Insurance Product Knowledge Flashcards

What is the main purpose of term life insurance?

Answer: Provide coverage for a limited time

Term life insurance is designed to provide a death benefit for a specific period, such as 10, 20, or 30 years. It is typically more affordable than permanent life insurance because it does not accumulate cash value and only pays out if the insured dies within the specified term. Its main purpose is to offer financial protection for dependents during critical periods, like when a mortgage is outstanding or children are young.

Which insurance type combines a death benefit with a savings component?

Answer: Whole life insurance

Whole life insurance is a type of permanent life insurance that provides coverage for the insured's entire life, as long as premiums are paid. Unlike term life, it includes a cash value component that grows over time on a tax-deferred basis. This cash value can be borrowed against or withdrawn, making it a combination of a death benefit and a savings/investment vehicle.

What is an annuity primarily used for?

Answer: Generate retirement income

An annuity is a financial product sold by insurance companies designed to provide a steady stream of income, typically during retirement. Individuals pay a lump sum or make periodic payments, and in return, receive regular payments starting immediately or at a future date. Its primary function is to offer a guaranteed income source, helping to mitigate the risk of outliving one's savings.

Which insurance covers medical expenses for illness or injury?

Answer: Health insurance

Health insurance is a type of insurance that covers medical expenses that arise due to illness, injury, or preventive care. It typically helps pay for doctor visits, hospital stays, prescription drugs, and other healthcare services. Its purpose is to protect individuals from the high costs of medical care, making essential health services more accessible.

What is a deductible in an insurance policy?

Answer: The amount paid out-of-pocket before insurance kicks in

A deductible is the specific amount of money an insured person must pay out of their own pocket for covered medical expenses or damages before their insurance company starts paying. For example, if you have a $1,000 deductible, you pay the first $1,000 of a claim, and then your insurance covers the rest, up to the policy limits. It's a common feature in many types of insurance policies, including health, auto, and home.

Which type of insurance is required by law for vehicle owners in most states?

Answer: Auto liability insurance

Auto liability insurance is legally mandated in most states for vehicle owners because it covers damages and injuries you might cause to other people or their property in an accident. This coverage protects you financially from lawsuits and expenses if you are found at fault. It ensures that victims of accidents caused by insured drivers have a means of compensation.

What does disability insurance provide?

Answer: Income replacement due to illness or injury

Disability insurance provides a portion of your income if you become unable to work due to a qualifying illness or injury. It acts as a safety net, ensuring you can continue to meet your financial obligations even when you can't earn a paycheck. This type of insurance is crucial for protecting your financial stability and lifestyle during periods of incapacitation.

Which product is best suited for estate planning?

Answer: Universal life insurance

Universal life insurance is a flexible type of permanent life insurance that offers a death benefit and a cash value component, similar to whole life. Its flexibility in premium payments and death benefits makes it particularly useful for estate planning, as it can be tailored to meet changing financial needs over a lifetime and provide a tax-free inheritance to beneficiaries. It allows for adjustments to coverage and premiums, which can be beneficial for managing an estate.

What is the cash surrender value of a policy?

Answer: Cash value available upon policy cancellation

The cash surrender value refers to the amount of money a policyholder receives if they choose to cancel a permanent life insurance policy (like whole life or universal life) before it matures or pays out a death benefit. This value is derived from the policy's accumulated cash value, minus any surrender charges or outstanding loans. It represents the liquid value of the policy if it's terminated early.