Ch 3

An insured purchases a 20-Pay Life Policy with a face amount of $25,000 and an annual premium of $1,000. The insured dies 15 years later when the cash value is $5,000. What amount will the beneficiary receive?

$25,000 If death occurs at any point prior to age 100, the beneficiary receives the death benefit of $25,000.

A married couple purchases a $250,000 Joint Life Policy. When the older of the two dies, what is the amount payable to the survivor?

$250,000 A Joint Life Policy insures two lives. It is the order of death that is significant in a Joint Life Policy. The entire death benefit is paid at the death of the first insured, regardless of age.

If Alvin purchases a Variable Universal Life Policy with a face amount of $250,000, and chooses death benefit Option B, upon his death the amount of the benefit payable to the beneficiary would be _________ if the policy had $25,000 in cash values.

$275,000 With an Option B death benefit, the beneficiary will receive the face amount plus the cash value as of the date of death.

A $100,000 policy with a waiver of premium rider and $30,000 of cash value is in force. The base policy costs $750 and the rider is $50. What is the total premium annually the policyowner must pay to keep the policy in force if the policyowner decides to cancel the rider?

$750 Riders such as the waiver of premium are a provided benefit for an additional cost, therefore if canceled, the annual premium would then become $750 ($800 - $50).

Which of the following term life insurance policies would have the lowest 1st-year annual premium, all other factors being equal?

1-year The 1-year term life insurance policy would have the lowest first-year premium of the choices provided. In essence, one year of coverage is less risky to the insurer than being locked in to more years.

The applicant/insured wants a term life insurance policy that will last for 20 years and is willing to risk that the insurer is managing its financial affairs properly and is not concerned about the premium of the policy down the road so long as there is a cap on how much it can ultimately become, so the producer should show him/her a(n):

20 year indeterminate premium term life insurance policy Indeterminate premium term can have the premium fluctuate between the current charge and a maximum rate stated in the policy based on the insurer's mortality, expenses, and investment returns.

Which of the following Whole Life insurance policies has the highest annual premium payment per $1,000 of coverage for a 35-year-old, all other factors being equal?

20-Pay Ordinary Whole Life The shorter the premium-paying period, the higher the annual premium.

A Living Needs Accelerated Benefit Rider allows the early payment of a portion of the face amount of a life insurance policy before death, should the insured become terminally ill with less than how many months to live?

24 A Living Needs Accelerated Benefit Rider allows the early payment of a portion of the face amount of a life insurance policy before death, should the insured become terminally ill with less than 24 months to live.

Life Settlement proceeds will be sent to the owner within how many business days after the life settlement provider has received acknowledgment that ownership of the life insurance policy has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract?

3 Life Settlement proceeds will be sent to the owner within 3 business days after the life settlement provider has received acknowledgment that ownership of the life insurance policy has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract.

The Double Indemnity Rider requires that the insured die within _____ days of the accident.

90 Death must occur within 90 days of the accident for the Accidental Death (Double Indemnity) Rider benefit to be paid.

Term Life insurance is designed to provide coverage for ___________.

A specified period of time for example, 10 year, 20 year, or 30 year term.

All of the following are true regarding the accelerated death benefit rider, except:

Accelerated death benefits have to be repaid if the insured's health improves Accelerated death benefits do not have to be repaid if the insured's health improves.

Which of the following riders is used to increase the death benefit if death is the result of an unintended fatal injury, paying a multiple of the face amount?

Accidental Death If death is ruled to be accidental, the Accidental Death Rider pays a multiple (usually double) of the death benefit of the underlying policy.

Which of the following situations will require proof of insurability?

Adjusting the face amount up on a Universal Life insurance policy with Option A death benefit selected Requesting an increase in face amount always requires proof of insurability. The other scenarios are when the death benefit is driven up based on policy performance which essentially is a payout of the cash value growth.

A 22-year-old applicant for life insurance has a limited budget for premiums. Which of the following policies would provide for the highest face value, for the lowest premium amount?

Annually Renewable Term Term insurance does not accumulate cash value. The 'pure premium' purchases the highest amount of insurance compared to the other forms of life insurance. The shortest term period offers the lowest cost per $1,000 of coverage at the outset and in the early years.

Which of the following is a true characteristic of a Variable Universal Life policy?

As long as there is sufficient cash value to cover policy expenses when due, the insured is not required to pay the planned premium A characteristic of universal life insurance is that there is no requirement to pay any premium other than the first. As long as there is sufficient cash value to pay policy expenses (cost of insurance, riders, and other fees) when due, the policy remains in force.

