Chapter 1 49
Jason has a Whole Life insurance policy with a face amount of $100,000, an annual premium of $1,000, and a cash value of $10,000. If he wants to borrow money from the insurer, what is the maximum he can obtain?
$10,000
A $100,000 policy with a waiver of premium rider and $30,000 of cash value is in force when the insured dies at age 65. The beneficiary receives how much of the policy's values?
$100,000
L is no longer eligible for the employer's $50,000 group life insurance plan. L dies 28 days later without sending in the required conversion paperwork. What will their beneficiaries receive?
$50,000, less any premiums due
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?
$800
Which of the following term life insurance policies would have the lowest 1st-year annual premium, all other factors being equal?
1-year
Which of the following traditional whole life policies has the highest first-year annual premium, all other factors being equal?
10-pay life
Which of the following term life insurance policies would have the highest 1st-year annual premium, all other factors being equal?
15-year
The widow or widower's Social Security blackout period lasts until a surviving, non-remarried spouse reaches age
60
Jacob owns a policy that pays a death benefit only if he dies within the 20-year policy period. If Jacob dies anytime that the policy is in force, his beneficiary will receive $100,000. The premium that Jacob pays for this policy will be the same throughout the 20-year policy period. Jacob owns:
A Level Term policy
Which of the following best describes a Conditional Contract?
A contract in which both parties must perform specified duties in order for the contract to remain enforceable
What type of policy has an endowment date, a face amount, and cash value?
A permanent life insurance policy
Which of the following best describes an Annual Renewable Term Policy?
A policy with a level death benefit, but with increased premium at each renewal
Term Life insurance is designed to provide coverage for ___________.
A specified period of time
To purchase the greatest amount of coverage, for the least amount of initial premium, a client would purchase which of the following?
A term policy
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
When the death of an insured occurs within a specified period, causing the policy to pay double or triple benefits, this policy must have which of the following riders?
Accidental Death Rider
A and B are married. They have two minor age children. A and B feel that all family members should have coverage on their lives, not just A. What would be the least expensive way to accomplish this?
Add a term life insurance rider to this policy to provide additional coverage on the spouse and children
If a client chooses to pay premiums other than annually, what can he or she expect?
Additional charges to offset lost interest, earnings, and increased administrative costs
An insurer authorized to do business within this state is considered what type of insurer?
Admitted
When the exchange of value is unequal, the contract is considered:
Aleatory
An insurer which is formed under the laws of another country is a(n):
Alien insurer
Some traditional whole life policies offer a(n) __________ feature to keep the policy in force if there are sufficient cash values to do so.
Automatic premium loan
With indexed life, the interest credited to the policy is:
Based on a percentage of the increase in a stipulated stock index
An insured owns a whole life policy that ends at age 100 and lives to be 100 years of age. Why does the insurer pay the face value to the insured?
Because the policy endows
An agreement that establishes a price with the intent to purchase the assets of a business should one of the parties to the agreement predeceases the other is called a
Buy-Sell Agreement
The value within a permanent life insurance policy that the policyowner can access through a policy loan or policy surrender is known as the
Cash Value
Before an insurer can operate in this state, it must have which of the following?
Certificate of Authority issued by the state Insurance Department
Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies, then Alice dies, so who receives the policy proceeds?
Claire
The ____________ has the power to issue rules and regulations to help enforce insurance statutes.
Commissioner
Which of the following is NOT considered one of the essential elements of a contract?
Conditions
Premium is considered the policyowner's:
Consideration
A contract that is drafted by an insurer and receives no input or alteration from the insured, is considered a(n):
Contract of Adhesion
is a form of whole life in which the insurance company can change the premiums or interest rate being credited to the account based on current money market rates.
Current Assumption Whole Life
Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies and Alice names Dale as the new primary beneficiary. Alice dies, so who receives the policy proceeds?
Dale
Term life insurance will not pay out a death claim in which of the following situations?
Death after term expires
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
refers to the jurisdiction where an insurer was formed or incorporated.
Domicile
When the life insurance policy's cash value equals the face amount of the policy and the proceeds are paid to the policyowner, this is known as the policy's
Endowment
are conditions stipulated in the contract for which the insurer will not provide coverage.
Exclusions
The insurance company must meet requirements under the _____ when gathering information about an applicant from a third party.
FCRA
Information from a third party collected by the insurance company in the application for insurance and during underwriting of the policy may be subject to the jurisdiction of which of the following?
Fair Credit Reporting Act
If the beneficiary is concerned about a payout for a particular period of time, the _______ settlement option should be selected.
Fixed Period
In which market are Certificates of Insurance issued to insured individuals?
Group
The National Association of Insurance Commissioners (NAIC):
Has no legal authority over insurance regulation
Ultimately it is up to the _______ to determine if the proposed insured is an acceptable risk.
Home Office Underwriter
All of the following are true regarding Current Assumption Whole Life, except:
If current rates decrease, the policyowner pays reduced premiums, or the cash values will grow faster
A STOLI/IOLI transaction is best defined as which of the following?
Inducing insureds who do not need and cannot afford life insurance to buy a policy and sell it for cash
Which of the following manufactures and sells insurance coverage in the form of insurance policies or contracts of insurance?
Insurance companies
A(n)____________ is the person or entity that is covered by an insurance policy.
Insured
The ______________ clause is the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the policy is in force.
Insuring
Which of the following states the obligation of the insurer and the risk that is considered in a life insurance policy?
Insuring Clause
What is the name of a single policy covering two or more lives that pays benefits upon the death of the first insured?
Joint Life
Which of the following life insurance policies is ideally suited for estate planning purposes?
