Three basic kinds of coverage
Ordinary insurance, industrial insurance, and group insurance.
Ordinary Life Insurance
a level-premium policy that provides lifetime protection
Industrial Insurance
small issue amounts with premiums collected weekly or monthly by agents at policyowner's home. Also known as BURIAL INSURANCE
Group Insurance
insurance that is purchased at group rates by an employer or corporation
Three insurance plans
Term, whole(permanent), and endowment
Term Life Insurance
life insurance that pays a benefit in the event of the death of the insured during a specified term. Low-cost protection.
Basic forms of term life
Level term, decreasing term, increasing term.
Level term insurance
provides a level amount of protection for a specified period, after which the policy expires. Level premium and level death benefit
Decreasing Term Insurance
the benefits that will be paid to the beneficiary are reduced over time and the premium remains constant
Increasing Term Insurance
pays an increasing death benefit and has increasing premium as the policyholder ages.
Option to Renew
A guaranteed renewable policy allows the policyowner to renew the term policy before its expiration date, without
having to provide evidence of insurability (that is, without having to prove good health). For example, a five year
renewable term policy per
Option to Convert
gives the insured the right to convert or exchange the term policy for a whole life(or permanent) plan without evidence of insurability.
Re-entry Term Insurance
Is renewable only if the insured passes a medical examination
Whole life insurance
Provides death benefits for the entire life of the insured. Matures at age 100. Has a fixed premium and level benefit with cash value accumulation.
Living Benefits
benefits that allow the policyholder to receive a portion of death benefits prior to death
Whole life premiums
The shorter the payment period, the higher the premium.
Straight Whole Life
whole life insurance providing permanent level protection with level premiums from the time the policy is issued until the insured's death(or age 100). Most affordable-longer you pay the more affordable.
Limited Pay whole life
Level premiums limited to certain time period. Coverage will be guaranteed.
Single Premium Whole Life
Paid up for life with one large premium payment
Premium periods
The shorter the premium paying period( higher premium), the quicker the cash valued will grow. By the same token, the longer the premium paying period, the slower the cash values grow
Equity index Whole life
80 to 90% of premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index
Graded Premium Whole Life
Lower premiums for designated timeframe (typically 5-10 years); payments rise annually thereafter until leveling off
Which is an accurate description of the premium in a graded premium life insurance policy?
Annual increases in premium for a stated number of years then levels off for the remainder of the contract
endowment insurance
a type of insurance that pays the face value of the policy to beneficiaries if the insured dies before the endowment period ends
Modified Endowment Contract (MEC)
Discourage the sale and purchase of life insurance for investment purposes or as a tax shelter.
How to classified as MEC?
7 pay test. A limitation on the total amount you can pay into your policy in the first seven years of existence. If there is a material change in the contract, the seven pay test applies again.
Family plan policy
All-family plan of protection, usually with permanent insurance on the primary wage earner's life and with spouse and children automatically covered for lesser amounts of protection, usually term, all included for one premium.
Family Income Policy
Combines Whole Life insurance with a Decreasing Term
Rider also written on the same person
Family Maintenance Policy
A combination of whole life insurance and level term insurance to provide permanent coverage (lump sum payment to beneficiary when the insured dies) and a monthly family maintenance portion for a set period of time following the insured's death.
Joint Life Policy
Covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured, at which time the policy automatically terminates.
Joint life and survivor policy
Second to die policy. Covers two lives, but the benefit is paid upon the death of the last surviving insured.
Juvenile Insurance
Permanent insurance written on underage children (usually from one day to age 14 or 15 years.) does not require the minor's consent. A payor provision is usually attached to the policy
Credit Life Insurance
A special type of coverage written to pay off the balance of a loan in the event of the death of the debtor. Beneficiary is usually the lender.
Interest Sensitive Whole Life
Premiums vary to reflect the insurer's changing assumptions with regard to death investment and expense factors.
Face Amount Plus Cash Value
Contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to the policy's cash value
Adjustable Life
Permanent + Term
Combines permanent and term life policies allowing changes to face amount, period payments, and term during policy lifetime.
Universal Life Insurance
Permanent policy means last entire life. Offers flexible premiums each year by accessing some of the policy's cash value. Depending on cash value, it may be used to skip a premium payment, or be left alone with the potential to accumulate value over time
Equity Index Universal Life Insurance
Policyholders to link accumulation values to an outside equity index, like the S&P 500
Minimum guaranteed fixed interest rate
If the return on the index exceeds the policy's guaranteed rate of return, the cash value will reflect that of the index
Variable Insurance Products
opportunity for policy owners to achieve higher than usual investment returns on their policy cash values by accepting the risk of the policy's performance. No guarantees, money invested in stocks, mutual funds, equity investments. Buy these to keep up wi
Waiver of Premium Rider
Not having to make premium payments while the insured is disabled and unable to work. Generally, insured must be seriously disabled for a certain length of time, called the "waiting period" usually 90days or 6 months. After waiting period if insured is st
Automatic Premium Loan Rider
allows the insurer to pay premiums from the policy's cash value if premiums have not been paid by the end of the grace period. These deductions from cash values are treated as loans and are charged interest. Should the insured die, the loan plus interest
Payor Provision Rider
Provides waiver of premiums if the adult premium-payor should die or, with some policies, become totally disabled.