With a Variable Life Policy, which of the following is guaranteed?

Death benefit In a VL policy a death benefit is guaranteed as long as all premiums are paid on time. There is both a guaranteed minimum death benefit and a higher stated face amount. The face amount and cash value are not guaranteed and could be higher or lower than expected.

As the cash value increases in a traditional whole life policy, the net amount at risk ____________, but the face amount of the policy would remain the same.

Decreases As the cash value increases, the net amount at risk decreases, but the face amount of the policy would remain the same. the net amount at risk is the face value minus the cash value

Credit life insurance is a special form of what type of term life insurance?

Decreasing Credit life insurance is a special form of decreasing term.

If an insured uses a life insurance policy's accelerated benefits, what does the beneficiary receive at time of claim?

Face amount less accelerated benefits less insurer's interest charges After the accelerated benefits are paid and any lost interest to the insurer is deducted, the insurer must pay the balance of the face amount to the beneficiary.

Ed purchased policies on behalf of his grandchildren. He wanted to be certain they could purchase additional policies at specified ages. He was able to do this by adding which rider?

Guaranteed Insurability Rider The Guaranteed Insurability Rider would allow his grandchildren at future specified dates, ages, or events to purchase additional amounts of insurance without evidence of insurability.

C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. He applies for and receives a $10,000 policy loan from the insurer. All of the following about this transaction are true, except:

If C were disabled, his beneficiaries would receive $70,000, less any outstanding interest charges Policy loans carry a fixed or variable loan interest rate. If the policy is surrendered or a death claim is paid, the proceeds are reduced by the outstanding policy loan and policy loan interest.

Which of the following types of term life insurance can be written as a rider to provide cost of living or return of premium benefits?

Increasing term Increasing term can be issued as a rider on a policy to provide cost of living or return of premium benefits.

A participating life insurance policy has a long-term care rider. The insured qualifies for the benefit. Where does the initial benefit money come from?

It is an advance of the face amount of the policy The Long-Term Care Rider's initial benefit is from an advance of the death benefit, after which additional dollars are paid out by the insurer. The amount the insurer is responsible to pay out maximum is determined at the time the rider is acquired. The bigger the benefit the more the rider costs.

How does an Option A death benefit feature of a Universal Life policy work?

It pays out the policy's face amount Option A in a Universal Life Insurance policy pays out a level death benefit, while Option B pays out an increasing death benefit, the face amount plus the cash values.

Of the following, which best describes a Straight Whole Life Policy?

Level guaranteed premium and face value for the life of the insured A traditional Straight Whole Life Policy has as its primary characteristic, fixed (i.e. guaranteed) premiums and death benefit over the life of the policy. It has substantial guarantees, but virtually no flexibility.

Quentin, age 65, has a life insurance policy he no longer needs and no longer can afford but he does have a need for cash. XYZ Inc. purchased his policy for less than the face amount but more than the cash value and is now the policyowner and premium payor. This was which of the following transactions?

Life Settlement A Life Settlement is like a Viatical Settlement except it does not involve a terminally ill insured.

If the premium payable for the first few years of the policy (e.g. 3-5) are lower than an ordinary whole life policy in order to make it more affordable, what premium paying method was used?

Modified With Modified Premium, the premium payable for the first few years of the policy (3-5) are lower than an ordinary whole life policy in order to make it more affordable.

All of the following are riders that can provide for additional temporary coverage on a new or existing policy, except:

Neighbor Term riders require that the policyowner have an insurable interest in the person covered under the rider.

What type of term life insurance policy has a policy premium that can be increased to a new premium level for the remainder of the term?

Non-guaranteed level Non-guaranteed level premium has premiums that can be increased to a new premium level for the remainder of the term.

Whole Life is also known as ________ protection.

Permanent Whole Life is designed to provide the insured protection throughout his or her life. Other types of permanent protection are Indeterminate Premium and if designed properly Adjustable Life.

Which of the following is not a true characteristic of permanent protection Whole Life?

Premiums are flexible Flexible premiums are not a characteristic of a Whole Life Insurance Policy.

The face amount of an Ordinary Whole Life Policy _________ over the life of the policy.

Remains the same The face amount is the same as the death benefit and is the amount payable to the beneficiary upon the insured's death. Over the life of the policy it remains level.

