Types of Life Policies

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Questions and Answers

What key feature defines an Adjustable Life policy?

Can be Term or Whole life; can convert from one to the other (correct)

Premiums cannot be adjusted

No cash value

Only whole life insurance

What is a Universal Life policy?

Permanent insurance with renewable term protection component

Variable Life insurance has guaranteed cash value.

False

What is the main characteristic of Annually Renewable Term insurance?

Death benefit level remains but premiums increase annually Signup and view all the answers

What does FINRA stand for?

Financial Industry Regulatory Authority Signup and view all the answers

When an employee terminates from a group policy, they have ___ days to convert to an individual policy.

31 Signup and view all the answers

What is required for entering a group outside the open enrollment period?

Evidence of insurability Signup and view all the answers

What is a prerequisite for group insurance?

The group must be formed for a purpose other than attaining life insurance. Signup and view all the answers

Where must assets in variable life products be kept?

In a separate fund for investment Signup and view all the answers

What license must an agent obtain to sell variable life policies?

A securities license Signup and view all the answers

Agents selling variable life products must also be registered with?

FINRA Signup and view all the answers

The premium of an individual policy converted from a group policy is based on what?

Attained age Signup and view all the answers

How many years must an individual work under a group contract to convert to individual insurance?

5 years Signup and view all the answers

What does Option B in Universal Life insurance provide?

The death benefit gradually increases each year by the amount that the cash value increases. Signup and view all the answers

How is Group Life Insurance usually written?

As an annually renewable term insurance. Signup and view all the answers

What type of policy provides the least expensive first-year premium?

Annually Renewable Term Signup and view all the answers

Which policy covers two lives and pays only upon the first death?

Joint Life Policy Signup and view all the answers

What is the main distinguishing factor of variable life products?

Variable Universal Life may or may not guarantee a minimum death benefit. Signup and view all the answers

What component does a Universal Life policy always include?

Annually Renewable Term insurance Signup and view all the answers

What are the two types of interest rates in a Universal Life insurance policy?

Guaranteed and current Signup and view all the answers

What is the cost of group life insurance typically based on?

Average age of the group and the ratio of men to women Signup and view all the answers

Study Notes

Types of Life Policies

Adjustable Life
- Can be term or whole life; flexibility to convert between the two
- Policy owners can increase or decrease premiums
- Face amount is determined by policy owners with proof of insurability
- Offers fixed cash value return from the general account
- Policy loans can be borrowed against cash value
Universal Life
- Permanent insurance with a renewable term protection feature
- Premiums are flexible with minimum or higher payment options
- Face amount can be adjusted by policy owners with proof of insurability
- Guarantees a minimum cash value from the general account
- Policy loans are available against cash value
Variable Life
- Permanent insurance policy with fixed or flexible premium options
- Face amount can be adjusted to a stated minimum
- Cash value is not guaranteed and is held in a separate account
- Loans can be taken from the cash value
Annually Renewable Term (ART)
- Considered the purest form of term insurance
- Provides a level death benefit but premiums increase annually with age
FINRA
- Stands for Financial Industry Regulatory Authority
Group Life Policy to Individual Premium
- Employees have a 31-day period post-termination to convert from group to individual policy
- Coverage continues under the original group policy during this period
Evidence of Insurability for Group Insurance
- Required if an employee wishes to enroll outside the open enrollment period to mitigate adverse selection
Prerequisites for Group Insurance
- Groups must be established for purposes other than obtaining life insurance to qualify for small group life insurance
Variable Products and Underlying Assets
- Assets must be allocated into a separate fund primarily investing in stocks, bonds, and security options
License Requirement for Selling Variable Life Policies
- Agents selling these policies need a securities license and must be registered with FINRA
Conversion of Group Policy to Individual Policy
- Premiums for the individual policy are based on the attained age of the insured
Group Insurance Master Contract
- The master contract is held by the sponsor (like an employer), while participants receive certificates of insurance
Group Life Insurance Features
- Often underwritten as an annually renewable term insurance
- No evidence of insurability required unless enrolling late
Death Benefit Options in Universal Life
- Two options:
  - Option A has a level death benefit; cash value gradually increases
  - Option B includes annual cash value increases contributing to a gradually increasing death benefit
Limited Pay Life Policy
- Requires premiums to be paid for a specified number of years and becomes paid-up before the insured reaches age 100
Joint Life Policy
- Covers two lives; premiums are based on average age and only pays out on the first death
Straight Life Policy
- Represents a traditional level premium contract with guaranteed face amount and level premiums for the insured's life
Decreasing Term Insurance Component
- Face amount decreases over the term while premiums remain level
Annually Renewable Term Cost
- Offers the least expensive first-year premium, but premiums increase annually
Survivorship Policies
- Similar to joint life policies in that they provide death benefit on the passing of the first insured
Universal Life Insurance as an Insurance Type
- Comprises an annually renewable term component with a cash value account
Interest Rates in Universal Life
- Comprised of guaranteed and current interest rates credited to cash value
Comparison of Variable Whole Life and Variable Universal Life
- Variable whole life guarantees a minimum death benefit, unlike variable universal life which may not
Funding for Cash Values in Life Policies
- Cash values grow in a tax-deferred manner based on guaranteed and current interest rates
Term Policies Coverage Comparison
- Provide the greatest amount of coverage at the lowest premium compared to other protection forms

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Description

Explore the various types of life insurance policies in this quiz, including Adjustable Life, Universal Life, Variable Life, and Annually Renewable Term. Each type offers unique features and benefits, which you will need to understand to answer the questions. Test your knowledge and deepen your understanding of life insurance options.