Life Insurance Overview
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Questions and Answers

What is Term Life Insurance often known as?

  • Pure protection (correct)
  • Whole life insurance
  • Investment insurance
  • Temporary coverage

    • What does Level Premium Term Life Insurance mean?

    The premium is constant for a fixed time period.

    What is Decreasing Term Insurance primarily used for?

    To cover loans as the face amount declines each year.

    Credit Term Life Insurance pays the remaining balance of a loan if the insured dies.

    <p>True</p> Signup and view all the answers

    What does Guaranteed Renewable Term Insurance allow?

    <p>No renewals after a certain age</p> Signup and view all the answers

    What does Convertible Term Insurance offer to policyholders?

    <p>The option to exchange a term policy for a permanent policy.</p> Signup and view all the answers

    Which type of insurance can be issued by an employer?

    <p>Group Term Life Insurance</p> Signup and view all the answers

    What does Cash-Value Life Insurance include?

    <p>A savings/investment element along with life insurance protection.</p> Signup and view all the answers

    What is the characteristic of Limited-Pay Life Insurance?

    <p>Premiums cease after a specified number of years</p> Signup and view all the answers

    What is the primary function of a Waiver of Premium?

    <p>To cover premiums if the policyholder is disabled.</p> Signup and view all the answers

    Cash Surrender Value equals the accumulated Cash-Value minus any ______.

    <p>surrender charges</p> Signup and view all the answers

    Whole Life Insurance has fixed premiums for life.

    <p>True</p> Signup and view all the answers

    What does Adjustable Life Insurance allow customers to do?

    <p>Adjust cash-value accumulation</p> Signup and view all the answers

    What are the primary types of Interest-Sensitive Life Insurance?

    <p>Universal Life Insurance, Variable Life Insurance, and Variable Universal Life Insurance.</p> Signup and view all the answers

    What does the Needs Approach to estimating life insurance needs consider?

    <p>All factors that might potentially affect the level of need.</p> Signup and view all the answers

    What is Variable Universal Life Insurance (VUL)?

    <p>A form of universal life insurance that gives the policyholder some choice in the investments made with the cash value accumulated by the policy.</p> Signup and view all the answers

    What is 'Second-to-Die' Life Insurance?

    <p>A life insurance policy that only pays when the second party dies.</p> Signup and view all the answers

    What is a Contingent Beneficiary?

    <p>Becomes the beneficiary if the original beneficiary dies before the insured.</p> Signup and view all the answers

    What is a Suicide Clause?

    <p>If the insured commits suicide within 2 years of the policy date, only the premiums are returned.</p> Signup and view all the answers

    What does the Incontestability Clause state?

    <p>After 2 years have passed since the policy's issuance date, claims cannot be denied for errors or misstatements.</p> Signup and view all the answers

    What is Multiple Indemnity?

    <p>Provides for the doubling or tripling of the face amount if death results from certain specified causes.</p> Signup and view all the answers

    What are Assignments in life insurance?

    <p>Transfers of ownership.</p> Signup and view all the answers

    What is Absolute Assignment?

    <p>The transfer of all ownership rights of a life insurance policy to another individual or entity.</p> Signup and view all the answers

    What is Collateral Assignment?

    <p>Designation of a policy's death benefit or its cash-surrender value to a creditor as security for a loan.</p> Signup and view all the answers

    What is the Net Cost Method?

    <p>A calculation method that does not take into account the time value of money.</p> Signup and view all the answers

    What does the Interest-adjusted Cost-Index Method measure?

    <p>The cost of life insurance, taking into account the interest that would have been earned had the premiums been invested.</p> Signup and view all the answers

    What is the Net Cost Formula?

    <p>Premiums paid minus interest/dividends accrued but unpaid plus the Accumulated cash value.</p> Signup and view all the answers

    What rights do you retain as the owner of a life insurance policy?

    <p>You retain all of the rights and privileges granted by the policy.</p> Signup and view all the answers

    What is a Beneficiary?

    <p>The person or organization named in the life insurance policy that will receive the payment in the event of the insured's death.</p> Signup and view all the answers

    What is a Lapsed Policy?

