What is Term Life Insurance?
A life insurance policy that is for a certain period of time and expires at the end of the term.
True or False: a term life policy can't be renewed
False, they can be renewed
What is a Convertible Term policy?
This allows the policyowner to convert or exchange a term policy into something more permanent, like a whole life policy.
What is a Level Term insurance policy?
This provides a level death benefit and level premium during the policy term.
What is a Decreasing Term policy?
This is where the face amount decreases over time. This is common for people that want to protect against a liability that also decreases over time; like a home mortgage.
What is an Increasing Term policy?
This is a type that is not used as often; it is basically the opposite of decreasing.
What is an Interim Term policy?
When a person wants immediate protection and is thinking of starting a permanent insurance policy in the near future.
What type of policy doesn't require proof of insurability when purchasing another identical policy?
Renewable term
What is Continuous Premium Whole Life?
This is the most common, its the same as straight life...premium payments over the whole life of the insured.
What is Limited-Payment Whole Life?
This is whole life insurance, but with the insured paying for the entire policy over a shorter period (like a 15-year mortgage vs. a 30 year).
What is 20-payment or 30-payment life?
This is limited payment life where payments are made for 20 or 30 years but benefits are given through 100 years old like a regular whole life policy.
What is Single Premium Whole Life?
This is a limited payment whole life where the policy is paid in one sum up front by the insured.
What is Indeterminate Premium Whole Life insurance?
These were developed to compete with participating policies, they employ a dual premium - a maximum premium and discounts that might reduce the premium.
What is Current Assumption Whole Life?
These offer flexible premium payments that are tied to current interest rate fluctuations.
What is an Economatic policy?
This is a whole life policy with a term rider that uses dividends to purchase additional paid-up insurance. E.g. if an individual wants $100,000 of coverage but can't afford it, he can buy $70,000 of whole and $30,000 of term. The
What is Option A in a Universal Life policy?
This provides a level death benefit equal to the policy's face amount. As the cash value increases, the mortality risk increases.
What is Option B in a Universal Life policy?
This provides an increasing death benefit equal to the policy's face amount plus the cash account.
How is Option B different than Option A?
The mortality risk remains at a level amount equal to the policy's face value. Thus, the policyowner will incur a higher expense for the cost of the death protection over the life of the policy and less of the premium will be deposited in the cash account
True or False: in a universal life policy, the premium amounts, premium schedule, and death benefit are flexible
True
Which is more expensive? Option A or B?
B is generally more expensive.
What is the 12% rule?
At the time of solicitation, variable life illustrations may not be based on projected interest rates great than 12%
For a policy to meet the definition of life insurance, the face amount must be ___________ than the cash value by a certain percentage at least _________ ___ ______.
higher, once a year
If a percentage is deducted from the premiums as they are paid, what kind of load is this?
Front end
Loans are usually limited to ____% of the available cash value
75%
What is Industrial Life Insurance?
This is a policy written for a small face amount ($2000 or less), they were historically sold to industrial workers.
What is Home Service Life Insurance?
This is a variation of industrial life, these are written for a small face amount ($10,000-$15,000)
What is Credit Life Insurance?
This provides help in the event of the death of a person that has debts that aren't paid off (car loans, etc).
Where are industrial life insurance policy premiums usually collected?
At the home or workplace of the insured.
What is the difference between an Endowment policy and a Whole Life Policy?
The Endowment policy matures earlier and the premium is higher per $1000 of coverage.
What is a family income policy?
This provides income to be paid upon the death of the breadwinner. The payout is scheduled to last until the family's income needs diminish. These are decreasing, since the longer that the breadwinner lives, the less the possible payout needs to be.
What is a Family Maintenance Policy?
This is similar to a Family Income Policy except that the family will receive payments for a stated number of years after the death of the breadwinner.
What is a Retirement Income Policy?
The purpose of this is to provide retirement income while providing a death benefit.
Which life insurance products contain cash values?
Permanent whole life, universal life, variable life, current assumption whole life.
At what age does an insurance product need to endow in order to maintain its tax advantages?
95 years old
What is a Retirement Endowment?
This was the most commonly sold endowment contract. This was issued to mature at age 65, face value was payable as a death benefit, at maturity face value became payable as a living benefit.
What is a Pure Endowment?
This offered no life insurance protection and provided for the payment of the policy's face amount only.
