Life Insurance and Annuities Quiz

Application

• Human Life Value Approach: Predicts future earnings of the insured using wages, inflation, and time until retirement. Considers the time value of money.
• Needs Approach: Predicts financial needs of the family using debt, income, mortgage, and expenses.
• Parts of the application include: general information, medical information, agent's report, and risk classifications.
• Risk Classifications: Preferred risks are healthier than standard risks and usually get discounted premiums. Standard risks are normal or average risks with no special conditions. Substandard risks require special conditions or higher premiums due to higher risk.

Life Insurance Policies

• Level Term: Pure protection for a specific term. Premiums remain the same throughout the term.
• Annual Renewable Term: Renews yearly without proof of insurability. Premiums increase each year based on attained age.
• Decreasing Term (Credit Life): Coverage decreases as debt decreases. Ideal when protection needs decline.
• Straight Life: Basic whole life policy with level death benefit until death or age 100.
• Limited Pay: Premiums paid for a specific length of time or age. Coverage continues until death or age 100.
• Single Premium: One lump-sum premium payment and coverage remains until death or age 100.

Flexible Premium Policies (Cash Value)

• Adjustable Life: Three adjustable parts: coverage, premiums, and plan type (insured selects two, insurer selects one).
• Universal Life: Interest-sensitive cash value, flexible coverage and premiums, and two death benefit options, A & B.

Specialized Policies

• Joint Life (First-to-Die): Two or more insureds on the same policy, benefit paid when the first insured dies.
• Survivorship Life (Second-to-Die): Two or more insureds on the same policy, benefit paid when the second insured dies.
• Group Life: Usually written for employer-employee groups. Members pay premiums through a master contract; certificate of insurance given to each member.

Special Coverages

• Mortgage Redemption: Insures the borrower for the amount equal to the mortgage. If the insured dies, insurer pays the loan balance.
• Family Maintenance: Combines whole life with level term insurance to cover family members. Provides coverage for each family member.
• Family Income Policy: Combines decreasing term and whole life insurance to provide income for the family.
• Jumping Juvenile: Life insurance for a minor with a face amount that increases at a pre-determined age (often 21).

Policy Provision Terms

• Insuring Clause: The company's promise to pay benefits.
• Consideration Clause: The application and initial premium constitutes consideration.
• Grace Period: 30-31 days after due date during which the policy is still active if premium isn't paid.
• Reinstatement Clause: Allows a lapsed policy to become active again under specific terms.
• Payback Clauses: Include any loans or interest in the payoff.
• Misstatement of Age/Sex: The policy can make adjustments based on a misrepresentation of these.
• Free Look Period: Specific time period the insured has to review the policy and request a full refund if not satisfied.
• Ownership Clause: Explains rights and responsibilities of the policy owner.
• Assignment Clause: Allows the owner to assign the policy to another person.
• Incontestable Period: Insurer can't dispute the policy within a specified period (often 2 years).

Beneficiary

• Beneficiary: The person who receives the policy proceeds if the insured dies.
• Primary Beneficiary: The first designated beneficiary.
• Contingent Beneficiary: The secondary beneficiary if the primary beneficiary dies beforehand.
• Revocable Beneficiary: The policy owner can change the beneficiary's designation at any time.
• Irrevocable Beneficiary: The policy owner cannot change the beneficiary's designation without written consent.
• Common Disaster Provision: The insured must die before the beneficiary.
• Spendthrift Clause: Creditors of the insured can't go after the beneficiary's payout.
• Premium Modes: Frequency of premium payments (monthly, quarterly, semi-annually, or annually.) More frequent premium payments = higher total annual cost.)

Policy Options

• Cash Payment (Lump Sum): Proceeds are paid to the beneficiary in a lump sum and isn't taxable.
• Life Income: Pays out guaranteed installments as long as the recipient lives.
• Interest Only: Payment until proceeds are paid.
• Fixed Period: Payout depletes the funds over a fixed period.
• Fixed Amount: Fixed payment amount until all proceeds are exhausted.

Dividend Options

• Return of excess premiums: Non-taxable and non-guaranteed returns.
• One-year term: Company uses the dividend to buy additional insurance.
• Cash option: Insurer sends a check for the dividend.
• Reduction of premium: Insurer reduces next year's premium using the dividend.

Policy Loans/ Withdrawal Options

• Cash Loans: Loans not subject to income tax.
• Automatic Premium Loan: Prevents lapse if premium is not paid on time.
• Withdrawal/Partial Surrender: Allows withdrawal of some or all the money in certain policies, may be subject to charges.

Non-forfeiture Options

• Reduced Paid-up: Reduces the face amount.
• Extended Term: Converts to a term insurance policy with similar coverage for the same face amount as the original policy or part of it.
• Cash Value: Interest taxed on withdrawal or surrender.

Policy Riders

• Waiver of Premium: Waives premiums if the insured becomes totally disabled (6-month waiting period).
• Accelerated Benefit Rider: Provides early payment if the insured is diagnosed with a specified serious illness.
• Riders Covering Additional Insureds: Covers spouse and children; usually for a limited time.
• Family Term Rider: Covers spouse and children in one rider.
• Payor Benefit: Insurer pays premiums if the payor becomes disabled or dies, until the child is no longer a minor.

Riders Affecting Death Benefit Amount

• Accidental Death: Usually pays double or triple if accidental death occurs within 90 days of the accident.
• Guaranteed Insurability: Allows purchasing additional insurance at predetermined times.
• Cost of Living: Increases or decreases death benefit each year based on the cost of living adjustment.
• Return of Premium: Refunds premiums previously paid to the beneficiary.

Annuities

• Annuity: A retirement plan that liquidates an estate, where earnings grow tax-deferred.
• Owner: Purchases the annuity contract and pays the premiums.
• Annuitant: Receives payments (based on amount, age, and gender).
• Beneficiary: Receives cash or premium if the annuitant dies.
• Accumulation Period: Money is built up in the account.
• Annuity Period: When the payments are made.
• Premium Payments: Can be single or periodic (level).

Annuity Payment Options

• Cash one-time payment: Interest is immediately taxed; 10% penalty before age 59 1/2.
• Annuity Certain: Guaranteed for a fixed period or fixed amount.
• Straight Life: Guarantees payments for life, ceasing at death.
• Life with certain period: Guarantees payments for life and a specified time after the annuitant dies.

Annuity classifications

• Fixed Annuities: Interest rates are guaranteed, income payments do not vary. Premiums are held in the company's general account.
• Variable Annuities: Growth is not guaranteed. Premiums are held in a separate account and are a type of security. Level benefits are based on the policy owner assuming the risk.
• Equity Indexed Annuities: Investing in a stock market or other equity. Like fixed annuities that invest, usually aiming for higher returns.

Test your knowledge with this quiz focused on life insurance and annuity concepts. Explore key features such as Adjustable Life, Whole Life policies, and the role of annuitants. This quiz covers essential terminology and classifications in the life insurance industry.