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Lesson 9: Florida Life Policy Underwriting, Policy & Claims Exam Guide with Best Solutions
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Lesson 9: Florida Life Policy Underwriting, Policy & Claims Exam Guide with Best Solutions Traditional Cost Comparison Method - Correct Answer A life insurance cost comparison method that accounts for the various cost factors of a whole life policy, except for interest earned over time, also known...

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  • July 22, 2024
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  • 2023/2024
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Lesson 9: Florida Life Policy Underwriting, Policy &
Claims Exam Guide with Best Solutions
Traditional Cost Comparison Method - Correct Answer A life insurance cost comparison
method that accounts for the various cost factors of a whole life policy, except for interest earned over time, also known as the 'time value of money,' making the comparison less accurate. The 'net payment cost index' is calculated using the traditional cost comparison method.
Interest-Adjusted Cost Comparison Method - Correct Answer A life insurance cost comparison method that has emerged over time as more accurately comparing the true cost of similar life insurance policies because it takes into account the 'time value of money,' based on the insurer's projected rate of return in interest for the policy. The 'surrender cost index' is calculated using the interest-adjusted cost comparison method.
Time Value of Money - Correct Answer A financial concept that states that receiving a dollar today is more valuable than receiving the same one dollar in the future. This is because, if invested today, the invested dollar will earn interest and increase in value over time, as opposed to receiving the same dollar in the future with no earned interest.
Essentially, time adds value in that interest builds over time, thus providing a larger return for money invested now. Using compounding interest, time increases the value of
money exponentially, thus the more time money has to reinvest and grow, the larger its value will be in the future.
Cost Index - Correct Answer Takes into account the various cost factors of a life insurance policy and computes an 'index number' to more easily compare similar whole life insurance policies.
As an industry standard, cost index charts compare whole life policies based on each $1,000 increment of the policy's face amount for 10-year and 20-year time periods, using an average annual rate of return in interest of 5%. In determining the cost of a policy, the lower the index number, the less costly it will be to the policyowner.
Surrender Cost Index - Correct Answer Based on the assumption that a policyowner will
surrender a whole life policy in the future. A lower surrender cost index number equates to a less expensive policy in comparison to other policies, thus providing a higher cash value once surrendered, assuming the policyowner does not keep the policy in force until death. The focus is on the surrender value of the policy for the policyowner, as opposed to the death benefit amount for the beneficiary.
Net Payment Cost Index - Correct Answer If a policyowner intends to keep the whole life policy in force until the death of the insured, the net payment cost index is used to compare similar policies based on the death benefit provided to the beneficiary. As is the case for the surrender cost index, a lower net payment cost index number equates to a less expensive policy in comparison to other policies, thus providing a higher death benefit to the policy's beneficiary upon the death of the insured. The focus is on the amount of death benefits payable to the policy's beneficiary, as opposed to the surrender value of the policy for the policyowner.
Illustration - Correct Answer A presentation or depiction that includes non-guaranteed elements of a life insurance policy over a period of years.
Non-Guaranteed Elements - Correct Answer Include premiums, benefits, values, credits
or charges under a life insurance policy that are not guaranteed or determined at policy issue.
Guaranteed Elements - Correct Answer Include premiums, benefits, value, credits or charges under a life insurance policy that are guaranteed and determined at policy issue.
Basic Illustration - Correct Answer A ledger or proposal used in the sale of a life insurance policy that shows both guaranteed and non-guaranteed elements.
Supplemental Illustration - Correct Answer An illustration furnished in addition to a basic
illustration that may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration.
In force illustration - Correct Answer An illustration furnished at any time after the policy that it depicts has been in force for one year or more.
Policy Summary - Correct Answer A life insurance policy summary reviews the specific product being purchased in detail along with identifying the agent, insurer, any riders and specifics about premiums, exclusions, dividends, cash values, and benefit amounts.
In order to make a more informed decision when purchasing whole life insurance, the policy summary is also required to include 'cost index' charts which compare similar whole life policies based on the overall cost of each policy to the policyowner.
Buyer's Guide - Correct Answer A life insurance buyer's guide is a generic document that explains basic terms and definitions related to life insurance to better educate consumers when purchasing life insurance.
Inspection Receipt - Correct Answer Sometimes an applicant wishes to review, or 'inspect' a prospective policy before providing the initial premium to the insurer. When this occurs, an inspection receipt is provided to the applicant by the insurer.
An inspection receipt is proof that an application has been received by the insurance company and in return, a policy has been delivered to the applicant for inspection purposes only. An inspection receipt states that the insurance company is not legally obligated to cover any loss by the applicant until it also receives the applied-for policy's premium.

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