5/4 Quiz
Of the following settlement options for life insurance, which can result in the insurer paying more in benefits than the principal plus interest?
If the beneficiary outlives their life expectancy, the insurer may pay benefits out-of-pocket. The correct answer is: Life income
What happens if a policyowner does not specify a settlement option for their life insurance policy?
If the policyowner does not choose a settlement option for the beneficiary, then the policy proceeds default to payment in lump-sum. The correct answer is: The policy proceeds default to lump-sum payment.
Which of the following is false regarding the period certain life insurance settlement option?
If the recipient dies before the period ends, then a contingent beneficiary would continue to receive payments until the period lapses. The correct answer is: If the recipient dies before the period ends, the remaining balance is forfeited.
Which of the following settlements of a life insurance policy is taxable?
Life benefits paid to a beneficiary are generally tax-free. However, with an interest-only settlement, installment payments are taxable because they are 100% interest earned on the principal. The correct answer is: Interest-only
All of the following is true regarding lump-sum payment of life insurance policy proceeds, EXCEPT:
Life insurance proceeds received in a lump-sum distribution are not taxed. The correct answer is: Distribution is taxed.
All of the following are true regarding the period certain life insurance settlement option, EXCEPT:
Longer payment periods result in lower payments. The correct answer is: Shorter payment periods result in lower payments.
Which of the following is not a living benefits option for using cash value in a life insurance policy?
Section 1035 of the Internal Revenue Code allows for certain exchanges without recognizing a gain or loss for tax purposes. 1035 exchanges are not living benefit options. The correct answer is: 1035 policy exchange
_______________ allow the policy proceeds to be retained by the insurer and paid out gradually.
Settlement options allow the policy proceeds to be retained by the insurer and paid out gradually. The correct answer is: Settlement options
Which life insurance settlement option uses an annuity to pay policy proceeds in which the payment amount is specified instead of a period of time?
The fixed-amount installment option uses an annuity to pay the policy proceeds, but the payment amount is specified instead of period of time. The correct answer is: Fixed-amount installment
Which life insurance settlement option uses an annuity to pay policy proceeds to the beneficiary for a set number of years?
The fixed-period, or period certain, installment option uses an annuity to pay the policy proceeds to the beneficiary for a certain number of years. The correct answer is: Period certain
A settlement option that would leave the proceeds of the insurance policy with the insurer and the insurer would pay interest to the beneficiary on an installment basis is called:
The interest only option leaves the proceeds with the insurer and pays the interest to the beneficiary on an installment basis. The correct answer is: Interest only option
Of the following life insurance settlement options, which pays only the interest earned on the principal in periodic payments?
The interest-only settlement option invests the principal (the death benefit) and pays out the growth on the principal in installments to the beneficiary. The correct answer is: Interest-only
Which settlement option pays the growth on the principal in installments?
The interest-only settlement option invests the principal (the death benefit) and pays out the growth on the principal in installments to the beneficiary. The correct answer is: Interest-only
This annuity provides a husband and wife with lifetime income while either spouse is alive:
The joint and survivor annuity will provide income to a couple for their entire lives. The correct answer is: Joint and survivor annuity
All of the following are true regarding the fixed-amount installment life insurance settlement option, EXCEPT:
The larger the payment amount, the shorter time period payments will be received. The correct answer is: The larger the payment amount, the longer time period payments will be received.
Which of the following best describes which individual(s) are permitted to choose the settlement option for a life insurance policy?
The policyowner chooses the settlement option. If the policyowner has not chosen a settlement option, the beneficiary may select the settlement option. The correct answer is: Both the beneficiary and the policyowner
Who may choose the settlement option for a life insurance policy?
The policyowner chooses the settlement option. If the policyowner has not chosen a settlement option, the beneficiary may select the settlement option. The correct answer is: The policyowner and the beneficiary
A fixed period option pays policy proceeds in equal installments over a period of months or years. Which of the following is NOT considered when determining the amount of the installment?
The relationship of the beneficiary to the insured is not considered when the amount of the installment is determined. The correct answer is: The relationship of the beneficiary to the insured
All of the following are life insurance settlement options, EXCEPT:
There are four settlement options: interest only, fixed-period installments (period certain), fixed-amount installments and life income. An automatic premium loan is a policy loan provision. The correct answer is: Automatic premium loan
What life insurance settlement option permits the insurer to retain the policy proceeds, which become principal, and pays out only the growth on the principal to the beneficiary on a regular basis?
With the interest only option, the insurer retains the policy proceeds, which become the principal, and pays out only the growth on the principal to the beneficiary on a scheduled basis such as monthly or annually. The correct answer is: Interest only