Life Insurance Basics and Policy Types
Underwriting and the application
Field underwriting starts with the producer: never answer questions for the applicant and never withhold known facts. The application has general information, medical history, and the agent's report. The MIB is a coded membership database - not a credit bureau - and requires a disclosure and signed authorization. A conditional receipt provides coverage as of the application date only if the proposed insured proves insurable. The entire contract clause limits the contract to the policy, attached application, and riders.
Provisions exam writers love
Free look; grace period (commonly 30–31 days); reinstatement (back premiums plus evidence of insurability); incontestability after two years; misstatement of age or sex (benefit adjusted, not voided); suicide clause (typically two years); policy loans (interest accrues, death benefit reduced); automatic premium loan; nonforfeiture options (cash surrender, reduced paid-up, extended term); dividend options; and settlement options (lump sum, interest only, fixed period, fixed amount, life income).
Policy types
Term: level, decreasing, increasing, renewable, convertible, return of premium - pure protection, no cash value. Whole life: level premium, guaranteed cash value and death benefit. Universal life: flexible premium and adjustable death benefit; Option A is a level death benefit, Option B adds cash value to the face amount. Variable life/VUL: separate account, securities registration, prospectus, no guaranteed cash value. Indexed UL: credited by an index subject to a cap, floor, and participation rate. Also know endowment, family income, juvenile, group, modified/graded premium, and survivorship (second-to-die) contracts.
Rule of thumb
Cash value plus face amount: under a level (Option A) death benefit the beneficiary receives the face amount only; under an increasing (Option B) benefit the insurer pays face amount plus cash value.