Term life insurance types

Correct answer: It provides protection for a specified period and pays only if the insured dies during that period.

Term insurance is temporary protection for a specified period, such as one year, a set number of years, or to a stated age. The insurer pays the face amount only if the insured dies within that period; if the insured outlives it, no benefit is payable.

Correct answer: Nothing, because she outlived the term period

A term policy pays only if the insured dies during the term. Dana survived the 20-year period, so the coverage simply expires and no benefit is payable. An ordinary level term policy has no cash value and no premium refund.

Correct answer: Decreasing term

Decreasing term coverage falls over the term, usually monthly or yearly, while the premium remains level. That pattern matches a debt that is being paid down.

Correct answer: 30-year decreasing term

A mortgage balance falls over time, so decreasing term, whose death benefit declines on a schedule while the premium stays level, matches the need at a lower cost than level coverage for the full original amount.

Correct answer: It increases each year at renewal, based on the insured's attained age.

ART provides one year of coverage at a time, renewable each year. Each renewal is priced at the insured's attained age, so the premium rises every year.

Correct answer: Term buys only the death benefit for a limited period, with no savings element or cash value to fund.

Term is pure protection for a limited period. It has no savings element or cash value, so the premium covers only the cost of the death benefit during the term, plus the insurer's expense loading, with nothing set aside to build cash value. That is why term premiums are lower than permanent premiums at the earlier ages.

Correct answer: As a rider, such as a cost of living rider, attached to a base policy

Increasing term, whose death benefit grows by a fixed amount or percentage, is most often added as a rider, such as a cost of living rider or a return of premium rider, rather than sold on its own.

Correct answer: The policy lapses without any cash value.

Term insurance has no cash value component. If the premium is not paid, the policy generally lapses with nothing to return, unlike a permanent policy that has cash value.

Correct answer: Pays the outstanding loan balance, up to the policy maximum, to retire the debt

Credit life is term coverage, usually written on a group basis to the creditor, that pays the outstanding balance of the debt at the borrower's death, subject to policy maximums. Because the loan is being paid down, the coverage follows a decreasing balance.

Correct answer: The 30-year guarantee has the higher starting premium.

Term policies are sold with various premium guarantees, and the longer the guarantee, the higher the initial premium. A 30-year level premium has to cover the insured's higher mortality in the later years, so it starts higher than a 10-year guarantee.

Correct answer: A refund of the premiums she paid

Return of premium term charges a higher level premium than ordinary level term and refunds the premiums paid if the insured survives the term. Priya survived, so her premiums come back to her.

Correct answer: No new evidence of insurability

Annually renewable term is one year of coverage that the owner may renew each year without new evidence of insurability. The trade-off is that each renewal is priced at the insured's attained age.

Correct answer: It costs more than comparable level term, and the extra premium funds a refund of premiums if the insured survives the term.

ROP term is level term with a higher premium that refunds premiums if the insured survives the term. It remains term insurance: if the policy lapses early, the refund is usually forfeited or reduced, and on survival it returns the premiums, not the face amount.

Correct answer: One-year (annually renewable) term

Term can be as short as one year. One-year, annually renewable term provides coverage for a single year at the lowest starting premium, which matches a one-year need.

Correct answer: The coverage keeps declining on the original schedule, so it falls short of the new, larger balance.

Decreasing term follows its own scheduled reduction, set when the policy was issued. It does not track a new loan. After a refinance into a larger, longer loan, the death benefit keeps falling on the original schedule and leaves a gap.

Correct answer: Until the insured reaches age 65

Term coverage can run for a set number of years or to a specified age. Term to age 65 covers the insured until age 65, after which the coverage expires.

Correct answer: The insurer's amount at risk falls over the term, so the expected death claims are smaller.

With decreasing term, the death benefit shrinks over the term, so the amount the insurer would pay is lower in the later years, exactly when the insured is older and more likely to die. Lower expected claims mean a lower premium.

Correct answer: A cost of living rider that increases the death benefit over time

Increasing term grows the death benefit during the term, often to offset inflation, and is commonly added as a cost of living rider.

Correct answer: It rises sharply, because the new premium is based on his current, older age.

Level premium term fixes the premium only for the guarantee period. At the end, the policy either expires or renews at a much higher rate based on the insured's attained age.

Correct answer: Exchange the term policy for a permanent policy without proving insurability

Term plans may be convertible to a permanent plan of insurance. Conversion lets the owner exchange the term coverage for a permanent policy without new evidence of insurability.

Correct answer: Covering final expenses whenever the insured dies, even at age 95, while building a cash value

Term is temporary protection with no cash value. A need that lasts for life and that also calls for building cash value is matched by permanent insurance, not term.

Correct answer: ART premiums are recalculated at each renewal at her attained age, and term rates rise as the insured grows older.

ART renews each year at the insured's attained age. Because term rates rise as the insured grows older, the premium has climbed every year for 20 years, even though the death benefit stayed level.

Correct answer: $208,000

A return of premium rider is a form of increasing term: it adds the premiums paid to the death benefit. The beneficiary receives the $200,000 face amount plus $8,000 in premiums, for $208,000.

Correct answer: A larger starting death benefit, which then declines over the term

Because the death benefit of decreasing term falls over the term, it costs less than level term with the same starting face. The same premium therefore buys a larger initial death benefit, at the price of coverage that shrinks.

Correct answer: One year

Term protection can be as short as one year, or run for a set number of years such as 5, 10 or 20, or to a specified age. One-year term, renewable annually, is the shortest common form.

Correct answer: He loses coverage, and the premium refund is usually forfeited or reduced.

ROP term refunds premiums in full only if the insured survives the full term with the policy in force. If it lapses early, coverage ends and the refund is usually lost or reduced, depending on the policy's terms. Lapsing does not turn temporary term coverage into lifetime insurance.

Correct answer: Convertible 20-year level term

Level term gives a large, constant death benefit at a low cost for the 20-year need. The conversion feature lets Tom exchange it later for permanent insurance without proving insurability, which protects him if his health declines.

Correct answer: $14,000, to pay off the loan balance

Credit life generally pays the outstanding balance of the debt at the borrower's death, subject to the policy maximum. The balance is $14,000, which is within the $25,000 maximum, so the policy pays $14,000 to retire the loan.

Correct answer: Term and permanent

For the most part, life insurance plans are either term or permanent, or a combination of the two. Term is temporary protection; permanent insurance lasts for life and builds cash value.

Correct answer: Term costs less at first, but its rate rises with age and can eventually exceed the permanent premium.

Term premiums are lower than permanent premiums at the earlier ages, but term rates rise as the insured grows older. The permanent policy's premium stays level, so in later years the renewing term premium can exceed it.

Correct answer: No, term generally has no savings element or cash value, so a permanent policy would be needed for that goal.

As a rule, term policies offer a death benefit with no savings element or cash value. A client who wants cash value to borrow against needs permanent insurance, not term.

Correct answer: By a fixed amount or a percentage during the term

Increasing term raises the death benefit during the term by a fixed amount or a percentage, often to offset inflation.

Correct answer: The death benefit stays the same from the start of the term until the policy expires.

Level term provides the same death benefit throughout the term until the policy expires, typically with a premium locked in for the guarantee period.