Joint and Survivor
Buy-Sell agreements are used for all of the following entities, except:
Large Public Corporations
The ___________ branch writes and passes state insurance laws, or statutes, to protect the insuring public.
Legislative
Fred owns a 40-Pay Life Policy. He designated his wife, Ethel, as primary beneficiary. Upon Fred's death, Ethel receives a set amount for life. Fred chose which Settlement Option?
Life Income Only
Burt named Liz as his beneficiary; however, he did not choose a Settlement Option. At the time of his death, who determines the option to be used to receive the benefits?
Liz the beneficiary determines which option she would like to have
A producer provided a conditional receipt to an applicant on May 5 at the time of an application based on a standard risk. The insurer required a routine medical exam, which was completed on May 15. The policy was issued based on a substandard risk on May 20 and the producer delivered the policy on May 22. The effective date of coverage is:
May 22
A false statement in the application that can render the contract void, if material to the acceptance of the risk, is known as a:
Misrepresentation
Provisions and clauses, unlike riders, are included in the contract for:
No additional charge
Buy-sell agreement life insurance premiums are:
Not deductible and proceeds are income tax free
What is the additional premium cost to have the automatic premium loan provision included in a permanent policy?
Nothing
If an insured dies during the policy's grace period, the insurer will:
Pay the death benefit, less the amount of premium due
A personalized computer-generated illustration detailing premiums, cash values, interest rates, and surrender values is called
Policy Summary
A viatical settlement is an agreement between a third party and a(n)
Policyowner insuring the life of a terminally ill insured with 2 years or less life expectancy
A life Insurance policyowner receives an annual dividend. One option for this dividend is to use it to offset the annual obligation to the insurer. What is this option called?
Premium Reduction
Which dividend option would be the same as if the policyowner received the dividends in cash and remitted the full premium?
Premium Reduction
To help protect against experiencing immediate claims, group plans have a(n) _______ period set up by the group sponsor.
Probationary
A long-term care rider:
Provides up to 100% of the policy benefits if the insured qualifies for benefits as specified in the rider but will reduce the amount of death benefit protection based on the amount paid under the rider
A mandatory participation rate for noncontributory group plans is designed to:
Reduce adverse selection
Which of the following is not a factor in premium determination?
Reserves
Linda wants her husband to be the beneficiary of her life policy but also wants to retain all rights of ownership. Which of the following types of beneficiary designations should she use?
Revocable beneficiary
A(n)________ is an added benefit attached to a life insurance policy for which an additional premium is generally paid.
Rider
Lorraine's position has been terminated, and she is interested in converting her group life coverage to an individual policy. In the process, she will find all of the following to be TRUE, except:
She will be converting her group term benefit to an individual term benefit
All of the following statements regarding sources of underwriting are correct, except:
The applicant may be denied coverage based solely on the MIB report
How are employee FICA taxes collected?
The employer withholds the employee's tax and pays it along with the employer's portion
In all cases upon the insured's death, the beneficiary receives which of the following?
The face amount of the policy
For the most part, the highest authority for insurance regulation is:
The individual states
After a life insurance policy has been in force for 5 years the insured dies. During the claims process, the insurer discovers that the insured did not disclose material health information that had it known, would have caused the application to be rejected. What can the insurer do at this point in time?
The insurer must pay out the death benefit of the policy to the named beneficiary
Universal Life and Variable Universal Life share all of the following characteristics, except:
The investment risk
How is Variable Whole Life different from Variable Universal Life?
The policy has a guaranteed minimum face amount
An application for insurance is completed and submitted to an insurance company. In order for coverage to be effective immediately, all of the following conditions must be met, except:
The policy is issued at a higher risk than the standard risk applied for
All of the following are characteristics of Universal Life Insurance, except:
The policyowner can choose which investment(s) to place the cash values into from those available
Which of the following statements about Annual Renewable Term premiums is TRUE?
The premium increases over time as the insured's age increases
convertible term life insurance
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.
Group life insurance is a contract between what parties?
The sponsor and the insurer
The insurer's consideration is __________ while the applicant's consideration is ________.
Their promise to pay the claim / The application and premium payment
All of the following would be reasons why a policyowner would sell their policy in a life settlement transaction, except:
There are no alternative ways to obtain needed cash
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 contract type in which only one party is legally bound to its contractual obligations after a premium is paid is a(n)_______ contract.
Unilateral
One characteristic of life insurance is that the insurer is obligated to pay a claim in the event of the death of the insured, however, the insured is not contractually obligated to do anything other than keep the policy in force. This is a:
Unilateral Contract
A life insurance premium is paid each month. The insurer then subtracts a mortality and expense charge from the policy's cash value. This best describes which of the following life insurance policies?
Universal Life
A partial withdrawal is permitted on which of the following policies?
Universal Life
The insurable interest on one's own life is generally regarded as:
Unlimited
How would a term policy normally be used to pay off a mortgage upon death?
Using the death proceeds after the insured has died
A _______________ policy has a death benefit that will increase or decrease over time based on the performance of the separate account, provides a guaranteed minimum death benefit, offers a choice of subaccounts in which cash value may be allocated, and a has fixed premium.
Variable Life
In a viatical settlement, the life insurance policyowner is referred to as the
Viator
Which rider allows a disabled insured policyowner to forgo future premiums on his or her whole life insurance policy while continuing to enjoy full policy benefits?
Waiver of Premium
An applicant completes the application and submits it to the insurer along with a premium check. When is the applicant's offer considered accepted?
When the insurer issues a policy
A life insurance policy is being applied for on Z's life. In order for the contract to be valid, all of the following have an insurable interest and could be the owner of the policy, except:
Z's neighbor