Traditional whole life products

Correct answer: As long as premiums are paid, the policy stays in force for the insured's entire life.

Whole life is permanent because it is designed to remain in force for the insured's whole life, provided premiums are paid. The death benefit is guaranteed rather than dependent on death occurring before an arbitrary end date, which is what distinguishes it from term insurance.

Correct answer: An annual dividend payment

The three guarantees are the level premium, the guaranteed death benefit, and the guaranteed minimum cash value. Dividends are never guaranteed; they are paid only on participating policies and only when the insurer's experience is more favorable than assumed.

Correct answer: The level premium in the early years exceeds the pure cost of insurance, and the excess is set aside with interest to subsidize later years.

In the early policy years the level premium is more than the pure cost of insurance at that age. The excess is set aside and credited with interest, building the cash value, which then subsidizes the premium in the later years when the pure cost of insurance would exceed a level premium.

Correct answer: Continuation of the original coverage for life with no further premiums

Nonforfeiture law requires the insurer to offer a cash surrender, a reduced paid-up policy, or extended term insurance rather than keep everything that was paid in. Keeping the full original death benefit for life with no more premiums is not an option; the cash value can buy only a reduced amount for life or the full amount for a limited term.

Correct answer: Extended term insurance

Extended term insurance uses the cash value to continue the original death benefit, but only for a limited number of years. Reduced paid-up keeps coverage for life but at a smaller face amount, and cash surrender ends the coverage entirely.

Correct answer: The 20-pay policy has the higher premium because the insurer collects premiums for fewer years, but both provide coverage for life.

Limited-pay whole life compresses the premiums into a shorter period. Because the insurer collects premiums for fewer years, each premium is higher than an equivalent straight life premium. The guarantees, including lifetime coverage, are the same for both designs.

Correct answer: The entire cost of the policy is paid in one lump sum at issue, leaving no future premium obligation.

In single-premium whole life the whole cost is paid at issue in one lump sum. There is no further premium obligation, and the policy still carries the usual whole life guarantees, including cash value.

Correct answer: As a return of premium, not taxable unless total dividends exceed total premiums paid

Dividends on a participating policy are a return of excess premium. They are not taxable income unless the cumulative dividends exceed the total premiums the owner has paid.

Correct answer: A mutual insurer

Participating policies are issued by mutual insurers, or as a participating line from a stock insurer. A participating policy may pay dividends when the insurer's experience is more favorable than assumed.

Correct answer: It is fixed with no experience-based adjustment, and no dividends are paid.

A non-participating policy pays no dividends; its premium is fixed with no adjustment for the insurer's actual experience. A participating policy also has a level premium, but favorable experience can be returned to the owner as a dividend.

Correct answer: 1 full year

Fla. Stat. § 627.476(2)(a) requires that, after premiums have been paid for at least 1 full year in the case of ordinary insurance (3 full years for industrial insurance), the insurer grant a paid-up nonforfeiture benefit on default.

Correct answer: Not later than 60 days after the due date of the premium in default

Fla. Stat. § 627.476(2)(a) requires the insurer to grant the paid-up nonforfeiture benefit upon proper request made not later than 60 days after the due date of the premium in default, effective as of that due date.

Correct answer: A reduced paid-up nonforfeiture benefit

Fla. Stat. § 627.476(2)(a) provides that all policy forms filed on or after October 1, 1990, shall include, but not be limited to, a reduced paid-up nonforfeiture benefit.

Correct answer: It is as much reduced paid-up life insurance as the policy's surrender value will provide, applied as a net single premium at the insured's then-current age on the date of default.

The statute defines the reduced paid-up nonforfeiture benefit as continuing the policy as reduced paid-up life insurance in an amount that is as much as the surrender value will provide on the date of default, calculated using that surrender value as a net single premium at the insured's then-current age.

