What is the difference between a straight life policy and 20 pay whole life policy quizlet?

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The following are key characteristics of whole life insurance

a. __________ ___________ - premium is based on issue age, therefore, remains the same for the entirety of the policy

b. __________ ___________ - is guaranteed & must also remain level

c. _________ _________ - created by accumulation of premium & is scheduled to equal the face amount of the policy when the insured reaches age 100 (policy mature date) & is paid out to policyowner

Cash values are credited to the policy on a regular basis & have a guaranteed interest rate

d. __________ __________ - the owner can borrow against the cash value while the policy is in effect or can receive the cash value when the policy is surrendered

-- The cash value (also called nonforfeiture value) does not accumulate until the third policy year & grows tax deferred

--A whole life insurance policy under which an policy owner pays a higher premium than for an otherwise identical ordinary whole life policy in return for the right to pay premiums for a shorter period.
Like ordinary whole life, limited payment whole life insurance provides level death benefit protection for the insured's whole life. Also like ordinary life, limited payment life has level premiums. The main difference between ordinary life and limited payment life is the time period over which premiums are paid. As the name suggests, the premiums for limited payment life insurance policies are payable for a shorter time than ordinary life premiums. The tradeoff to the shorter premium period is the fact that premiums are higher than they would be with a straight life policy. In most other respects, these two forms of whole life insurance are the same.

Limited payment whole life policies appeal to customers who want permanent coverage but wish to pay for it within a finite period of time (not one's entire life).

Limited payment life insurance premiums can be paid for 10, 15, or 20 years or, as is common, to a specified age, such as age 65. A policy with a ten-year premium period would be called a ten-pay life policy. One that requires premiums to age 65 would be called a life-paid-up-at-65 policy. At the end of the selected payment period, the policy is paid up. No more premium payments are necessary or possible. However, the insurance remains in force. In fact, the cash value continues to grow (albeit at a slower rate) until policy maturity at age 120 (for policies issued since 2009).

Straight, limited pay, modified, and graded premium whole life products all share a common trait: they offer fixed, "known in advance" premium amounts. That fixed amount may increase over time, as is the case with modified and graded premium policies, but in all cases the policyowner knows from the outset what the future premium requirements will be. These long-term fixed premiums are possible because insurers make long-term guarantees of the interest they will credit to the policy and the mortality and expense charges they will charge against it. Of necessity, these long-term interest rate guarantees are conservative.

Beginning in the 1970s, when market interest rates were at historically high levels, consumers began demanding a whole life insurance product that was based on current interest assumptions. Insurers responded with a variety of new products. The first products to feature something other than fixed guaranteed assumptions and benefits were whole life policies that allowed flexibility in the premiums (based on current interest experience). They are called indeterminate premium whole life, current assumption whole life, and interest-sensitive whole life

Current assumption whole life (CAWL) and the closely related interest-sensitive whole life are characterized by premium rates that can change over time in response to the insurer's actual mortality, interest, and expense experience. If the insurer's actual experience is good, then premium rates are lowered. If the insurer's actual experience is bad, then premium rates are increased. At the time the insurer issues a policy, it sets a minimum interest rate to be credited to the policy and a maximum premium rate.

After a few years, both the interest and premium rates can change based on a review and revaluation of the insurer's assumptions. The process insurers use to evaluate their actual experience and to apply the changes to their premium rates is called redetermination.

The length of the period before redetermination varies among insurers. Some current assumption and interest-sensitive life insurance products redetermine their variable elements every two years. Others make a redetermination every seven years. Most make a redetermination every five years. Once the insurer identifies the new premium, it stays fixed until the next redetermination.

While they share many of the same policy features, there are some notable differences between interest-sensitive whole life insurance and current assumption whole life insurance.

Both types of policies credit interest to the policy's cash value at a rate based on the rise and fall of the stock or bond index linked to the policy. However, only the current assumption policy guarantees a minimum cash value level. With interest-sensitive whole life, the interest credited to the policy is not guaranteed, and thus the cash value is not guaranteed.

Control over the premium and face amount also differs between the two products. With current assumption whole life, the policyowner has no control over how or when the premium changes, and the death benefit (face amount) does not vary. By contrast, interest-sensitive life policyowners do have some control over the premium and face amount. If the insurer's redetermined assumptions result in a higher premium, then the policyowner can choose to accept the higher premium. Or, the policyowner can choose to reduce the face amount of the policy and keep the same premium level.

With traditional whole life policies, insurers invest the premiums in safe, secure, and conservative investments that are managed in the insurer's general account. This, in turn, lets the insurer credit safe, secure, and conservative rates of return to the cash values.