    <p>One that has been terminated because of non-payment of premiums.</p> Signup and view all the answers

    What is a Grace Period in life insurance?

    <p>You usually have 31 days after a premium due date to avoid having the policy lapse.</p> Signup and view all the answers

    What is Life Insurance?

    <p>An insurance policy where the company promises to pay a lump sum upon death.</p> Signup and view all the answers

    What is the purpose of life insurance?

    <p>To protect someone who depends on you from financial loss related to your death.</p> Signup and view all the answers

    What do Mortality Tables provide?

    <p>Odds on dying, based on age and sex.</p> Signup and view all the answers

    What is the Easy Method of calculating life insurance needs?

    <p>70% of salary for 7 years.</p> Signup and view all the answers

    What is the DINK method?

    <p>Half of debts plus funeral expenses.</p> Signup and view all the answers

    What does the 'Non-working' spouse method calculate?

    <p>Multiply the number of years until the youngest child reaches 18 by $10,000.</p> Signup and view all the answers

    What is the 'Family Need' method?

    <p>A thorough method that considers employer-provided insurance, Social Security benefits, and income/assets.</p> Signup and view all the answers

    What is a Stock Life Insurance Company?

    <p>An insurance company that issues common stock.</p> Signup and view all the answers

    What is a Mutual Life Insurance Company?

    <p>An insurance company owned by policyholders.</p> Signup and view all the answers

    What is a Policy Dividend?

    <p>Part of the premium refunded to policyholders annually.</p> Signup and view all the answers

    What is Term Life Insurance?

    <p>The least expensive kind of insurance that provides protection for a specified period.</p> Signup and view all the answers

    What is a Renewability Option?

    <p>The option to renew the policy without having a physical examination at the end of the term.</p> Signup and view all the answers

    What is Multiyear Level Term Insurance?

    <p>The most popular form of life insurance.</p> Signup and view all the answers

    What is a Conversion Option?

    <p>The option to exchange a term policy for a whole life policy without a physical examination.</p> Signup and view all the answers

    What is Decreasing Term Insurance?

    <p>Insurance where the premium stays the same, but the coverage decreases over time.</p> Signup and view all the answers

    What is a Return on Premium policy?

    <p>A policy that refunds every penny of premiums if one outlives the defined term.</p> Signup and view all the answers

    What is Whole Life Insurance?

    <p>A traditional kind of insurance that pays premiums for life and accumulates cash value.</p> Signup and view all the answers

    What is a Limited Payment Policy?

    <p>A policy that pays premiums for 20-30 years and then becomes paid up.</p> Signup and view all the answers

    What is a Variable Life Insurance Policy?

    <p>A policy with a minimum death benefit guaranteed, but can exceed that based on earnings.</p> Signup and view all the answers

    What is an Adjustable Life Insurance Policy?

    <p>A whole life insurance policy that allows changes in premium payments to increase or decrease coverage.</p> Signup and view all the answers

    What is Universal Life Insurance?

    <p>A policy that allows more direct control of premiums, which can be paid at any time in almost any amount.</p> Signup and view all the answers

    What is Group Life Insurance?

    <p>Term insurance often provided by employers without requiring a physical examination.</p> Signup and view all the answers

    What is Endowment Life Insurance?

    <p>Insurance that provides coverage from the beginning of the contract to maturity.</p> Signup and view all the answers

    What is Credit Life Insurance?

    <p>Insurance that pays off debts like car loans if you die.</p> Signup and view all the answers

    What does Nonforfeiture mean in life insurance?

    <p>Keep accrued benefits if you drop the policy.</p> Signup and view all the answers

    What is the Incontestability Clause?

    <p>It states that after the policy has been active for 2 years, its validity cannot be disputed.</p> Signup and view all the answers

    What is the Suicide Clause in life insurance?

    <p>If the holder commits suicide within the first 2 years, the family only receives a refund of the premium.</p> Signup and view all the answers

    What happens in the case of Accidental Death?

    <p>The family receives double indemnity (payout).</p> Signup and view all the answers

    What is an Accumulated Premium Loan?