Correct answer: A return of excess premium paid when the insurer's actual mortality, expense, and investment experience is more favorable than assumed in pricing

A dividend is a return of excess premium. It is paid when the insurer's actual mortality, expense, and investment results are more favorable than the assumptions used to price the policy. Dividends are not guaranteed.

Correct answer: Premium payments stop, the policy is fully paid up, and coverage continues for life.

Paid-up-at-65 is a limited-pay whole life design: premiums are compressed into the years up to age 65, after which the policy is fully paid up but the coverage continues for the insured's entire life.

Correct answer: Premiums payable monthly or more often, the policy marked "industrial policy" or "weekly premium policy," issued by an insurer collecting through an agent's debit system

Fla. Stat. § 627.502(1) defines industrial life insurance as life insurance written under policies with premiums payable monthly or more often, bearing the words "industrial policy" or "weekly premium policy" or similar, issued by an insurer operating under a system of collecting a debit by its agent.

Correct answer: July 1, 2021

Fla. Stat. § 627.502(3) provides that beginning July 1, 2021, a life insurer may not write a new policy of industrial life insurance. Insurers servicing existing industrial policies must continue to report on them.

Correct answer: No. The cash value belongs to the policy and is not a side account; the owner's access to it is through the policy's nonforfeiture options.

Cash value is not a side account the owner can add to or withdraw from freely; it belongs to the policy. If the owner stops paying premiums, the cash value funds one of the nonforfeiture options: cash surrender, reduced paid-up, or extended term.

Correct answer: They share the same underlying guarantees and differ only in how the level premium is scheduled.

The traditional whole life family differs only in how the level premium is scheduled: for life, for a limited period, or in a single payment. The underlying guarantees of lifelong coverage, a fixed death benefit, and a guaranteed minimum cash value are the same across all three.

Correct answer: Its present value must be at least equal to the cash surrender value the policy then provides.

Fla. Stat. § 627.476(5) provides that any paid-up nonforfeiture benefit available on default of a premium due on a policy anniversary must have a present value, as of that anniversary, at least equal to the cash surrender value then provided by the policy.

Correct answer: Because term pays only if the insured dies before the policy's end date, whereas whole life has no end date as long as premiums are paid.

Term insurance provides a death benefit only if the insured dies while the policy is still in force, before its end date. Whole life is permanent: as long as premiums are paid, it stays in force for the insured's entire life, so the death benefit is guaranteed rather than contingent on timing.

Correct answer: The present value of the future guaranteed benefits, including any existing paid-up additions, less any indebtedness to the insurer secured by the policy

Fla. Stat. § 627.476(4)(c) provides that for a policy paid up by completion of all premium payments (or continued under a paid-up nonforfeiture benefit), the cash surrender value available within 30 days after any anniversary must be at least the present value of the future guaranteed benefits, including existing paid-up additions, decreased by any indebtedness to the insurer on account of or secured by the policy.

Correct answer: The premium never increases, even as the insured ages and mortality risk rises.

The level premium is one of whole life's three guarantees: it never increases, even as the insured ages and the mortality risk the insurer carries rises.

Correct answer: At the time the contract is made; it need not exist after the inception of coverage

Fla. Stat. § 627.404(1) allows a person to procure insurance on another's life only if the benefits are payable to someone who had an insurable interest at the time the contract was made, and it states that the insurable interest need not exist after the inception date of coverage. A party to a contract to buy or sell an interest in a business entity has an insurable interest in the other party's life for the purpose of that contract.

Correct answer: A smaller death benefit, fully paid, that remains in force for the insured's entire life

Reduced paid-up uses the cash value to purchase a smaller amount of fully paid whole life insurance. No further premiums are due and the reduced coverage lasts for life. Extended term keeps the original amount for a limited time; cash surrender ends coverage.

Correct answer: Yes; Fla. Stat. § 627.501 makes § 627.476 applicable to industrial life insurance, with a 3-full-year premium threshold instead of 1.

