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Questions and Answers
What happens to the death benefit of a decreasing term policy over time?
What happens to the death benefit of a decreasing term policy over time?
What is a common use of increasing term insurance?
What is a common use of increasing term insurance?
What is the key feature of return of premium life insurance?
What is the key feature of return of premium life insurance?
How are premiums cost for return of premium (ROP) policies generally compared to traditional term policies?
How are premiums cost for return of premium (ROP) policies generally compared to traditional term policies?
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What is typically true regarding the conversion of a decreasing term policy?
What is typically true regarding the conversion of a decreasing term policy?
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Which of the following does return of premium insurance NOT provide?
Which of the following does return of premium insurance NOT provide?
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In return of premium policies, how does the insurance company handle excess premiums?
In return of premium policies, how does the insurance company handle excess premiums?
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Which situation would make an increasing term policy ideal?
Which situation would make an increasing term policy ideal?
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What is a characteristic of term insurance regarding cash value?
What is a characteristic of term insurance regarding cash value?
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Which type of term insurance offers a death benefit that does not change throughout the policy term?
Which type of term insurance offers a death benefit that does not change throughout the policy term?
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In annually renewable term insurance, what happens to the premium each year?
In annually renewable term insurance, what happens to the premium each year?
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What is the death benefit structure of decreasing term insurance?
What is the death benefit structure of decreasing term insurance?
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What is the main advantage of term insurance compared to whole life insurance?
What is the main advantage of term insurance compared to whole life insurance?
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How is the premium calculated when renewing a term insurance policy?
How is the premium calculated when renewing a term insurance policy?
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Which of the following describes the coverage of a level premium term policy?
Which of the following describes the coverage of a level premium term policy?
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What does 'attained age' refer to in the context of term insurance?
What does 'attained age' refer to in the context of term insurance?
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What is a significant feature of whole life insurance?
What is a significant feature of whole life insurance?
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At what age does whole life insurance typically endow?
At what age does whole life insurance typically endow?
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What characteristic allows the policyowner to access cash while the whole life insurance is in effect?
What characteristic allows the policyowner to access cash while the whole life insurance is in effect?
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Which type of whole life insurance requires premiums to be paid only for a limited time?
Which type of whole life insurance requires premiums to be paid only for a limited time?
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What happens to the cash value of a whole life policy if the policy is surrendered?
What happens to the cash value of a whole life policy if the policy is surrendered?
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Which of the following statements about the premiums of whole life policies is true?
Which of the following statements about the premiums of whole life policies is true?
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What is described as the 'nonforfeiture value' in whole life insurance?
What is described as the 'nonforfeiture value' in whole life insurance?
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Which of the following is NOT a form of whole life insurance?
Which of the following is NOT a form of whole life insurance?
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What is a primary characteristic of variable universal life insurance?
What is a primary characteristic of variable universal life insurance?
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Which regulatory authority governs variable life insurance products as securities?
Which regulatory authority governs variable life insurance products as securities?
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Why must assets in a separate account for variable contracts not be commingled?
Why must assets in a separate account for variable contracts not be commingled?
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What must agents selling variable life insurance products acquire?
What must agents selling variable life insurance products acquire?
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What feature distinguishes variable life insurance from variable universal life insurance?
What feature distinguishes variable life insurance from variable universal life insurance?
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What is a primary feature of adjustable life insurance?
What is a primary feature of adjustable life insurance?
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What happens if the cash value is insufficient in a universal life insurance policy?
What happens if the cash value is insufficient in a universal life insurance policy?
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Which of the following is NOT an option available to the policyowner of an adjustable life policy?
Which of the following is NOT an option available to the policyowner of an adjustable life policy?
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How does the cash value develop in an adjustable life policy?
How does the cash value develop in an adjustable life policy?
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What is a characteristic of universal life insurance regarding premium payments?
What is a characteristic of universal life insurance regarding premium payments?
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What unique flexibility do universal life policies offer that adjustable life policies may not?
What unique flexibility do universal life policies offer that adjustable life policies may not?
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What is necessary for an adjustable life policy's death benefit to increase?
What is necessary for an adjustable life policy's death benefit to increase?
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What can policyowners do if they want to accumulate greater cash value in an adjustable life policy?
What can policyowners do if they want to accumulate greater cash value in an adjustable life policy?
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What is a primary requirement for underwriters when evaluating group life insurance?
What is a primary requirement for underwriters when evaluating group life insurance?
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How does group life insurance differ from individual life insurance in terms of underwriting?
How does group life insurance differ from individual life insurance in terms of underwriting?
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What is the conversion privilege in relation to group life insurance?
What is the conversion privilege in relation to group life insurance?
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What happens if an insured individual dies during the conversion period to an individual policy?
What happens if an insured individual dies during the conversion period to an individual policy?
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How long does an employee generally have to exercise the conversion option after termination from a group plan?
How long does an employee generally have to exercise the conversion option after termination from a group plan?
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Which of the following is NOT allowed when converting from a group policy to an individual policy?