    <p>A loan that uses accumulated cash value to pay the premium if you don't pay during the grace period.</p> Signup and view all the answers

    Study Notes

    Life Insurance Overview

    • Life insurance protects against financial losses resulting from death.
    • It can be categorized into term life insurance and cash-value life insurance.

    Term Life Insurance

    • Known as "pure protection," offering only death benefit at lower costs.
    • Requires renewal for continued coverage beyond the term.
    • Types include:
      • Level Premium Term: Constant premiums for a fixed period; can be renewable and convertible to permanent insurance.
      • Decreasing Term: Face amount declines each year, but premiums remain level; typically convertible.
      • Credit Term: Covers loan balances upon the insured's death; expensive and often the only option for those with health issues.
      • Guaranteed Renewable Term: Premiums increase at renewal; no physical exams required; limited renewals and maximum age may apply.
      • Convertible Term: Allows conversion to permanent insurance without evidence of insurability.

    Group and Cash-Value Life Insurance

    • Group Term Life Insurance: Issued through employers; first $50,000 is tax-deductible.
    • Cash-Value Life Insurance: Combines life coverage with an investment account; no need for renewal as long as premiums are paid.

    Permanent Life Insurance Variations

    • Whole Life Insurance: Offers lifetime coverage; fixed premiums and guaranteed minimum interest on cash value.
    • Limited-Pay Life Insurance: Coverage continues for life but premiums are paid for a limited number of years.
    • Single-Premium Life Insurance: Entire premium paid upfront, representing a form of limited-pay life.
    • Vanishing-Premium Life Insurance: Allows premiums to cease when cash values cover them, dependent on investment success.

    Insurance Features and Options

    • Guaranteed Insurability: Increases face amount without medical exams at specific times.
    • Waiver of Premium: Waives premiums if the insured becomes disabled.
    • Automatic Premium Loan Provision: Uses policy loans to cover unpaid premiums automatically.
    • Policy Loans: Borrow against the cash value with interest charged.

    Surrender Value and Cash-Value Accumulations

    • Cash Surrender Value: Actual cash received when a policy is canceled, considering loans and surrender charges.
    • Interest-Sensitive Life Insurance: Rates of return vary based on investments' performance; includes Universal, Variable, and Variable Universal Life insurance.

    Advanced Insurance Types

    • Universal Life Insurance: Flexibility in premiums, face amounts, and investment returns; combines term protection with cash value.
    • Variable Life Insurance: Allows investment in various assets affecting cash value and death benefit; usually has a guaranteed minimum death benefit.
    • Variable Universal Life Insurance (VUL): Popular type allowing premium variation and investment choices, embodying the "buy term and invest the difference" philosophy.
    • Endowment Life Insurance: Pays at death or after a specified period; deemed outdated due to tax law changes.

    Special Provisions

    • Multiple Indemnity: Doubles or triples face amount for deaths due to specific causes.
    • Incontestability Clause: Claims cannot be denied for errors after 2 years; this holds in court.
    • Suicide Clause: Limits payout to premiums returned if suicide occurs within 2 years.
    • Contingent Beneficiary: Receives benefits if the primary beneficiary dies before the insured.

    Estimating Life Insurance Needs

    • Multiple of Earnings Approach: Simple calculation multiplying income by a factor to estimate insurance needs.
    • Needs Approach: Comprehensive assessment includes factors affecting insurance needs, improving estimation accuracy.

