

guarantees the policy will renew at the end of the term. no new medical exam/ application. new premium based on attained age

Question 9

attained age

Answer 9

insured’s age at time of conversion

Question 10

step-rate premium

Answer 10

a higher premium at each renewal

Question 11

convertability

Answer 11

allows a policyholder to convert a term insurance policy to a permanent type of policy. no application and no evidence of insurability required

Question 12

whole life insurance

Answer 12

permanent insurance policy guaranteed to remain for the insured’s entire lifetime

has a level premium (does not increase), payments can be made on a fixed premium schedule (ex. monthly), death benefit is fixed and level (face amount remains the same), has a cash value (reserves necessary to assure payment of the guaranteed death benefit), death benefit

Question 13

types of whole life policies

Answer 13

-continuous premium
-limited payment
-single premium (immediate cash value)
-modified premium (lower premium first 3-5 years, premium jumps once then levels off)
-graded premium (initial premium lower than whole life, premium increases for 5-10 years years then levels off)
-indeterminate premium (premiums adjusted by the company, has a guaranteed maximum premium)
-interest sensitive (has a current interest rate, guaranteed interest rate)

Question 14

continuous premium whole life

Answer 14

a type of whole life insurance where the premiums are the same each year for the duration of the contract

Question 15

limited-payment whole life

Answer 15

a type of whole life insurance that allows for a lifetime of premiums to be paid in a shorter time. accumulates faster than a continuous premium

Question 16

single premium whole life

Answer 16

a type of whole life insurance that has one payment made at the time of purchase

Question 17

modified premium whole life

Answer 17

a type of whole life insurance with lower premiums in the first 3-5 years. premium jumps then levels off

Question 18

graded premium whole life

Answer 18

a type of whole life insurance with an even lower initial premium than modified whole life policies. premium increases for 5-10 years then levels off

Question 19

indeterminate premium whole life

Answer 19

a type of whole life insurance with adjustable premiums. has a guaranteed maximum premium

Question 20

interest-sensitive/ current assumption whole life

Answer 20

a type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant. has a current and guaranteed interest rate

Question 21

advantages of whole life

Answer 21

-permanent coverage
-guaranteed level premiums
-lifetime coverage

Question 22

disadvantages of whole life

Answer 22

-premium not flexible
-higher initial premiums

Question 23

adjustable life insurance

Answer 23

policyowner can adjust the face value/ death benefit, the premium, and the length of coverage without having to change policies

Question 24

universal life insurance

Answer 24

premiums are flexible
cash account where the cost of insurance and fees are withdrawn monthly and there is current or guaranteed interest

Question 25

option A universal life insurance

Answer 25

level death benefit (insurance amount only)

Question 26

option B universal life insurane

Answer 26

increasing death benefit (insurance amount + cash account)

Question 27

equity indexed universal life

Answer 27

current interest on cash account can be up or down based upon a stock market index. account is still guaranteed by the company

Question 28

advantages of flexible policies

Answer 28

flexible premiums, death benefit options, and cash value

Question 29

disadvantages of flexible policies

Answer 29

more complex and changes to policy can affect long-term benefits

Question 30

variable policy

Answer 30

permanent insurance policy designed to provide lifetime coverage for the insured and have cash value and a death benefit -life insurance plus investments -sellers must have life insurance license & securities license -investments are in a separate account (securities) -owner can lose money

Question 31

variable life

Answer 31

has a guaranteed minimum death benefit death benefit can increase

Question 32

variable universal life

Answer 32

no guaranteed death benefit

Question 33

advantages of variable policies

Answer 33

potential for high returns keep pace with inflation tax advantagesdi

Question 34

disadvantages of variable policies

Answer 34

no guaranteed rate of return complicated highly regulated

Question 35

joint life policy

Answer 35

covers two or more lives with the death benefit being paid when the first insured dies. less than the cost of two individual policies

Question 36

survivorship policy

Answer 36

insures two individuals and will pay the death benefit when the last insured dies. less than the cost of two individual policies

Question 37

juvenile life insurance

Answer 37

coverage for a child or minor death benefit may increase at a future age (jumping juvenile automatically increases at age 18 or 21)