Accidental Death Benefit Rider
doubles the face amount of life insurance if death occurs as a result of an accident
Return of Premium Rider
Upon death, death benefit is paid + the aggregate of premiums paid to date; add-on to Term policy ONLY.
Cost of living rider
provides increases in the amount of insurance protection without requiring the insured to provide evidence of insurability and is designed to keep up with inflation.
Long term care rider
This rider pays medical expenses associated with an assisted living center without increasing the policy's premium. Limits such as an elimination period, prior hospitalization of at least three days, and impaired daily activities are characteristic of thi
Free Look Period
An amount of time provided to an insured in order to examine the insurance policy.
A "premature" distribution from a MEC incurs a penalty tax of
10%
Variable Universal Life Insurance
A guaranteed death benefit plus premium and investment flexibility with premium payments
Which of the following is generally a form of group credit life insurance?
Decreasing term insurance
Which type of life insurance policy is best suited for paying off the outstanding balance of a 30-year mortgage in the event of the insured's death?
30 year decreasing term
Which following could be a future use of the cash value that builds in a recently purchased whole life insurance policy?
Provide supplemental income in 35 years
At what point are death proceeds paid in a joint life insurance policy?
When the first insured dies
Which is an accurate description of the premium in a graded premium life insurance policy?
Annual increases in premium for a stated number of years then remain levels
Taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for
The policy is surrendered for less than what was paid into it
An individual who purchased a modified life insurance policy expects
An improvement in future income
The insurance coverage in a variable life insurance policy may vary based on the value of
its underlying investments
Assets that back the non-guaranteed values of variable life insurance products are held in which account?
Separate account set up by the insurer
An insurance policy that can also be classified as a securities product is called
Variable Life
Which statement concerning a decreasing term life policy is accurate?
Face amount decreases over the policy period
Under an adjustable life insurance policy, which of the following may NOT be changed without further underwriting?
The person insured
Straight whole life insurance can be accurately described in all of these statements EXCEPT
Policy protection normally expires at age 65
Which of the following is a TRUE statement regarding universal life insurance?
Policy indicates how much of each premium is used toward company expenses
What kind of life policy typically offers mortgage protection?
Decreasing term
Which statement regarding an adjustable life insurance policy is NOT true?
Policy loans are not permitted
Which of the following is a TRUE statement regarding universal life insurance?
Policy indicates how much of each premium is used toward company expenses
How are level term policies able to provide level premiums?
Premiums are averaged over the term of the policy
What happens to the death benefit as a result of variable universal life policy.
Fluctuate with changes in the cash account
All of these statements concerning group credit life insurance are false EXCEPT
The face amount is determined by the outstanding loan balance
A policyowner has just borrowed from a life insurance policy's cash value. Which of these statements is true?
In the event of death, the old amount is deducted from the policy proceeds
Which of these policies is considered a whole life policy?
Single premium life
Which of these must be disclosed in a universal life policy?
The policy's surrender charges
What happens to a life insurance policy when the policy loan balance exceeds the cash value?
Policy will no longer be in force
A life insurance policy's waiver of premium rider has the ability to
Relieve the insured of premium payments following an initial waiting period after the insured becomes totally disabled.
Which of the following is NOT a condition that must be met for an accidental death benefit to be paid?
Cause of death must be from a job-related injury
What effect can a long-term care benefit rider have on a life insurance policy?
Reduced death benefit because the cost is used toward assisted living and nursing home confinement
When a lapsed policy's premium has been paid current, it has the potential of being ?????????????????
Reinstated
Which of the following is true regarding a person receiving a waiver of premium benefit?
The insured must be disabled for a period of time
In the event of premium default, which life insurance provision will use the cash value to keep the policy in force?
Automatic premium loan
The absolute assignment of a life insurance policy results in
all incidents of ownership transferred to the assignee
How long can an insurer legally defer paying the cash value of a surrendered life insurance policy?
6 months
Which life insurance policy option allows the policyowner to have coverage equal to the net death benefit of the lapsed policy?
Extended term nonforfeiture option
What could be the potential result of taking out a cash value loan under a life insurance policy?
Reduces the amount receivable upon surrender of the contract
A policyowner is permitted to take out a policy loan on a whole life policy at what point?
When the policy has a cash value
A life insurance policyowner would like a dividend option that results in a limited current outlay of funds. Which dividend option would be chosen?
Reduction of premium payment
Which of the following is NOT guaranteed in a whole life policy?
Dividend scale
After the extended term life nonforfeiture option is chosen, the available insurance will be
level term for a stated period of time
What happens when a policyowner borrows against the cash value of his life insurance policy?
The policy proceeds would be reduced by the outstanding loan balance
Which statement regarding the life insurance premium for a children's rider is true?
Premium remains the same no matter how many children
An individual who purchases a modified life insurance policy expects
an improvement in future income
...
...