Chapter 2- Life Insurance Policies
All of the following could own group life insurance EXCEPT
A group needing low-cost insurance
All other factors being equal, the least expensive first-year premium payment is found in
Annually Renewable Term
The death protection component of Universal Life Insurance is always
Annually Renewable Term
Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount?
Buy-Sell agreement
Both Universal Life and Variable Universal Life have a
Flexible premium
Annually renewable term policies provide a level death benefit for a premium that
Increases annually
What is the main purpose of the Seven-pay test?
It determines if the insurance policy is a MEC
Which of the following best describes annually renewable term insurance?
It is level term insurance
Which of the following policies would be classified as a traditional level premium contract?
Straight Life
What is the purpose of establishing the target premium for a universal life policy
To keep the policy in force
In a survivorship life policy, when does the insurer pay the death benefit?
Upon the last death
When would a 20-pay whole life policy endow?
When the insured reaches age 100
Which of the following statements concerning buy-sell agreements is true?
buy-sell agreements are normally funded with a life insurance policy
Which of the following best describes annually renewable term insurance?
it is level term insurance
Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?
Any form of life insurance
The type of term insurance that provides increasing death benefits as the insure ages is called
Increasing term
In modified Life policies, what happens to the premium?
It is level at the beginning and increases after the first few years
Which option for Universal Life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?
Option B
If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may
Require evidence of insurability
the policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as
The policy contains sufficient cash value to cover the cost of insurance
All of the following are true about variable products EXCEPT
The premiums are invested in the insurer's general account
In an adjustable Life policy all of the following can be changed by the policy owner EXCEPT
The type of investment
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then
the benefit is received tax free
Which of the following is called a "second-to-die" policy
Survivorship life
All of the following are characteristics of a group life insurance plan EXCEPT
There is a requirement to prove insurability on the part of the participants
Which type of life insurance policy generates immediate cash value?
Single Premium
Which of the following features of the Indexed Whole Life policy is NOT fixed?
Cash Value growth
Which component increases in the increasing term insurance?
Death benefit
An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen?
the insurer will pay the full death benefit from the group policy to the beneficiary
At age 30, an applicant wants to start an insurance program, but realizing that his insurance needs will likely change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs?
Adjustable life
An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true?
He will have to pay a penalty if he is under the age of 59 1/2
The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this charge?
The death benefit can be increased by providing evidence of insurability
An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his
attained age
Which component increases in the increasing term insurance
Death benefit
Which statement is NOT true regarding a Straight Life Policy?
Its premium steadily decreases over time, in response to its growing cash value
What Universal Life option has a gradually increasing cash value and a level death benefit?
Option A
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy
Premiums are not tax deductible as a business expense
An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called
Single premium whole life
Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated?
Those who have been insured under the plan for at least 5 years
Which of the following is INCORRECT regarding a $100,000, 20 year level term policy
At the end of 20 years, the policy's cash value will equal $100,000
An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it?
Limited-pay life
Which of the following is INCORRECT concerning a noncontributory group plan?
The employees receive individual policies
A group of 15 skydivers meet at a seminar and begin talking about life insurance during a break. Because it is expensive to get individual life insurance, they decide to band together to form a small group so that they will be eligible. They apply for small group life insurance and are rejected. Why?
The purpose of the group was to purchase life insurance
A straight life policy has what type of premium?
A level annual premium for the life of the insured
An adjustable Life policyowner can change which of the following policy features?
The coverage period
An individual purchased a 100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy?
100,000 because in joint life policies the death benefit is paid upon the first death only
A universal life insurance policy has two types of interest rates that are called
Guaranteed and Current
If a life insurance policy increases significantly in the face amount (death benefit) when the insured reaches a specified age, what type of policy is this?
jumping juvenile policy
Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?
Withdrawals are not taxable
A man decided to purchase $100,000 Annually Renewable term life policy to provide additional protection until his children finished college. He discovered that his policy
Required a premium increase each renewal
What are the two components of a universal policy?
Insurance and cash account
A Universal Life Insurance policy is best described as a/an
Annually renewable term policy with a cash value account
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?
Joint Life
Which of the following statements about group life is correct?
The cost of coverage is based on the ratio of men and women in the group?
Which of the following are generally NOT considered when underwriting group insurance?
The insureds' medical history
What type of life insurance policy allows the policyowner to pay more or less than the planned premium
Universal Life
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium
Executive is the owner, and the executive pays the premium
If an agent wishes to sell variable life policies, what license must the agent obtain?
Securities
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT
The policy is owned by the company
All other factors being equal, which of the following lists from the largest annual premium to the smallest annual premium
20 year endowment, 20 pay life, 20 year term, 20 year decreasing term
Which of the following policies typically combine insurance and savings with a date of maturity earlier than age 100 at great expense to the policyholder?
Endowment at Age 65
An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?
It will increase because the insured will be 5 years older than when the policy was originally purchased
An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?
The insured may choose to convert to term or permanent individual coverage
What does "level" refer to in level term insurance?
Face amount
All of the following are business uses of Life Insurance EXCEPT
Funding against company's general financial loss
Which of the following policies is characterized by a provision where the premiums are lower in the early years of the policy and increase over time to a point where they become level for the remainder of the policy?
Graded premium whole life
Concerning Juvenile Life insurance, which of the following statements is INCORRECT?
Juvenile Life is classified as any life insurance purchased by a minor
Variable Whole Life Insurance is based on what type of premium?
Level fixed
Which of the following statements is TRUE concerning whole life Insurance?
Lump-sum death benefits are not taxable
An insured Level term life insurance policy that is guaranteed renewable and also includes a re-entry provision. The re-entry provision would allow the insured to renew the policy and
Pay a lower renewal premium by providing insurability
All of the following are true regarding a decreasing term policy EXCEPT
The payable premium amount steadily declines throughout the duration of the contract