Quiz 19: Mortality Risk Management: Individual Life Insurance and Group Life Insurance

In life insurance policy, if the insured dies during the grace period, the amount of the premiums past due need not be paid and the entire face amount of the policy will be paid to the beneficiary.

The difference between the reserve at any point in time and the face amount of the policy is known as the protection element for the insurer, and as the net amount at risk for the insured.

With universal, current assumption, and variable universal life insurance policies, the policyowner may discontinue premium payments at any time without lapsing the policy, as long as the surrender value is sufficient to cover the next deduction for the cost of insurance and expenses.

In variable life insurance, the assumed rate of return is generally a rate necessary to maintain the level of cash values found in a traditional fixed-dollar straight life contract.

The accumulation value and cash value of current assumption whole life insurance policies are determined in the same manner as for variable life policies.

The current mortality rate, in universal life, can be any amount determined periodically by the insurer as long as the charge does not exceed the guaranteed maximum mortality rate specified in the contract.

Single premium life policies are mainly sold as business insurance where there is a need to pay fully for a policy by a certain date, such as the time an employee will retire.

The amount at risk for the insurer (that is, the protection element) increases as the cash value element of a whole life insurance policy increases with age.

Some life insurance policies include dividends, and these policyholder dividends are paid after federal income taxation.

In a one-year term life insurance, an insurer promises to pay $100,000 at the death of each insured who dies during the year.If past experience indicates that 0.1 percent of a group of young people will die during the year, one death may be expected for every 1,000 persons in the group.If a group of 300,000 is insured, what is the premium amount that the insurer must collect per policyowner? (Assume that premiums are based only on morality)

The premiums of life insurance policies increase as the insured grows older.

Type A death benefit option in a universal life policy is intended to produce an increasing death benefit.

Universal life insurance contracts were introduced during a period of historically high, double-digit interest rates.

The theory of insurance is that the losses of the few can be paid for by relatively small contributions from the many.

The renewability option gives the policyholder the right to renew the life insurance policy for a specified number of additional periods of protection, at a predetermined schedule of premium rates, without new evidence of insurability.

The purpose of the grace period is to prevent unintentional lapses of life insurance policies.

Mortgage protection insurance is a decreasing term insurance.

The changes in basic amount provision specifies the conditions under which a policyowner can change the total face amount of the policy.Any requested increases in the face amount of the policy takes place on a monthly anniversary date.

The most common type of group life insurance offered by employers is yearly renewable term coverage.

Current assumption whole life policy is sometimes referred to as interest-sensitive whole life policy because of its participatory investment feature.