What is Endowment Life Insurance?
This is a combination of pure endowment plus term insurance for a specific period. The pure endowment paid a living benefit at the end of the endowment period and the term insurance paid a death benefit.
What is a Juvenile Endowment policy?
These were designed to mature at a specific age, such as 18, so that the maturity value was available to help fund a college education.
What is a Family Income Policy?
These provide income to be paid upon the death of the family breadwinner. These are decreasing, because the longer the breadwinner lives, the less need there will be to replace their income.
What is a Family Protection policy?
Where the husband, wife, and children all have insurance coverage on their lives.
What is a Joint Life policy?
This is a policy to insure the lives of two or more people.
What is a 'first to die joint life' policy?
The contract ends at the first death and there is no further protection for the other person.
What is 'survivor life' or 'second to die' insurance?
This covers two lives and guarantees payment only when the second insured dies. These are useful in estate planning.
What is a Juvenile Policy?
This can be any type of coverage: whole life, limited payment life, or term insurance, depending on the purpose of having the policy. The person has to be a minor, the face amount increases 5x at maturity.
What is a Modified Premium Plan?
This is an ordinary life policy in which the premium obligation is redistributed. So the payments are lower for the first couple of years and it changes to a higher level premium during later years.
What is a Graded Premium Plan?
The initial premium is set very low and after a period of time, the premium amount will inflate every year.
What is a Mortgage Redemption Policy?
This is simply decreasing term insurance. The benefit is intended to be sufficient to pay off the unpaid remainder of a mortgage loan.
What is an Index-Linked policy?
This is a policy with a face amount that increases with inflationary trends.
What is Deposit Term insurance?
This is a level term insurance policy that has a higher premium in the first year than in subsequent years. It is basically a method for paying for a policy in advance.
What is Preneed Funeral Insurance?
This is used to pay for an insured's funeral at a particular funeral home.
What are some advantages and uses of specialized policies?
-Specific combinations of term and permanent insurance can be used to match an exact need.
-The cost of the combined policy might be lower than the ordinary whole life insurance.
What are some disadvantages of specialized policies?
-If the needs change, the policy can become obsolete
-Certain policies may incur negative tax consequences.
What is a Waiver?
This is a type of rider that is used to exclude benefits for which no premium is charged.
What is an accidental death benefit (ADB) rider?
This may be added to an insurance policy to provide for an additional amount to be paid to the beneficiary if the insured dies as a result of an accident. It is usually the same as the face value, so the beneficiary would receive double.
What does Double Indemnity mean in regard to ADBs?
An ADB is usually equal to two or three times the face value
Which types of accidental deaths aren't covered by the ADB rider?
-death as a result of a self-inflicted injury
-death while committing a crime
-death as a result of war
-if person is flying private airplane (being a passenger is OK)
-death is a result of a riot of insurrection
True or False: outstanding loans against the insurance policy are taken subtracted against a double indemnity payout
True
True or False: an ADB will normally cease/expire five years before or after normal retirement age?
True
True or False: dismemberment can also be included in a ADB?
True, this variation is referred to as a AD&D (accidental death and dismemberment)
What is a suicide exclusion?
Most life insurance contracts exclude coverage of death by suicide usually within a time-frame of the inception of the policy.
What is the Waiver of Premium rider?
This exempts a disabled policyowner from needing to pay premiums during the term of disability
Are there any exclusions from the Waiver of Premium rider?
Yes: suicide, military service, or injury received while committing a crime.
What is a Disability Income rider?
This is where the insured receives monthly income from the insurance company if they become disabled.
What is the difference between the Waiver of Premium and the Disability Income riders?
Waiver of premium pays for the premiums on the insurance policy and disability income provides an income for the disabled.
What is a Payor rider?
This an adult dies or becomes disabled and is paying the premiums for a juvenile policy, all further premium payments will be waived.
What is a Guaranteed Insurability rider?
This guarantees that a person can purchase additional insurance without evidence of insurability (if they have become insurable).
What is a Return of Premium rider?
If the insured dies, all premiums will be returned.
What is the Return of Cash Value rider?
This is similar to the return of premium in that an additional amount is paid out that is equal to the cash value if the insured dies.
What is a Cost-of-living rider?
This gives the policyholder the option to increase the death benefit of the policy to match an increase in the cost of living index (its basically inflation protection).