Variable life insurance (VLI) differs from traditional whole life insurance in the way its values are invested. VLI policy values are invested in investment accounts, known as subaccounts, which are managed in a separate account that keeps them apart from the insurer's general account. Subaccounts consist of a variety of stocks, bonds, and related securities. In this way, a VLI owner can participate in the growth of the contract's underlying securities.

Like all securities, separate account investments are not guaranteed, which means VLI cash values are subject to declines as well as increases. VLI policyowners fully assume the investment risk of policy values allocated to the separate subaccounts.

VLI policyowners choose how they want to invest their policies' premiums and cash values. They can fully invest in the nonguaranteed investment subaccounts. Or, they can allocate their premiums and cash values between the subaccounts that comprise the insurer's separate account and the insurer's general account.

In early VLI policies, the policyowner had only three variable subaccounts to choose from:

-stock fund
-bond fund
-money market fund

Today, VLI policies offer a wide variety of subaccount (unsecured and nonguaranteed) options, in some cases 20 or more. VLI policyowners can transfer funds between each subaccount. They can also transfer funds between subaccounts and the insurer's general account, although insurers may place modest restrictions limiting the frequency of some transfers.

Question 1
Which of the following statements best explains the basic level premium concept of ordinary whole life insurance?

Funds are withdrawn from the policy's cash value in the later years to pay the rising cost of pure insurance.
*The steady reduction of the policy's net amount at risk offsets the cost of pure insurance that rises with age.
The death benefit is decreased to offset the rising cost of insurance with age.
The policyowner pays more than necessary in the early years to offset the higher cost of insurance in the later years.
Ordinary whole life insurance features a level death benefit and a level premium.
Question 2
Which of the following statements regarding the way whole life insurance differs from term life insurance is most correct?

Only whole life insurance offers level premium payments.
*Only whole life insurance builds a cash value.
Only whole life insurance can be renewed.
Only whole life insurance offers protection until age 80.
Unlike term life insurance, whole life insurance builds cash value. In addition, it offers permanent protection for the insured's whole life.
Question 3
Which one of the following statements about variable life insurance is correct?

With a variable life insurance policy, the insurer assumes most of the investment risk.
The death benefit under a variable life insurance policy will never be more than the stated minimum.
Variable life insurance policies do not guarantee a minimum death benefit.
*Variable life insurance policyowners can transfer funds between subaccounts and the insurer's general account.
Variable life insurance policyowners can transfer funds between subaccounts. They can also transfer funds between subaccounts and the insurer's general account.
Question 4
What is the term for the money that builds within a whole life insurance policy over the policy's life?

*cash value
accrued value
death benefit
policy reserve
Cash value is the money that accumulates and builds within the policy over the policy's life

Question 1
Which one of the following statements about variable life insurance is correct?

Variable life's premiums are only invested in safe, conservative investments.
Variable life policyowners cannot choose how their contract premiums are invested.
There is no guaranteed death benefit with variable life.
*Variable life's policy values can be invested in subaccounts, which are unsecured and nonguaranteed.
Variable life insurance differs from traditional whole life insurance in the way its values are invested. Variable life insurance policy values are invested in investment accounts known as subaccounts, which can consist of a variety of stock, bond, and related securities. Subaccounts are unsecured and nonguaranteed.
Question 2
Under an indeterminate premium whole life policy, what happens to premium rates if an insurer earns more on its investments than was factored into the premium calculation?

Premiums stay the same.
Premiums increase.
Premiums return to the initial fixed rate.
*Premiums decrease.
An indeterminate premium whole life policy is issued with two premium rates: a lower fixed rate and a guaranteed maximum rate. The policyowner pays the lower fixed rate for a specified number of years. At the end of that period, the premium rate moves up or down based on the investment earnings that the insurer experiences. Premiums will decrease if the insurer's investment experience is good.
Question 3
Which one of the following is most correct with respect to the contract charges and fees charged by variable life and traditional whole life policies?

Both charge account transfer fees.
Both charge investment advisory fees.
Both charge a fee for expenses incurred by the separate investment accounts.
*Both base the premium on a mortality charge that reflects the insured's risk of death.
Both types of policies charge a premium, which is based on a mortality charge, to cover the policy's death benefit.
Question 4
Variable life insurance policies offer all of the following EXCEPT

*flexible premium payments
a death benefit
cash values
a variety of subaccount investment choices
Variable life insurance policies build cash value, which is the sum of the balance in each variable subaccount plus the value of the guaranteed fixed account.

What is the difference between a straight life policy and 20 pay whole life policy?

What is the difference between straight life and whole life?

What is a 20 pay whole life policy?

What is a straight life policy?