4 - Life Insurance Premiums, Proceeds and Beneficiaries.
C is trying to determine whether to convert her convertible term life policy to whole life insurance using her original age or attained age. What factor would affect her decision the most?
The cost (In this situation, the cost of insurance is most important when an insured owner is trying to decide whether to convert term insurance at the insured's original age or the insured's attained age.)
Which of these statements INCORRECT regarding the federal income tax treatment of life insurance?
Entire cash surrender value is taxable.
If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the Uniform Simultaneous Death Act?
Insured's contingent beneficiary.
A policy owner is allowed to pay premiums more than once year under which provision?
Made of Premium.
On a life insurance policy, who is qualified to change the beneficiary designation?
Policyowner. ( The policyowner has the right to change the beneficiary designation. However, consent may needed by the current beneficiary if designated as irrevocable.)
Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?
"Life Income". (The Life Income settlement option pays a specified amount to the annuitant with no residual value payable to a beneficiary.)
T is covered by an Accidental Death and Dismemberment (AD&D) policy that has an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?
"Request of the change will be refused". (An irrevocable designation may not be changed without the written consent of the beneficiary.)
A policyowner is able to choose the frequency of premium payments through what policy feature?
Premium Mode. ( Premium Mode is the feature that allows the policyowner to select the timing of premium payment, such as monthly, quarterly, annually etc.)
The Common Disaster clause provides that if both the insured and the named beneficiary were to die in a common accident, which of the following is true?
"The estate taxes in the beneficiary's estate may be reduced"(Under the Common Disaster clause, the estate taxes in the beneficiary's estate may be reduced.)
When can a policy owner change a revocable beneficiary?
Anytime.
P and Q are married and have three children. P is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the contingent beneficiary. P, Q, and R are involved in a car accident and Q and R are killed instantly. The Accidental Death benefits will be paid to?
P only. ( In this situation, benefits will be paid to P, because P survived the accident and he's the primary beneficiary.)
J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct?
The gross premium is higher on a monthly payment mode as compared to being paid annually. ( A premium payment mode that is more frequent than an annual payment will result in a higher gross premium.)
K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?
"Proceeds will be payable to K's estate if P dies within a specified time". (Under the Common Disaster provision, proceeds will be payable to K's estate if P dies within a specified time.)
K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?
"Proceeds will be payable to K's estate if P dies within a specified time". (Under the Common Disaster provision, proceeds will be payable to K's estate if P dies within a specified time.)
Quarterly premium payments increase the annual cost of insurance because?
Interest to the insurer is decreased while the administrative costs are increased. (The higher the frequency of payments, the higher the premiums.)
A policy owner would like to change the beneficiary on a Life insurance policy and make the change permanent. Which type of designation would fulfill this need?
Irrevocable.
An insured covered by life insurance has just died. What will happen if the primary beneficiary had already died before the insured and contingent beneficiary?
Proceeds will go to the contingent beneficiary. ( In this situation, the contingent beneficiary will receive the proceeds.)
J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct?
The gross premium is higher on a monthly payment mode as compared to being paid annually. (A premium payment mode that is more frequent than an annual payment will result in a higher gross premium.)
Which statement regarding the Change of Beneficiary provision is true?
The policyowner can change the beneficiary. (A policyowner may change a beneficiary at any time. However, consent may be needed by the current beneficiary if designated as irrevocable.)
How would a contingent beneficiary receive the policy proceeds in an Accidental Death and Dismemberment (AD&D) policy?
If the primary beneficiary dies before the insured.
On a life insurance policy, who is qualified to change the beneficiary designation?
Policyowner.
A level premium indicates?
"the premium is fixed for the entire duration of the contract" (A level premium means that the premium remains fixed through the life of a policy.)
Which premium schedule results in the lowest cost to the policyowner?
Annual. ( If the policyowner chooses to pay the premium more than once per year (example monthly, quarterly, semi-annually) there normally will be an additional charge because the company will have additional charges in billing and collecting the premium payments.)
Which of these statements is INCORRECT regarding the federal income tax treatment of life insurance?
Entire cash surrender value is taxable. (The total cash surrender value is NOT taxable. The interest gained is taxable.)
What kind of life insurance beneficiary requires his/her consent when a change of beneficiary is made?
Irrevocable beneficiary. ( An irrevocable designation may not be changed without the written consent of the beneficiary.)
A policyowner is allowed to pay premiums more than once a year under which provision?
Mode of Premium. ( The Mode of Premium provision permits an insured to pay premiums more than once every year.)
J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct?
The gross premium is higher on a monthly payment mide as compared to being paid annually.
K has a life insurance policy where her husband is beneficiary and her daughter is contingent beneficiary. Under the Common Disaster clause, if K and her husband are both killed in an automobile accident, where would the death proceeds be directed?
Daughter. (With a common disaster provision, a policyowner can be sure that if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary.)
What percent of personal life insurance premiums is usually deductible for federal income tax purposes?
0% . ( In general, personal life insurance premiums are NOT deductible for federal income tax purposes.)
Which statement is true regarding a minor beneficiary?
Normally, a guardian is required to be appointed in the Beneficiary clause of the contract. (In most cases, insurers require that a guardian be appointed in the Beneficiary clause of the policy or that a guardian be designated in the will.)
An insured covered by life insurance has just died. What will happen if the primary beneficiary had already died before the insured and contingent beneficiary?
Proceeds will go to the contingent beneficiary.
J would like to maintain the right to change beneficiaries. Which beneficiary designation should be used?
Revocable ( With a revocable beneficiary designation, the policyowner may change the beneficiary at any time without notifying or getting permission from the beneficiary.)
M purchased an Accidental Death an Dismemberment (AD&D) policy and named his son as beneficiary. M has the right to change the beneficiary designation at anytime. What type of beneficiary is his son?
Revocable.
If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the Uniform Simultaneous Death Act?
Insured's contingent beneficiary. ( Under the Uniform Simultaneous Death Act, if both insured and primary beneficiary are killed in the same accident and there is insufficient evidence to show who died first, policy proceeds will be paid as if the insured died last. In other words, the proceeds will be paid to the secondary or contingent beneficiary.)