What is an Annuity Death Benefit rider?
This guarantees that if the annuitant dies before the payout begins, the beneficiary will be paid the full value or the total premiums paid, whichever is higher.
What is a Substitute Insured rider?
This allows for the changing of insureds; this is desirable for a business-owned life insurance policy, for instance (if the insured employee is terminated or retires, the policy can continue).
What is an Accelerated Benefits rider?
This allows a person to collect a portion of their death benefit if they become terminally ill or require long-term care (like at a nursing home).
What is Long-term care insurance?
This is in regard to health and social service expenses incurred in a nursing home facility, these can be constructed as riders or as an integrated part of the policy.
What is an important distinction between accelerated benefits and LTC insurance?
Both can be trigger by a diagnosis, but under LTC, benefits may only be paid when the insured actually incurs expenses for LTC services. Accelerated benefits doesn't require an incurred expense for benefits to be paid.
What is the elimination period for an LTC benefit?
10-100 days.
What is an Elimination Period?
This refers to the time period between an injury and the receipt of benefits payment.
What are the required viatical payout amounts?
6 months to live - 80%
at least 6, less than 12 - 70%
at least 12, less than 18 - 65%
at least 18, less than 24 - 60%
24 months or more - 50%
What does Senate Bill 98 require?
That all life settlement providers and brokers be licensed.
When must a buyer's guide be delivered if the policy contains an unconditional refund provision?
At or prior to the time the policy is delivered.
When must a buyer's guide be delivered if the policy doesn't contain a refund provision?
Before the applicant's initial premium is accepted.
What is a basic life insurance policy illustration?
This is a ledger or proposal used in the sale of a life insurance policy: shows guaranteed and non-guaranteed elements.
What is a supplemental illustration?
This is used in addition to a basic illustration in a different format and may only depict non-guaranteed elements.
What is an in-force illustration?
This is an illustration furnished after the policy has been in force for a year or longer.
True or False: insurers must notify the Commissioner whether or not a policy will be marketed with an illustration
True
Who must sign and date a statement that says this: 'I have received a copy of this illustration and understand that any non-guaranteed elements illustrated are subject to change and could be either higher or lower. The agent has told me they are not guara
The applicant
Who must sign and date a statement that says this: 'I certify that this illustration has been presented to the applicant and that I have explained that any non-guaranteed elements illustrated are subject to change. I have made no statements that are incon
The producer
Which type of insurance requires a level premium and provides life-long protection?
Whole life insurance
What kind of insurance provides a flexible premium, adjustable benefit, and accumulates cash value?
Universal life insurance
Securities-based whole life insurance is called:
Variable life insurance
What type of insurance policy will allow a person to convert from a term policy to a whole life policy during the first half of the term without providing evidence of insurability?
Convertible term insurance
Which policy will have a higher premium: continuous premium whole life or 20-pay whole life?
20-pay whole life
A policy that has a premium that will be adjusted to reflect the insurance company's experience in regard to mortality, investment return, and expenses is called:
Indeterminate premium life insurance policy
What does Adjustable Life insurance allow a policy holder to do?
To change the period of protection, increase or decrease the face amount, raise or lower the premium amount, and change the length of the premium payment period.
What type of 'family' policy combines Whole Life with Level Term?
Family maintenance
What type of 'family' policy combines Whole Life with Decreasing Term?
Family income
What type of 'family' policy combines one family member with term coverage on other family members?
Family protection
What is a Multiple Protection policy?
This is a policy that pays out a certain dollar amount during the term's policy period and then turns into a whole life policy after the term is over. E.g. Tim has a life insurance policy that will pay $100,000 if he dies before age 65 and $50,000 if he d
In a Minimum Deposit policy, how many payments must be made from sources other than cash value?
4 out of 7
What kind of rider is increasing term insurance that always equals the total premiums paid during the time the policy is in effect?
Return of premium rider
Double payment may be made because of _____________ _________
Accidental death
A waiver of all future premiums in the event of total and permanent disability is called:
Waiver of premium
What is Guaranteed Insurability?
This is a guarantee that at specified ages, dates, or events, the insured may buy additional insurance without a medical exam.
The amount of money paid by an ADB rider if the insured dies in an accident is referred to as:
The principal sum
The amount of money paid by an AD&D rider if the insured is disabled in an accident is referred to as the:
The capital sum