1: Types of Individual Life Insurance

Adverse selection

Insuring of risks that are more prone to losses than the average risk

Agent/Producer

A legal representative of an insurance company

Producers include agents and brokers

Agents are the agents of the insurer

Applicant

A person applying for insurance

Attained age

The insured’s age at the time the policy is issued or renewed

Beneficiary

A person who receives the benefits of an insurance policy

Cash value

A policy’s savings element or living benefit

Death benefit

The amount paid upon the death of the insured in a life insurance policy

Deferred

Withheld or postponed until a specified time or event in the future

Endow

To have the cash value of a whole life policy reach the contractual face amount

Face amount

The amount of benefit stated in the life insurance policy

Insured

Person covered by the insurance policy; may or may not be the policyowner

Insurer

The company that issues an insurance policy

Lapse

Policy termination due to nonpayment of premium

Level premium

The premium that does not change throughout the life of a policy

Nonforfeiture values

Benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses

Policyowner

The person entitled to exercise the rights and privileges in the policy

Policy maturity

In life policies, the time when the face value is paid out

Premium

The money paid to the insurance company for the insurance policy

Securities

Financial instruments that may trade for value (i.e. stocks, bonds, options)

The LEAST expensive first-year premium is found in which of the following policies?

A. Increasing term

B. Level term

C. Annually renewable term

D. Decreasing term

C

The type of term insurance that provides increasing death benefits as the insured ages is called

A. Increasing term

B. Interest-sensitive term

C. Age sensitive term

D. Flexible term

A

Your customer doesn’t mind paying a higher premium as long as he gets a life insurance product that would allow for a faster growth of the cash value. What kind of policy would you recommend?

A whole life policy

B. An annuity

C. A term policy

D. An endowment policy

D

Which of the following types of policies will provide permanent protection?

A. Credit life

B. Group life

C. Whole life

D. Term life

C

Which of the following is called a “second-to-die” policy?

A. Family income

B. Survivorship life

C. Joint life

D. Juvenile life

B

An Adjustable Life poliyowner can change which of the following policy features?

A. The mortality expense

B. The coverage period

C. The insured

D. The investment account

B

At age 30, an applicant wants to start an insurance program, but realizing that his insurance needs will likely change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs?

A. Adjustable life

B. Interest-sensitive whole life

C. Decreasing term

D. Single premium whole life

A

All of the following are true about variable products EXCEPT

A. The cash value is not guaranteed

B. The minimum death benfit is guaranteed

C. Policyowners bear the investment risk

D. The premiums are invested in the insurer’s general account

D

All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT

A. Most term policies contain a convertibility option

B. Upon conversion, the premium for the permanent policvy will be based upon attained age

C. Evidence of insurability is not required

D. Upon conversion, the death benefit of the permanent policy will be reduced by 50%

D

Which special policy combines decreasing term insurance with whole life insurance to provide the insured’s family with a monthly income upon the death of the insured, while maintaining permanent coverage until the end of the income payments?

A. Family protection policy

B. Family maintenance policy

C. Survivorship life

D. Family income policy

D

Which of the following is NOT a type of whole life insurance?

A. Straight life

B. Level term

C. Single premium

D. Limited payment

B

Which of the following life insurance policies allows a policyowner to take out a loan from the policy’s cash value?

A. Increasing term life

B. Credit term life

C. Decreasing term life

D. Variable universal life

D

Annually renewable term policies provide a level death benefit for a premium that

A. Decreases annually

B. Increases annually

C. Fluctuates

D. Remains level

B

Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough caah value in the policy to cover the premium amount?

A. Flexible life

B. Adjustable life

C. Universal life

D. Variable life

C

Which of the following is TRUE regarding an indeterminate premium whole life policy?

A. The premium is lower in the first year of the policy; then it is gradually raised every year

B. The premium can be raised up to a guaranteed maximum rate

C. The premium is usually higher in the first few years of the policy

D. The premium is level throughout the life of the policy

B

The death benefit under the Universal Life Option B

A. Increases for the first few years of the policy, and then levels off

B. Remains level

C. Gradually increases each year by the amount that the cash value increases

D. Decreases by the amount that the cash value increases

C

For variable products, underlying assets must be kept in

A. A revenue account

B. A general account

C. A separate account

D. A money market account

C

The policyowner of an adjustable life wants to increase the death benefit. Which of the following statements is correct regarding this change?

