Life Insurance Product Types Flashcards

What is the primary characteristic of an endowment policy?

Answer: It pays the face amount either upon death or when the insured reaches a specified age

An endowment policy matures and pays the face amount to the living insured at the end of the endowment period, or pays the death benefit if the insured dies before maturity.

Under a variable universal life (VUL) policy, who bears the investment risk of the separate account sub-accounts?

Answer: The policyholder

In a VUL policy, the policyholder directs cash value into separate account sub-accounts and bears the full investment risk, meaning cash value can decrease.

Which non-forfeiture option converts a lapsed whole life policy into a paid-up term policy for the same face amount?

Answer: Extended term insurance

Extended term insurance uses the cash value to purchase term insurance for the original face amount for as long a period as the cash value will support.

A 'return of premium' (ROP) term policy differs from standard term by:

Answer: Refunding all premiums paid if the insured outlives the policy term

ROP term insurance returns all premiums paid if the insured survives to the end of the policy term, at the cost of significantly higher premiums than standard term.

A universal life policy's 'Option B' (increasing) death benefit means:

Answer: The death benefit equals the face amount plus the accumulated cash value

Under Option B (or Option 2), the death benefit equals the stated face amount plus the policy's cash value, so it increases as cash value accumulates.

Which of the following policies is MOST suitable for an insured who wants lifelong coverage but cannot afford permanent insurance premiums initially?

Answer: Convertible term insurance

Convertible term insurance allows the insured to convert to a permanent policy without evidence of insurability, providing an affordable path to permanent coverage later.

What is a key tax advantage of the cash value accumulation in a life insurance policy under current US tax law?

Answer: Cash value grows on a tax-deferred basis

Cash value inside a life insurance policy grows on a tax-deferred basis, meaning the policyholder does not pay income tax on gains each year they accumulate.