Colorado Life Insurance Exam Questions and Answers

Continuous Premium Whole Life - Premiums are the same each year for the duration of the policy, if policyowner continues to make payments they will receive cash value of policy. - Also called straight life or ordinary life - endows at age 100 Limited-Payment Whole Life - Allow for a lifetime of premiums to be paid in a shorter period of time - 10 pay or 20 pay - premiums payable in 10-20 level annual installments - life paid up at age 65 - level annual installments from date of purchase to age 65 - cash value accumulates faster than continuous premium policy - endows at age 100 Single Premium Whole Life - One payment made at time of purchase, covers all future costs of maintaining policy, create immediate cash value Universal Life (UL) - Premiums are flexible, not fixed, and accumulate as interest in the policy's cash value - only policyowner can change death benefits - cost of insurance and fees withdrawn monthly - option 1 - level death benefit, cash value rises quicker - option 2 - increasing death benefit plus cash account Variable Life Insurance - Separate account instead of guaranteed cash value, so there is the insurance and an investment account - to sell, one must have life insurance and securities licenses - death benefit can increase, guaranteed benefit Variable Universal Life - Universal life with a separate investment account - death benefit will be paid as long as there is sufficient cash value to pay the costs of insurance - no guaranteed death benefit Interest-Sensitive Whole Life - Cash value can increase beyond the stated guarantee if economic conditions warrant - fixed level death benefit - interest rate can fluctuate with economy - cash value and death benefit can increase/grow Equity-Indexed Universal Life - Permanent life insurance that allows policyholders to tie accumulation values to stock market, current interest on cash account Level Term Policy - Death benefit is level and equals the face amount throughout the term of coverage, premium is also level Decreasing Term Policy - Death benefit declines over coverage period until it reaches zero at end of term, premium is level Return of Premium Term Policy - Return all or part of premium paid for policy if insured is still alive at end of term, premium is higher and depends on percentage of premium returned (100%, 50%) Renewability - Term policy guaranteed to renew/extend with the same policy period at end of the term, no new application required, premium changes with each renewal based on age Convertability - Term policy can be converted to a permanent type of policy, no new application required, must be converted before the term expires Premium for converted policy based on one of two things: - attained age - insured's age at time of conversion - original age - insured's age at time original policy was written Annuities - Upside down life insurance, tax deferred savings for retirement, protects people from living too long Immediate Annuities (SPIA) - Single lump-sum premium, payments to insured can start one month after or latest delay of 1 year, only interest part of payment is subject to tax Deferred Annuities (SPDA) - Owner chooses amount and frequency of premium payments (flexible), accumulated funds can be withdrawn at any time but may have surrender charge Fixed Annuities - Guaranteed against loss, supported by general account with assets, earn interest during accumulation period, level payment during annuity period Variable Annuities - Supported by investments, not guaranteed against loss, separate account with investment risks, value expressed in accumulation units (like shares), annuity units can fluctuate with investments which can adjust the payments to the insured, regulated as insurance and securities (dual regulation) Equity-Indexed Annuities (EIA) - Fixed, interest linked to equity index, guarantees minimum interest rate (normally 1-3%), guarantees backed by insurer's general account Joint Life Policy - Covers two or more lives with death benefit being paid when first insured dies, helps other spouse/insured maintain a certain lifestyle Survivorship Policy - Covers two individuals and will pay death benefit when last insured dies, can help pay for estate settlements and other expenses after death Life Policy Rider - Add benefits to life insurance policy, similar to endorsement on personal and commercial lines Waiver of Premium Rider - Will pay premiums if policyholder becomes disabled so they can continue to have coverage for duration of policy - waiting period - insured cannot work for 90-180 days - if insured still disabled at end of period, company retroactively refunds any premiums paid during waiting period - if insured permanently disabled before age 60-65 premiums will be waived for life Waiver of Monthly Deductions Rider - For flexible premium policies (UL), suspends monthly cost of insurance deductions that are made from cash account instead of waiving premiums Payor Benefit Rider - Juvenile policies, if person responsible for premiums (parents/guardians) becomes disables or dies before child is an adult, premiums will be waived until child reaches stated age (usually 18 or 21) Guaranteed Insurability Rider (GIR) - Normally on permanent life, allows owner to purchase additional life insurance in future for certain amounts without evidence of insurability, must be exercised typically between ages 25 and 40 at 3 year intervals Term Rider - Added to permanent policy, premiums lower than purchasing separate policy, both death benefits paid to beneficiary, expires at certain age or after certain amount of years Return of Premium Rider - Increasing term rider, death benefit totals all premiums paid, death must occur while rider in force Accidental Death Benefit Rider - Pays extra benefit if insured dies due to accident, insured must die within 90 days of accident, 2-3x the face amount of the policy, expires when insured is 60 or 65 Accidental Death and Dismemberment Rider - Extra benefit for accidental death and if insured lives after suffering severe dismemberment, losing a limb will only have 50% benefit payout (multiple limbs would equal full benefit payout) - Principal sum is death 100% - Capital sum is dismemberment 50% - also covers loss of sight, hearing, paralysis Other (Additional) Insured Term Rider - Convertible term insurance for spouse or immediate family member of primary insured (spouse or children's rider), family rider covers both spouse and children Long Term Care Rider - Advance of death benefits while insured is living, can be used to pay for long term care expenses, reduces death benefit payable upon death Accelerated Benefits Rider - Enables policyowner to apply for an advance on death benefit during lifetime of insured, insured must meet certain medical circumstances to be eligible Interest Income (Only) Settlement Option - Insurer retains death benefit and pays stated amount of interest on money, interest paid to beneficiary at regular intervals, death benefit paid at later late Fixed Period Settlement Option - Pays both an amount of principal and interest to the beneficiary over certain stated period of time, if interest is greater than guaranteed rate the final payment will be larger Fixed Amount Settlement Option - Proceeds will be paid in a fixed amount over time to beneficiary until both principal and interest have been completely paid to beneficiary, beneficiary can increase or decrease payment amount or change settlement plan altogether, if interest greater than guaranteed rate the length of payment period will be extended Life Income Settlement Option - Similar to annuity, beneficiary guaranteed to receive an income for the rest of their life and can be shared with another individual - Life only - pay largest amount as long as they live, stops when they die - Life with period certain - chooses a payment period, if they die in that period payments continue to be made to another person until the period end - Life with refund - total payments guaranteed to be death benefit amount, payments continue to another person if death occurs before benefits end - Joint-and-survivor life - 2 beneficiaries will receive payments as long as either lives, if one dies payment to other may be reduced Policy Loans - Policy loan provision- access cash value without surrendering the policy, no credit check, lower interest rate, any repayment plan, policy lapses when loan and interest exceed cash value Automatic Premium Loan Provision - If insured fails to pay policy premium by end of grace period, insurer will pay premium with policy loan until the cash value falls below premium amount, then policy will lapse Withdrawals/Partial Surrenders - Cannot be repaid, reduction of cash value and cash amount, only allowed on universal life, charges/fees apply Policy Dividends - Participating life policies, refund of portion of premium, not guaranteed, not taxable - life policies without dividends are nonparticipating - difference between gross premium charged and actual experience of insurer - options - CARPPO CARPPO - Cash Accumulate interest - left with insurer to earn interest Reduced premium Paid up additions - annual dividends used to purchase additional amount of life insurance Paid up insurance - applied to annual premium One-year term insurance - may be used to buy one-year term insurance equal to policy's cash value