Fla. Stat. § 627.501 states that the industrial life part applies only to industrial policies but that certain sections, including § 627.476, also apply to industrial life insurance. Within § 627.476(2)(a), the nonforfeiture benefit is triggered after premiums have been paid for 3 full years in the case of industrial insurance, versus 1 full year for ordinary insurance.

Correct answer: The owner receives the cash value as a lump sum and the coverage ends.

Cash surrender is the nonforfeiture option that pays the accumulated cash value to the owner as a lump sum. The policy is surrendered, so no death benefit remains.

Correct answer: Dividends received above the total premiums paid are taxable income.

Dividends are treated as a return of premium and are not taxable income unless they exceed total premiums paid. Once cumulative dividends pass that threshold, the excess is taxable.

Correct answer: On a schedule set out in the policy from the day it is issued

The guaranteed minimum cash value grows on a schedule that is set out in the policy at issue. It is one of the three guarantees, and it does not depend on market performance or on dividends.

Correct answer: No. Fla. Stat. § 627.522(1) prohibits an industrial life policy from excluding or restricting payment of the face amount because death occurred due to the act of another.

Fla. Stat. § 627.522(1) provides that an industrial life insurance policy may not exclude or restrict payment of the face amount by reason of the fact that the death of the insured occurred due to the act of another.

Correct answer: Yes; a stock insurer may offer a participating line of policies that can pay dividends.

A participating policy is issued by a mutual insurer or as a participating line from a stock insurer. Either way, dividends are not guaranteed.

Correct answer: Straight life requires premiums for the insured's entire life, while single-premium whole life is paid in one lump sum at issue with no future premium obligation.

Straight (ordinary) whole life premiums are payable for the insured's entire life. Single-premium whole life pays the entire cost in one lump sum at issue, leaving no future premium obligation. Both carry the same whole life guarantees, including cash value.

Correct answer: No; for industrial insurance the requirement arises only after premiums have been paid for at least 3 full years.

Fla. Stat. § 627.476(2)(a) requires the paid-up nonforfeiture benefit after premiums have been paid for at least 1 full year in the case of ordinary insurance or 3 full years in the case of industrial insurance. At 2 full years, an industrial policy has not yet reached the threshold.

Correct answer: Straight whole life, with premiums payable for the insured's entire life

Straight whole life is also called ordinary whole life. Its premiums are payable for the insured's entire life.

Correct answer: The cash value, built from the excess premiums of the early years and credited with interest, subsidizes the cost in those later years.

The excess of the level premium over the pure cost of insurance in early years is set aside and credited with interest, building the cash value. That cash value subsidizes the premium in later years when the pure cost of insurance would otherwise exceed a level premium.

Correct answer: To require the insurer to give an owner who stops paying premiums one of several options for the cash value rather than simply keeping everything paid in

Nonforfeiture law protects the cash value: if the owner stops paying premiums, the insurer must offer a cash surrender, a reduced paid-up policy, or extended term insurance instead of keeping everything that was paid in.

Correct answer: Yes; upon proper request within 60 days of the due date, the insurer may substitute an actuarially equivalent alternative paid-up benefit that provides a greater amount or longer period of death benefits.

Fla. Stat. § 627.476(2)(a) allows the company, upon proper request not later than 60 days after the due date of the premium in default, to substitute an actuarially equivalent alternative paid-up nonforfeiture benefit which provides a greater amount or longer period of death benefits (or, if applicable, a greater amount or earlier payment of endowment benefits).

Correct answer: It is fully paid up; no further premiums are due and the coverage continues for life.

20-pay life is a limited-pay whole life design: premiums are compressed into 20 years. Once the 20 payments are complete, the policy is fully paid up and coverage continues for the insured's entire life.

Correct answer: Each optional benefit and charge must be separately priced, with the prices set forth in the policy in a clear, conspicuous, and understandable manner.

Fla. Stat. § 627.522(2) requires that each of the optional benefits and charges provided under an industrial life insurance policy be separately priced, and that the prices be set forth in the policy in a clear, conspicuous, and understandable manner.