Which of the following is NOT allowed when converting from a group policy to an individual policy?
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What coverage can a person receive if the master contract of the group policy is terminated after 5 years of coverage?
What coverage can a person receive if the master contract of the group policy is terminated after 5 years of coverage?
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Which statement correctly describes the requirement for proof of insurability during conversion in Louisiana?
Which statement correctly describes the requirement for proof of insurability during conversion in Louisiana?
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Study Notes
Types of Life Insurance Policies
- Life insurance policies offer various types, each with unique characteristics and functions
- Understanding policy types helps determine suitability for different life situations
Terms to Know
- Accumulate: To build up (e.g., savings)
- Attained age: The insured's age at the time of policy renewal or replacement
- Cash value: Savings element or living benefit in a policy
- Deferred: Withheld or postponed until a specified time or event
- Endow: Policy's cash value reaching the contractual face amount
- Face amount: Stated benefit amount in the policy
- Fixed life insurance: Products that offer guaranteed minimum or fixed benefits
- Lapse: Policy termination due to nonpayment of premium
- Level premium: Premium that doesn't change throughout the policy term
- Nonforfeiture values: Policy benefits that cannot be lost if the policy is surrendered or lapses
- Policy maturity: Time when the face value is paid out in policies
- Securities: Financial instruments that may trade for value, like stocks, bonds, or options
- Variable life insurance: Products where cash values accumulate based on a portfolio of stocks, without guarantees of performance
A. Term Life Insurance
- Term insurance offers temporary protection for a specific period
- It's also known as pure life insurance
- It provides the greatest coverage for the lowest premium compared to other types
- There's a maximum age limit for coverage
- It provides pure death protection
Level Term Insurance
- Level term insurance is the most common temporary protection type
- The death benefit remains the same throughout the policy term
Annually Renewable Term
- Annually renewable term (ART) is the purest form of term insurance
- The death benefit remains level, and the policy may be guaranteed renewable each year without proof of insurability
- However, the premium increases annually based on the insured's age
Decreasing Term
- Decreasing term policies feature a level premium and a death benefit that decreases annually
- Primarily used for time-sensitive protection, like mortgages where the amount needed decreases over time
Increasing Term
- Increasing term features level premiums and a death benefit that increases annually
- Ideal for rising living costs
- Often used as a rider to existing policies
Return of Premium (ROP)
- ROP life insurance is an increasing term insurance policy
- It pays an additional death benefit equal to the premiums paid if the policyholder dies within a specified time period or outlives the policy term
- The amount paid back equals the total premium paid, and isn't taxable
B. Whole Life Insurance
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Whole life insurance provides lifetime protection and a savings (cash value) element
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Premiums are paid until the policy matures (typically at the insured's 100th birthday).
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Premiums for whole life policies generally exceed those for term insurance
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Level premium: Remains the same throughout the policy term
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Death benefit: Guaranteed lifetime amount
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Cash value: Accumulates until the policy's maturity date; may be used for policy loans or withdrawals
Straight Life
- Straight life, also called continuous premium whole life, is the basic whole life policy
- Premiums are paid from policy issue until the insured's death or age 100, whichever comes first
- This has the lowest annual premium compared to other whole life options
Limited Payment
- Unlike straight life, this policy has a limited premium payment period. Premium payment ends after a set number of years (e.g., 20 years)
- Premiums will be greater than straight policy for the same coverage for a shorter payment period
- Cash value builds up faster
Single Premium
- The single premium whole life policy (SPWL) provides a level death benefit up to age 100 with a single payment upfront.
- This fully funds the policy upon issuance
Indexed Whole Life
- Indexed whole life's cash value depends upon the performance of a specific equity index and has a minimum interest rate. The face amount increases annually
C. Flexible Premium Policies
- Adjustable life policies allow the policyholder to adjust premium, premium-paying period, face amount, or period of protection
- Universal life policies allow varying premiums throughout the policy term; however, premiums must exceed the policy's cost of insurance to maintain cash value.
D. Variable Life Insurance
- Variable life policies have cash values based on the investment performance of a portfolio of securities
- The policyholder bears investment risk
E. Specialized Policies
- Joint Life: Covers two or more people and the death benefit is payable upon the first death.
- Survivorship Life: Covers two or more people and the death benefit is payable upon the second or last death.
- Juvenile Life: Insurance written for minors (often increasing in value as they age)
- Group Life: Covers multiple people through an employer, union, etc. There is less individual underwriting needed.
- Credit Life: Insures the debtor for a set amount, and the face value decreases as the debt decreases
F. Group Life Insurance
- A group policy is issued to a sponsoring organization covering multiple lives
- Includes criteria for plan sponsorship and group size
- Coverage is based on average age of the group and gender ratios
G. Credit Life Insurance
- Designed to pay off debt in case of death
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Description
Explore the various types of life insurance policies and their distinct characteristics. This quiz aims to enhance your understanding of policy terms and their applicability to different life situations. Gain insights into essential concepts like cash value, level premiums, and more.
