Life Insurance Policies Chapter Exam 1
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Questions and Answers

What do term life insurance policies issued until a certain age provide?

Coverage from their date of issue until the insured reaches the specified age.

Industrial life insurance is characterized by?

Comparatively small issue amounts, i.e., $1,000.

What happens when a modified endowment contract fails to meet the seven-pay test?

Pre-death distributions are typically taxable.

How is a single premium cash value policy best described?

<p>A policy that is paid up after only one payment.</p> Signup and view all the answers

What is a permanent life insurance policy where the policy owner pays premiums for a specified number of years called?

<p>Limited pay policy.</p> Signup and view all the answers

Term insurance is appropriate for someone who?

<p>Is seeking temporary protection and lower premiums.</p> Signup and view all the answers

What type of life insurance policy contains a guaranteed interest rate with the chance to earn a higher rate?

<p>Universal life policy.</p> Signup and view all the answers

What kind of policy does Joe have if his life insurance face amount is $300,000 and cash value accumulates to $50,000, becoming $350,000?

<p>Universal Life policy.</p> Signup and view all the answers

What is the premium structure of a Modified whole life policy?

<p>Lower than typical whole life premiums during the first few years and then higher than typical thereafter.</p> Signup and view all the answers

Which of the following are the premium payments for a Universal life policy?

<p>All of the above (D)</p> Signup and view all the answers

Which type of multiple protection policy pays on the death of the last person?

<p>Survivorship life policy.</p> Signup and view all the answers

What happens to Shawn, Mike, and Dave's policy if Mike dies first under their joint life policy?

<p>Will no longer provide insurance protection.</p> Signup and view all the answers

What feature differentiates a universal life policy from a whole life policy?

<p>A flexible premium schedule.</p> Signup and view all the answers

What kind of policy does Peter have where 80% to 90% of the premium is invested in traditional fixed income securities?

<p>Equity index whole life.</p> Signup and view all the answers

Why do pre-death distributions from a modified endowment contract receive different tax treatment?

<p>Because it tends to be an investment vehicle.</p> Signup and view all the answers

What is required for a life insurance producer to sell variable annuities?

<p>A securities license.</p> Signup and view all the answers

Which of these are valid options for an Adjustable Life Policy?

<p>All of the above. (D)</p> Signup and view all the answers

What is Ordinary Life Insurance?

<p>Individual life insurance that includes many types of temporary, permanent, and variable universal life insurance.</p> Signup and view all the answers

How are premiums typically paid on an ordinary life insurance policy?

<p>Monthly, quarterly, semi-annually, or annually.</p> Signup and view all the answers

What types of coverage does Ordinary life insurance include?

<p>All of the above. (D)</p> Signup and view all the answers

What characterizes Industrial life insurance?

<p>By comparatively small issue amounts, i.e., $1,000.</p> Signup and view all the answers

How does Industrial life insurance collect premiums?

<p>On a weekly or monthly basis by the agent at the policy owner's home.</p> Signup and view all the answers

Group life insurance is written for?

<p>Employer, employee groups, associations, unions, and creditors.</p> Signup and view all the answers

What does Group life insurance provide?

<p>Coverage for a number of individuals under one contract.</p> Signup and view all the answers

On what basis is group life insurance underwriting done?

<p>The group, not the individuals who are insured.</p> Signup and view all the answers

Group life insurance has not grown tremendously over the past few decades.

<p>False (B)</p> Signup and view all the answers

What is term life insurance?

<p>The simplest type of life insurance plan.</p> Signup and view all the answers

Term life insurance pays a benefit only if the insured dies during that period.

<p>True (A)</p> Signup and view all the answers

Term life insurance policies build cash value.

<p>False (B)</p> Signup and view all the answers

Term life insurance has the advantage of a lower initial premium than whole life insurance.

<p>True (A)</p> Signup and view all the answers

What does term life provide?

<p>The greatest amount of death benefit per dollar of initial cash outlay.</p> Signup and view all the answers

Term life insurance is also called permanent life insurance.

<p>False (B)</p> Signup and view all the answers

The period for which term life insurance policies are issued can be defined in terms of ______ and by certain age.

<p>years.</p> Signup and view all the answers

Flashcards

Term Life Insurance

A life insurance policy that provides coverage for a specific period of time, typically until the insured reaches a certain age.

Temporary Life Insurance

A type of life insurance that pays out a benefit only if the insured dies within the specified policy period.

Limited Pay Policy

A life insurance plan where premiums are paid for a fixed period of time, after which the policy becomes fully paid up.

Single Premium Cash Value Policy

A life insurance policy that requires only one premium payment to become fully paid-up.

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Modified Whole Life Policy

A whole life insurance policy where the premium payments are lower initially but increase over time.

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Cash Value Life

Life insurance with a cash value that can accumulate and grow over time.

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Universal Life Insurance

A life insurance policy that combines a guaranteed interest rate with the potential for higher earnings.

