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Chapter One
terms to know from chapter one
| Question | Answer |
|---|---|
| Adverse selection | insuring of risks that are more prone to losses than the average risk |
| Agent/Producer | a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer |
| Applicant or proposed insured | 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 (principal) | 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 (for example, stocks, bonds, options) |
| Term insurance provides | the greatest amount of coverage for the lowest permium. |
| True or false: Term insurance has no cash value | True |
| The premium is figured at attained age of insurer | When selling renewing or converting |
| Regardless of the type of life insurance purchased the _________ is leveled throughout the policy. | premium |
| Only the ___________ _____________may fluctuate depending on the type of term insurance | death benefit |
| ______ term insurance is most common type of temporary protection | Level |
| This refers to the death benefit which does NOT change | death benefit |
| True of false: Annually renewable term is the purest form of term insurance | True |
| True or False: Decreasing term coverage is commonly purchased to insure the payment of a mortgage or other debts if the insured dies prematurely | True |
| True or false: at the end of increasing term coverage, the death benefit is equal to $0 and thereby, nonrenewable | False, that is decreasing term coverage. |
| __________ term features level premiums and a death benefit that increases each year over the duration of the policy term. | Increasing |
| Increasing term is often used by insurance companies to fund ______ ________ that provide a refund of premiums or a gradual increase in total coverage, such as the cost of living or return of premium riders | certain riders |
| Which type of term insurance should you get if you are concerned about inflation/cost of living? | increasing term |
| This policy pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. The return of premium is paid if the death occurs within a specified period of time or if the insured outlives the policy term | Return of Premium life insurance |
| Return of Premium life insurance is an example of ________ term insurance | increasing |
| True/False: Most term insurance policies are renewable, convertible, or renewable and convertible (R&C) | True |
| True/False: The renewable provision allows the policyowner the right to renew the coverage at the expiration date with evidence of insurability | False. You don't have to have evidence of insurability. |
| True/False: The convertible provision provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability. | True. |
| True/False: Premiums are always based on the age of the one being insured at time of conversion, renewal and obtaining for the first time. | True |
| True/False: Term life insurance provides lifetime protection, and includes a savings element (or cash value) | False |
| Level premium | the premium for whole life policies is based on the issue age; therefore, it remains the same throughout the life of the policy. |
| Death benefit | the death benefit is guaranteed and also remains level for life. |
| Cash value | the cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 (the policy maturity date), and is paid out to the policyowner. |
| ____ ______ are credited to the policy on a regular basis and have a guaranteed interest rate. | Cash values |
| Living benefits | the policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered. |
| The cash value, also called __________ _________, does not usually accumulate until the third policy year and it grows tax deferred. | nonforfeiture value |
| _______ life insurance provides lifetime (permanent) protection and accumulates cash value. | Whole |
| Straight life insurance is also called... | ordinary life or continuous premium whole life |
| The policyowner pays the premium from the time the policy is issued until the insured’s death or age 100 | Ordinary life insurance |
| True or false: Of whole life insurance, straight life will have the lowest annual premium | true |
| ______-_______whole life is designed so that the premiums for coverage will be completely paid-up well before age 100 | limited-pay |
| ____ ______ _____ ______is designed to provide a level death benefit to the insured's age 100 for a one-time, lump-sum payment. The policy is completely paid-up after one premium and generates immediate cash | Single premium whole life (SPWL) |
| indexed whole life (or equity index whole life) insurance is that the cash value is dependent upon the performance of the equity index | The policy's face amount increases annually to keep pace with inflation (as the Consumer Price Index increases) without requiring evidence of insurability |
| If the policyowner assumes the risk, the policy premiums ______ with the increases in the face amount. If the insurer assumes the risk, the premium remains ______. | increase; level |
| _____ _____ is a type of whole life policy that charges a lower premium (similar to term rates) in the first few policy years | Modified life |
| A graded premium whole life policy | typically starts with a premium that is approximately 50% or lower than the premium of a straight life policy. The premium then gradually increases each year for a period of usually 5 or 10 years, and then remains level thereafter. |
| _____ _______whole life policies have the premium rate that may vary from year to year. | Indeterminate premium |
| a _______ level premium stated in the contract (maximum premium), and a ________ lower premium rate that the policyowner actually pays for a set period of time | guaranteed; nonguaranteed |
| After the initial period (usually 2-3 years), the insurer establishes a new rate which could be _______________________ based on the company’s expected mortality, expense and investments. The premium, can NEVER be higher than the guaranteed maximum. | raised, kept the same or lowered, |
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