Money accumulated in a permanent policy that the policyowner may borrow via a policy loan or receive if the policy is surrendered, refers to:

The Cash Value Premiums in excess of what is necessary to cover the cost of pure insurance (i.e. term) create cash value as an internal savings component in all permanent policies.

All of the following regarding convertible term life insurance is true, except:

The conversion can take place at any time The right to convert the existing term policy to a permanent policy without evidence of insurability is only available during the conversion period specified in the contract.

Decreasing term

The death benefit decreases, but premiums remain level for the policy term. Often such policies are sold as mortgage protection with the amount of insurance decreasing as the balance of the mortgage decreases.

In all cases upon the insured's death, the beneficiary receives which of the following?

The face amount of the policy The face amount of the policy is paid out to the beneficiary. The endowment value is paid out to the policyowner.

Variable Whole Life and Variable Universal Life are similar, except for:

The guaranteed death benefit Since all premiums are credited to a separate account, there is no guaranteed minimum death benefit in a Variable Universal Life policy.

All of the following are reasons why a new policy issued through a term conversion costs more, except:

The insured's health has changed for the worse Conversion is done without proof of insurability.

Who can change the premium on a fixed premium policy?

The insurer who issued the policy With Fixed Premium, the premium amount is determined by the insurance company and while they do not have to be level, they cannot be changed by the policyowner.

Which of the following statements about Equity Indexed Life insurance is TRUE?

The interest credited to the policy is based off of the performance of a stock market index like the S&P 500 The attraction of this policy is that potentially the interest credit can be higher than what a typically insurer's general account can pay by tying the potential interest credit to a stock market index. Based on the design of the policy, if the index falls in value there is no negative impact to existing cash values.

In a life settlement transaction who represents only the owner and owes a fiduciary duty to the owner to act in the best interest according to the owner's instructions, regardless of the manner in which they are compensated?

The life settlement broker A life settlement broker represents only the owner and owes a fiduciary duty to the owner to act in the best interest according to the owner's instructions, regardless of the manner in which the broker is compensated.

How is Variable Whole Life different from Variable Universal Life?

The policy has a guaranteed minimum face amount Generally speaking, Variable Whole Life has a guaranteed minimum death benefit provided that all premiums are paid in full and on time as scheduled, whereas a Variable Universal Life policy has no guaranteed death benefit.

Who receives the endowment value of a whole life policy?

The policyowner The policyowner retains all rights in the policy up to and including receiving the endowment proceeds.

All of the following are correct pertaining to Decreasing Term, except:

The premium declines throughout the term of the policy A decreasing term policy has a death benefit that reduces over a defined number of years, but the premium remains the same in all years.

Which one of the following life settlement contract applicant disclosures is false?

The proceeds from a life settlement are exempt from the claims of creditors The proceeds from a life settlement could be subject to the claims of creditors.

How long would a policyowner have to pay premiums on a term life policy to age 65 that was taken out at age 35?

To the earlier of the insured's death, or to age 65 The policyowner would pay premiums to the earlier of the insured's death, or to age 65.

Which of the following pays a current interest rate and also guarantees a minimum interest rate that will be credited to the cash values of the life insurance policy?

Universal Life Universal Life insurance has a current interest rate which is generally higher than the guaranteed minimum interest rate. It depends on the interest rates the insurer can earn on the assets in its general account.

How would a term policy normally be used to pay off a mortgage upon death?

Using the death proceeds after the insured has died Term can be used as mortgage insurance which typically provides a decreasing term benefit.

Which of the following is NOT a type of Term Life Insurance Policy?

Variable The question is asking about types of Term Policies which are: Level, Increasing, and Decreasing.

Which of the following policies offers the least guarantees?

Variable Universal Life Variable Universal Life has no guaranteed death benefit and no guaranteed cash values.

All of the following life insurance policies have a cash value that increases based on interest being credited to the cash value, except:

Variable Universal Life Variable Universal Life's cash values grow based on the performance of the separate accounts chosen by the policyowner, while the other three policies have interest credited to the cash values by the insurer.

What is the 'waiver of premium' called on a Universal Life insurance policy?

Waiver of Cost of Insurance Waiver of Cost of Insurance is a rider that waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled, usually after 6 months of continuous disability.

If an insured is concerned about being unable to pay the premiums on his or her whole life policy in the event of a total disability, which of the following riders should be added to the policy?

Waiver of Premium The Waiver of Premium Rider would waive premiums for a disabled insured. If the insured also wanted to replace income due to disability, then he or she would purchase the Waiver of Premium/Disability Income Rider.