    Assignments

    • Refers to ownership transfers of life insurance policies.### Insurance Terms and Definitions
    • Absolute Assignment: Full transfer of ownership rights of a life insurance policy to another party.
    • Collateral Assignment: Policy’s death benefit or cash-surrender value designated as security for a loan; unpaid loans result in creditor receiving proceeds up to loan balance.
    • Net Cost Method: Costs are calculated at a specific time without accounting for time value of money; tends to underestimate total costs and lacks accuracy in comparisons across insurance providers.
    • Interest-Adjusted Cost-Index Method: Assesses insurance costs considering potential interest earnings on premiums; includes forfeiture fees and assumes policy cash-in at a projected time.
    • Net Cost Formula: Calculated as the total premiums paid minus any accrued but unpaid interest or dividends, plus accumulated cash value.
    • Ownership of Life Insurance: Policyholder retains rights like modifying the policy and naming beneficiaries, regardless of who pays the premiums.
    • Beneficiary: Individual or organization designated to receive life insurance benefits upon the insured’s death.
    • Lapsed Policy: A policy that is terminated due to missed premium payments.
    • Grace Period: A period, typically 31 days for standard policies and 61 days for Universal and Variable Life Insurance, during which premium payments can be made without policy lapsing.
    • Delay in Insurance Payment: Insurers have the right to delay payment for up to 6 months to prevent financial runs.
    • Life Insurance: Contractual agreement where the insurer promises a lump-sum payment upon policyholder’s death or during their lifetime, under certain conditions.
    • Purpose of Life Insurance: Designed to protect dependents from financial loss associated with the policyholder’s demise.
    • Mortality Tables: Statistical charts providing the likelihood of death based on demographic factors like age and gender.

    Life Insurance Calculation Methods

    • Easy Method: Calculates insurance needs as 70% of annual salary multiplied by 7 years.
    • DINK Method: For dual-income, no kids households; combines half of debts with funeral costs.
    • 'Non-working' Spouse Method: Considers years until the youngest child turns 18, multiplied by $10,000 for insurance needs.
    • 'Family Need' Method: A comprehensive approach assessing insurance needs, including employer insurance, Social Security, and available assets.

    Types of Life Insurance

    • Stock Life Insurance Company: Owned by stockholders, offers common stock investment opportunities, issues non-participating policies, and provides fixed premiums yearly.
    • Mutual Life Insurance Company: Owned by policyholders who receive dividend distributions from profits.
    • Policy Dividend: Refund of part of premiums paid, distributed to policyholders annually.
    • Term Life Insurance: Most economical option providing coverage for a specified duration; premium payment ceases upon policyholder's death or policy expiration.
    • Renewability Option: Allows policy renewal without physical exams at the end of the term for term life insurance.
    • Multiyear Level Term: Generally the most popular form of life insurance.
    • Conversion Option: Permits exchange from a term policy to whole life without physical examination.
    • Decreasing Term Insurance: Premiums stay constant while coverage amount decreases over time; often used for mortgage protection.
    • Return on Premium: Policy refunds all premiums if the insured survives the term.
    • Whole Life Insurance: Provides lifelong coverage with premiums that are lower when the insured is younger; builds cash value alongside death benefits.
    • Limited Payment Policy: Premiums paid for a set period, after which the policy is considered paid up while coverage remains in force.
    • Variable Life Insurance: Offers a guaranteed minimum death benefit with potential for higher payouts based on separate investment performance.
    • Adjustable Life Insurance: Allows flexibility in premium payments and coverage levels.
    • Universal Life Insurance: Grants policyholders more control over premium payments and coverage amounts.
    • Group Life Insurance: Often provided by employers, this term insurance does not require individuals to undergo physical examinations.
    • Endowment Life Insurance: Ensures coverage from the contract's start to its maturity, guaranteeing a specified sum to the policyholder.
    • Credit Life Insurance: Covers debts such as loans and is often more expensive than other insurance types.
    • Nonforfeiture: Ensures policyholders retain accrued benefits even if they discontinue their policy.

    Policy Clauses

    • Incontestability Clause: Prevents the insurance company from disputing a policy's validity after it has been active for two years.
    • Suicide Clause: If the insured commits suicide within the first two years, the family receives only a refund of premiums paid.
    • Accidental Death: In cases of accidental death, the policy may provide double indemnity.
    • Accumulated Premium Loans: Loans utilizing accumulated cash value to cover premiums if not paid during the grace period.

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    Description

    This quiz covers the fundamentals of life insurance, including the various types such as term life insurance and cash-value life insurance. Explore the key features of each type, including level premium and decreasing term. Test your understanding of how life insurance protects against financial losses due to death.

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