A. The death benefit can be increased only when the policy has developed a cash value

B. The death benefit cannot be increased

C. The death benefit can be increased by providing evidence of insurability

D. The death benefit can be increasesd only by exchanging the existing policy for a new one

C

Which component increases in the increasing term insurance?

A. Death benefit

B. Premium

C. Interest on the proceeds

D. Cash value

A

Which of the following types of insurance policies would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources?

A. Term

B. Whole life

C. Annuity

D. Variable life

A

If an individual wants both protection and savings from their insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this individual?

A. Increasing term

B. Life annuity with period certain

C. Limited-pay whole life

D. Interest-sensitive whole life

C

An insured has a life insurance policy that requires a payment of premiums only for a specified number of years until the policy is paid up. What type of policy is it?

A. Adjustable life

B. Graded premium life

C. Variable life

D. Limited-pay life

D

Which of the following statements is correct regarding a whole life policy?

A. The policy premium is based on the attained age

B. The policyowner is entitled to policy loans

C. The death benefit may increase or decrease during the policy period

D. Cash values are not guaranteed

B

In Modified Life policies, what happens to the premium?

A. It always remains level

B. It is higher during the first policy years

C. It is level at the beginning and increases after the first few years

D. It varies at the beginning, but levels out by the end of the third year

C

B just bought a new car, which he anticipates will be paid for 4 years from now. He also wants to buy a life insurance policy, but is financially limited until the car is paid off. Which of the following types of policies would be best for B?

A. Limited term

B. Modified life

C. Interest-sensitive whole life

D. Limited pay

B

Which of the following best describes annually renewable term insurance?

A. It is level term insurance

B. Neither the premium nor the death benefit is affected by the insured’s age

C. It provides an annually increasing death benefit

D. It requires proof of insurability at each renewal

A

Which of the following determines the cash value of a variable life policy?

A. The premium mode

B. The performance of the policy portfolio

C. The policy’s guarantees

D. The company’s general account

B

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

A. Variable life

B. Whole life

C. Decreasing term

D. Universal life

C

All of the following are true regarding a decreasing term policy except:

A. The face amount steadily declines throughout the duration of the contract

B. The payable premium amount steadily declines throughout the duration of the contract

C. The death benefit is $0 at the end of the policy term

D. The contract pays only in the event of death during the term and there is no cash value

B

What characteristic makes whole life permanent protection?

A. Guaranteed level premium

B. Guaranteed death benefit

C. Coverage until death or age 100

D. Living benefits

C

A domestic insurer issuing variable contracts must establish one or more

A. General accounts

B. Annuity accounts

C. Liability accounts

D. Separate accounts

D

Which of the following best defines target premium in a universal life policy?

A. The maximum amount the policyowner may pay on a policy

B. The recommended amount to keep the policy in force throughout its lifetime

C. The minimum amount to make sure the policy is annually renewable

D. The corridor of insurance

B

Which of the following terms best describe the coverage provided by term policies, as compared to any other form of protection?

A. Longest

B. Most comprehensive

C. Least

D. Greatest

D

Which of the following types of policies allows for a flexible premium and a variable investment component?

A. Whole life insurance

B. Variable whole life insurance

C. Guaranteed issue variable life insurance

D. Variable universal life insurance

D

The premium of a survivorship life policy compared with that of a joint life policy would be

A. Half the amount

B. As high

C. Higher

D. Lower

D

All of the following entities regulate variable life policies except

A. The Guaranty Association

B. The Insurance Dept.

C. The SEC

D. The federal government

A

What kind of policy allows withdrawals or partial surrenders?

A. 20-pay life

B. Universal life

C. Term policy

D. Variable whole life

B

An insurance plicy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured’s age 100 is called

A. Modified Endowment Contract (MEC)

B. Graded premium whole life

C. Single premium whole life

D. Level term life

C

In which of the following cases will the insured be able to receive the full face amount from a whole life policy

A. As soon as the cash value exceeds the face amount

B. If there are no named beneficiaries when the policy is paid up

C. At age 65

D. If the insured lives to age 100

D

Which of the following has the right to convert the existing term coverage to permanent insurance?

A. Policyowner

B. Producer

C. Insurer

D. Beneficiary

A