44 terms

Chapter 5: Life Insurance Policies

What are the three basic kinds of life insurance?
1. Ordinary
2. Industrial
3. Group
What are the two types of life insurance?
Temporary (term) and Permanent (WL, Endowment, UL, VUL and other interest sensitive cash value plans)
What is another name for term insurance?
Temporary: it provides insurance only for a specified time and pays only if the insured dies during that period.
What are the three types of Term Insurance (in reference to face amount)?
1. Level Term
2. Decreasing
3. Increasing
What is a Level Term Insurance?
Face amount stays level for the term (premiums may stay level, increase yearly - ART or YRT).
What is Decreasing Term Insurance?
Premium stays level, face amount systematically decreases to zero by end of term (mortgage insurance or Credit life).
What is Increasing Term Insurance?
Face amount increases for the term (usually a rider on a policy IBR-COLA).
What does option to renew mean?
Being able to renew for another term for same face amount, without proof of insurability.
What does option to convert mean?
Being able to convert to whole life w/o proof of insurability.
What is the time limit for converting?
Three or five years before the policy expires.
What is it called when the premium increases to reflect an older age when renewing a policy?
What is another name for whole life insurance?
Permanent or cash value insurance.
What is the main difference b/w term insurance and whole life insurance provide?
Cash value and maturity at age 100 (savings).
What determines the amount of a policy's cash value?
A. Face amount
B. Premium
C. How long the policy has been in force
When does whole life insurance mature?
At age 100 endowments at 100.
What is straight whole life?
Permanent level protection and level premium until death/100.
What is 20-Pay Whole Life?
Premium is only paid for 20 years but death coverage extends until death/100.
What is Life Paid to 65?
Premium paid only to age 65 but death coverage extends until death/100.
What is Single Premium Whole Life?
One time only, lump sum premium paid coverage extends until death/100
What is Modified Whole Life?
Lower payment in first years (usually 5 years) then higher than typical thereafter.
What is Graded Premium Whole Life?
Premiums are lower than typical whole life rates during the preliminary period following issue (5-10 years) and increase each year until leveling off.
What is an Endowment Policy?
Endows at a specific date-death benefits to beneficiary if the insured dies within the specified period or pay a living benefit to the policy owner if the insured is alive at the end of the endowment period.
What government designation, for tax purposes, is given to a life policy if deemed to be mostly savings and doesn't pass the 7-Pay Test?
Modified Endowment Contract (MEC)- corridor effect
What is the Family Plan Policy?
All family members covered under one policy. The breadwinner has whole life; spouse and children are covered with term.
What is Joint Life Policy?
The policy which covers 2 people, pay death benefit when the 1st one dies.
What is Joint and Last Survivor Policy?
The policy which covers 2 people, pays a death benefit only when 2nd insured dies (AKA-second to die policy)
Juvenile Policies can be written up to what age?
14 or 15.
What is the provision found in a Juvenile Policy that in the event of the death or disability of the adult, premium payor will waive premiums until age 25 known as?
Payor Provision.
A Jumping Juvenile Policy allows the young adult to convert his original face amount how many times higher?
5 times the original amount at age 21.
What is Credit Life Insurance?
Covers life of debtor for amount of a loan (AKA- Decreasing Term)
Adjustable Life Insurance is known for its flexibility as objectives change b/c it combines two kinds of plans into a single plan?
Whole Life and Term. Can adjust the premiums and face amount and amount of each kind of insurance.
What is the primary difference b/w Whole Life and Universal Life?
What are 3 things that can be adjusted on a Universal Life policy without needing a new policy?
A. Face amount
B. Payment amount
C. Frequency of payment
How does the cash value grow in a Universal Life (UL) Policy?
Credited with Minimum Guaranteed % or Current Rates determined by the company.
In UL what kind of insurance is deducted monthly?
Do UL policies have a loan value?
Loans and partial withdrawals are permitted.
What happens if the cash account is not large enough to support the monthly mortality and expense deductions in a UL?
Policy terminates.
What kind of insurance has a corridor?
Universal Life (Option 1)
What is the death benefit in Universal Life- Option 1 Policy?
Death benefit equals increasing cash values plus decreasing term. As cash value approaches the face amount before policy matures, an additional amount of insurance, called the corridor is maintained.
What is the death benefit in Universal Life- Option 2 Policy?
Death benefits equals level term + increasing cash value (no need for a corridor since always more insurance than cash)
What is Variable Whole Life?
Has separate accounts maintained for savings, agent needs a Life including Variable Annuity License along with an FINRA registered representative security license. Variable Life has a better potential for gain since the cash values maybe in equities=(stocks and bonds), the policyholder assumes the investment risk. Policyowner must be given a prospectus either preceding or accompanying the sale.
What is Whole Life?
In WL, the cash values grow according to a table, the savings are guaranteed a minimum return in the general account of the insurance company; the insurer bears the risk.
What license must a life insurance agent have to sell Variable Life or Variable Universal Life?
A FINRA Registered Representative Security license and a Florida Life including VA license
How does a VUL (Variable Universal Life) policy work?
Works like UL except cash values grow like VL in separate accounts in equities.