Life Insurance Product Types Flashcards

Which type of life insurance product is typically sold without a medical exam, using only a short health questionnaire to determine eligibility?

Answer: Simplified issue life insurance

Simplified issue life insurance uses a brief health questionnaire instead of a full medical exam, trading faster approval for higher premiums or lower coverage limits.

A 'limited pay' whole life policy (e.g., 20-Pay Life) differs from straight whole life because:

Answer: Premiums are paid for a limited period but coverage lasts for life

A limited pay policy requires premium payments only for a set number of years (e.g., 20), after which the policy is paid-up and coverage continues for the insured's lifetime.

Which feature of universal life insurance allows the policyholder to skip or reduce premium payments without lapsing the policy?

Answer: Flexible premium structure using accumulated cash value

Universal life's flexible premium design allows the policyholder to reduce or skip premiums as long as sufficient cash value exists to cover the monthly deductions for cost of insurance and expenses.

A 'single premium' life insurance policy is characterized by:

Answer: One lump-sum payment that fully funds the policy at issue

A single premium policy requires only one lump-sum payment at inception, after which the policy is immediately paid-up and no further premiums are owed.

What is the primary purpose of a 'key person' life insurance policy purchased by a business?

Answer: To indemnify the business against financial loss caused by the death of a vital employee or owner

Key person insurance protects a business from the economic impact of losing an owner or employee whose skills, knowledge, or relationships are critical to business operations.

Under a Modified Endowment Contract (MEC), how are policy loans and withdrawals taxed?

Answer: Taxed on a last-in, first-out (LIFO) basis with a possible 10% penalty before age 59½

MEC distributions (loans and withdrawals) are taxed interest-first (LIFO), meaning gains are taxed as ordinary income first, plus a 10% penalty if taken before age 59½.

Which of the following statements about term life insurance riders is CORRECT?

Answer: A term rider added to a whole life policy provides additional temporary death benefit coverage

A term rider attached to a permanent policy provides additional death benefit protection for a specified period, effectively blending term and permanent coverage at a lower total cost.