Life insurance An insurance contract that promises to pay a dollar benefit to beneficiary upon the death of the insured person
Final expenses One-time expenses occurring just prior to or after death
Social security survivor’s benefits Government program benefits paid to a surviving spouse and children
Beneficiary Person who receives life insurance proceeds, as per the policy
Needs-based approach A superior method of calculating the amount of insurance needed that considers all of the factors that might potentially affect the level of need
Term life insurance “Pure protection” against early death; pays benefits only if the insured dies within the time period (term) that the policy covers
Cash-value life insurance Pays benefits at death and includes a savings/investment element that can provide a level of benefits to the policyholder prior to the death of the insured person
Face amount Dollar value of protection as listed in the policy and used to calculate the premium
Guaranteed renewable term insurance Protects you against the possibility of becoming uninsurable
Level-premium term insurance Term policy with a long term under which premiums remain constant. Also called guaranteed level-premium term insurance
Convertible term insurance Offers-policyholders the option of exchanging a term policy for a cash-value policy without evidence of insurability
Whole life insurance Form of cash-value life insurance that provides lifetime life insurance protection and expects the insured to pay premiums for life. Also called straight life insurance
Limited-pay whole life insurance Whole life insurance that allows premium payments to cease before the insured reaches the age of 100
Paid up Point at which the owner of a whole life policy can stop paying premiums
Universal life insurance Provides the pure protection of term insurance and the cash-value buildup of whole life insurance, along with face amount variability, rate of cash-value accumulation, premiums, and rate of return
Variable-universal life insurance Form of universal life insurance that gives the policy holder some choice in the investments made with the cash value accumulated by the policy. Also called flexible-premium variable life insurance
Life insurance policy A contract between an insured (insurance policy holder) and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the “benefits”) upon the death of the insured person
Owner/policyholder Retains all rights and privileges granted by the policy, including the right to amend the policy and the right to designate who receives the proceeds
Insured Individual whose life is insured
Incontestability clause Places a time limit on the right of the insurance company to deny a claim
Insurance dividends Surplus earnings of the insurance company when the difference between the total premium charged exceeds the cost to the company of providing insurance
Participating policies Life insurance policies that pay dividends
Death benefit Amount that will be paid to the beneficiary when the insured dies
Grace period Period of time during which an overdue premium may be paid without a lapse of the policy
Guaranteed minimum rate of return Minimum rate that, by contract, the insurance company is legally obligated to pay
Current rate Rate of return the insurance company has recently paid to policyholders
Nonforfeiture values Amounts stipulated in a life insurance policy that protect the cash value, if any, in the even that the policyholder chooses not to pay or fails to pay required premiums
Cash surrender value Represents the cash value of a policy minus any surrender charges
Automatic premium loan Provision that allows any premium not paid by the end of the grace period to be paid automatically with a policy loan if sufficient cash value or dividends have accumulated
Waiver or premium A clause in an insurance policy that waives the policyholder’s obligation to pay any further premiums should he or she become seriously ill or disabled
Guaranteed insurability (guaranteed purchase option) Permits the cash-value policyholder to buy additional stated amounts of cash-value life insurance at stated times in the future without evidence of insurability
Settlement options Choices from which the policyholder can choose in how the death benefit payment will be structured
Premium quote service Offers computer-generated comparisons from among 20 to 80 different companies
Insurance Agent Representative of an insurance company who is authorized to sell, modify, service, and terminate insurance contracts
Layering term insurance policies Purchasing level-premium term policies so that coverage grows when you need it most and then can be decreased as your needs change
Interest-adjusted net payment index (IANPI) If a policy will remain in force until death, this method allows you to effectively measure the cost of cash-value insurance. The lower the IANPI, the lower the cost of the policy
If Bethany works at a job where her income fluctuates from month to month and is concerned about not being able to pay her cash-value life insurance premium some months, she should consider a policy with automatic premium loan provision
Antonio and Trina are a young couple with two small children, Jason (age four) and Claudia (age two). Trina is an account executive for a brokerage firm while Antonio has taken a couple years off from his profession as a civil engineer to work on an MBA degree. Right now Antonio and Trina’s budget is very tight, as they are accustomed to living on two incomes, but Trina’s employer has just circulated employer benefit information, so Antonio and Trina believe this is a good time to evaluate their life insurance needs. They have listed the financial information they believe is relevant.​Current life insurance (Antonio)$ 75,000Current life insurance (Trina)$ 50,000Assets available for living expenses0Present value of Social Security benefits if Antonio dies$132,397Present value of Social Security benefits if Trina dies$151,905Antonio’s income before he went back for the MBA$ 45,000Trina’s income$ 50,000Percent of income that needs to be replaced75 percentProjected final expenses$7,000Projected readjustment-period needs$5,000Projected debt-repayment needs$ 15,000Projected college-expenses$ 80,000Number of years income replacement is needed20Assumed rate of return on invested funds5 percentAppropriate interest rate factor12.5​NARREND​Refer to Figure 12-1. Trina enjoys managing investments and believes that she could get a higher yield on the proceeds from Antonio’s life insurance than the insurance company would pay. Which settlement option should be selected for Antonio’s policy in the event of his death? lump sum
Life insurance is generally least needed on the lives of children
Which of the following rates of return in a cash-value life insurance policy does the agent tend to focus on and which should the purchaser focus on? current; guaranteed minimum
With a decreasing term policy, the face value amount__ annually and the premiums__ annually decreases; remain constant
Which the following is NOT characteristic of a cash-value life insurance policy? The beneficiary receives the sum of the face amount and the cash value
You are 33-years old and have children ages 3,6, and 8. You have determined that you need an additional $700,000 in additional life insurance. You should buy 3-5, 5-year, guaranteed renewable term life policies in various amounts adding up to $700,000.