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Cash Value Component

A type of life insurance where the premium payments include contributions to a cash value account.

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Survivorship Life Policy

A life insurance policy that provides coverage for two or more lives, and the death benefit is paid out only after the death of the last insured person.

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First To Die Joint Life Policy

A life insurance policy that provides coverage for two or more lives, and the death benefit is paid out after the first insured person dies.

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Flexible Premium Schedule

A life insurance policy that allows flexible premium payments, unlike whole life insurance. The premiums are not fixed.

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Equity Index Whole Life

A life insurance policy that primarily invests in fixed income securities but also includes a portion invested in stock indexes.

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Variable Universal Life Insurance

A life insurance contract that combines life insurance with an investment component, similar to a mutual fund.

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Group Life Insurance

A life insurance policy that offers coverage for a group of people, such as employees of a company, members of a union, or members of an association.

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Ordinary Life Insurance

Life insurance plans designed for individuals, including term, whole life, universal, and variable universal life insurance.

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Individual Life Insurance

An insurance policy that offers coverage for an individual life, often with a predetermined death benefit.

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Simple Life Insurance Plan

This type of life insurance policy is generally perceived as the most straightforward and simple.

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Adjustable Life Policy

A life insurance policy that allows for the death benefit to be adjusted over time.

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Cash Value Life Insurance

A life insurance policy that accumulates a cash value which can be withdrawn or borrowed against.

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Time-Bound Life Insurance

This type of life insurance policy is designed to provide coverage for a particular time period only.

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Cash Value Life Insurance Policies

Life insurance policies with features that provide a cash value element, enabling policyholders to borrow against or withdraw a portion of the accumulated value.

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Optimum Death Benefit

This type of life insurance policy is designed to offer the most significant death benefit for the least amount of initial investment.

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Modified Whole Life Policies

A type of whole life insurance policy where the initial premiums are lower and gradually increase over time.

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Modified Endowment Contracts (MECs)

This type of life insurance policy is subject to specific tax regulations due to its investment characteristics.

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Tax Implications of MECs

These specific tax rules apply due to the investment nature of modified endowment contracts.

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Group Life Insurance

A life insurance policy that provides coverage for a group of individuals, typically based on their shared affiliation with an organization.

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Group Underwriting

This type of life insurance is generally underwritten based on the characteristics of the entire group rather than the individuals within it.

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Securities License

A professional license that enables an individual to sell variable annuities, which carry an investment component.

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Individual Life Insurance Sales Practices

The selling of life insurance policies by individuals, often working on commission-based contracts.

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Study Notes

Life Insurance Policies Overview

  • Term life insurance policies provide coverage until the insured reaches a specified age.
  • Industrial life insurance policies typically offer small issue amounts, often around $1,000.
  • Modified endowment contracts that fail the seven-pay test lead to taxable pre-death distributions.
  • Single premium cash value policies require only one payment to be fully paid up.
  • Limited pay policy requires premiums to be paid for a specified number of years.
  • Term insurance is ideal for those seeking temporary protection with lower premiums.
  • Universal life insurance combines a guaranteed interest rate with potential higher earnings.
  • A Universal Life policy can have a cash value that exceeds the initial face amount.

Policy Features and Tax Implications

  • Modified whole life policies have lower initial premiums that increase over time.
  • Premium payments for a Universal life policy include death benefits, cash value, and loading costs.
  • Survivorship life policies pay benefits only after the death of the last insured person.
  • "First to die" joint life policies stop coverage after the first insured's death.
  • Universal life insurance features a flexible premium schedule compared to whole life insurance.
  • Policies that invest primarily in fixed income securities with some in stock indexes are termed equity index whole life.
  • Modified endowment contracts are treated differently for tax purposes due to their investment nature.

Licensing and Premium Payment Details

  • A securities license is needed to sell variable annuities.
  • Adjustable Life Policies allow modifications in premiums, death benefits, and protection periods.

Ordinary and Group Life Insurance Concepts

  • Ordinary life insurance encompasses individual plans, including term, whole life, universal, and variable universal life insurance.
  • Premiums for ordinary life insurance are typically paid monthly, quarterly, semi-annually, or annually.
  • Group life insurance is designed for groups like employers, unions, and associations.
  • This type of insurance provides coverage under a single contract and is underwritten based on the group rather than individuals.
  • Group life insurance has seen significant growth over recent decades.

Additional Aspects of Term Life Insurance

  • Term life insurance is recognized as the simplest insurance plan, paying benefits only if the insured dies within the policy period.
  • It does not accumulate cash value and offers lower initial premiums than whole life insurance.
  • Term life provides the highest death benefit for the least initial cash outlay.
  • Also referred to as temporary life insurance, it covers specific time frames defined in years or till a certain age.

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Description

Test your knowledge on various life insurance policies with this quiz based on Chapter Exam 1. Explore terms such as term life, industrial life, and modified endowment contracts. Perfect for students preparing for their insurance examinations.

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