Chapter 2 Recap Practice Questions

Which of the following is TRUE regarding the premium in term policies ?

the premium is level Regardless of the type of term insurance purchased, the premium is level throughout the term of the policy. Only the amount of the death benefit may charge.

An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin after 1 year since the annuity was purchased. What type of annuity is it?

Deferred Deferred annuities maybe purchase with either a single lump sum or periodic payments, but they do not begin the incomp payments until sometime after one year of the day of purchase.

An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n)

Equity Indexed Annuity. The interest rates of Equity Indexed Annuities are tied to the Standard and Poor's Index.

A policy will pay the death benefit if the insured dies during the 20 year premium paying period and nothing if death occurs after the 20 year period. What type of policy is this?

Level term A 20 year term policy is written to provide a level death benefit for 20 years.

Which of the following is NOT one of the three basic types of coverage that are available, based on how the family amount changes during the policy term?

Renewable There are three basic types of term coverage available, based on how the face amount (death benefit)changes during the policy term; level, increasing, and decreasing. Regardless of the type of term insurance purchase, the premium is level throughout the term of the policy.

Which of the following types of insurance policies would provide the greatest amount of protect for temporary period during which an insured will have limited financial resources?

Term Term insurance provides a death benefit only; cost per $1,000 of coverage less than other types of policies that create cash values.

Which of the following is NOT true regarding Equity Indexed Annuities?

They earn lower interest rates than fixed annuities.

Which of the following term best describes the coverage provided by term polices, as compared to any other form of protection?

Greatest Term policies provide for the greatest amount of coverage for the lowest premium, as compared to any other form of protection.

What for does "level" refer to in level term insurance?

Face amount Level term policies maintain level death benefit or (face amount)throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increased as the policyholder ages.

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?

Immediate annuity An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.

All of the following statements about equity index annuities are correct EXCEPT

The annuitant receives a fixed amount of return Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.

A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it?

Immediate With an immediate annuity, distribution starts within 1 year of purchase.

Equity Indexed Annuities

Seek higher returns. Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.

Why is an equity indexed annuity considered to be a fixed annuity?

It has a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

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.

Which of following is TRUE for both equity indexed annuities and fixed annuities?

They have a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

The minimum interest rate on an equity indexed annuity is often based on

An index like Standard & Poor's 500. Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.