A 10-year term life policy will cost__ a 5-year renewable term policy during the early years of the 10-year period, other factors being equal. more than
Life insurance should be bought primarily to provide protection from financial losses
Variations on term life insurance include credit life
The promise not to smoke in exchange for lower life insurance premiums would be included in the__ section of an insurance policy declarations
A term life insurance policy will pay out the__ value if the insured dies during the term of the contract face
__should be considered when evaluation income-replacement needs all of these (lost income of the deceased, the value of employment fringe benefits, contributions of a spouse’s income)
Jonna purchased a $25,000 cash value policy with a guaranteed insurability option that can be exercised a maximum of four times at $25,000, each over the next 12 years. Which the following statements is false? Jonna will have to prove she is still insurable each time she exercises a purchase option
Typically, when one borrows from his or her cash value in a life insurance policy. only the guaranteed minimum rate is paid on the remaining nonborrowed cash value
The person who controls all rights granted by a life insurance policy is called the policyholder
To understand the different versions of cash-value life insurance policies that pay a variable return, you must evaluate all of these (the cost of the insurance protection portion, the rate of return on the invested funds, and the company’s expense charges)
The__ are the broadly defined coverages provided under the policy insuring agreements
Amounts stipulated in a life insurance policy that protect the cash value in the even that the policyholder chooses not to pay the required premiums are nonforfeiture values
The___ is the recommended way to judge the cost of a term life insurance policy cost per $1,000 of coverage per year
The__ method of comparing the costs of life insurance policies assumes the policy will be cashed in at the end of a certain period of time rather than remaining in force until death. interest-adjusted net payment index
Life insurance needs typically __over your lifetime fluctuate
Endorsements may be added at any time during the life of an insurance policy to All of these (raise policy limits, make other changes, and expand coverage)
The option that one might purchase if he or she wanted to increase the amount of cash value insurance held in the future is called guaranteed insurability
The advantage of term insurance is more coverage per premium dollar
If one commits suicide less than one year after becoming insured, the life insurance will pay the beneficiary the amount of premiums that had been paid
The major financial loss resulting from premature death is the lost income of the deceased
The primary person who is intended to be provided for by a life insurance policy is the beneficiary
A substantial benefit for working families with young children should a parent die are Social Security survivor’s benefits
Settlement options for life insurance proceeds include all of the following except additional paid-up insurance
The MOST important feature of a life insurance company is its ability to pay its obligations
When an insured dies, any outstanding loan balance is__ to determine the death benefit subtracted from the face value
Tara had a life insurance policy with a face value of $150,000. At the time of her death, the policy had a cash value of $33,000, an outstanding loan of $4,000, and earned but unpaid dividends of $2,000. Assuming this is a typical policy, what death benefit would be paid to Tara’s beneficiary? $148,000
All of the following are true except buy term and spend the rest
Debt payments can be handled through either debt-repayment needs or__ needs income-replacement
PolicyYearCash ValuePaid¾UpFace ValueExtended Term($100,000 face value)1$0$0¾5$6,500$7,9506 years; 142 days10$14,250$17,22513 years; 75 daysAt the end of year 5, Allison could pay nothing more in premiums and have $7,950 paid-up insurance the rest of her life
Typically, when one borrows from his or her cash value in a life insurance policy, only the guaranteed minimum rate is paid on the remaining nonborrowed cash value
A settlement option for a life insurance policy can be any of these (interest income for a period of time with the remainder paid at the end of the period of time, income for life, and a lump sum)
Sales commissions charged on term insurance policies purchased directly rather than through an agent average approximately__ percent 10
If one converts his or her convertible term life insurance policy and wants the cash-value to build up in the policy beginning with the date of the conversion which of the following is (are) true? The premium will be based on his or her age at the time of the conversion
__life insurance policies possess the greatest investment risk to the policyholder variable-universal
One’s need for life insurance is generally the greatest during which phase of the life-cycle? Young married with children
__should be considered when evaluating income-replacement needs All of these (lost income of the deceased, contributions of a spouse’s income, the value of employment fringe benefits)
With a__ policy, if premiums drop below the amount necessary to cover the insurance protection and expenses, funds are removed from the cash-value account to cover the shortfall. universal life insurance

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