Chapter 2: Types of Life Policies

what are the two classifications of annuities according to the time when annuity payments begin?

Immediate and deferred

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Limited pay whole life

Equity Indexed Annuities

Seek higher returns

How is the premium determined in a joint life insurance policy?

The premium is based on the average age of the insureds

What is the purpose of establishing the target premium for a universal life policy?

To keep the policy in force

an individual has a contract that will provide him with a certain amount of income for the rest of his life. however, this is not a life insurance policy. what type of contract does this person have?

annuity

what type of annuity credits it's interest based. upon an index such as S&P 500?

equity indexed annuity

what does the term "level" refer to in level term insurance?

face amount

When an annuity is written, whose life expectancy is taken into account?

Annuitant

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

It has a guaranteed minimum interest rate.

How soon can income payments begin in an immediate annuity?

No later than 1 year from the time of annuity purchase

What universal life option has a gradually increasing cash value and a level death benefit?

Option A

what type of life insurance offers an applicant a cash value element?

Permanent insurance (usually, whole life)

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

The annuitant receives a fixed amount of return

What license or licenses are required to sell variable annuities?

Both a life insurance license and a securities license

Who bears all of the investment risk in a fixed annuity?

The insurance company. Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.

Which of the following best describes what the annuity period is?

The period of time during which accumulated money is converted into income payments

Which of the following policies would be classified as a traditional level premium contract?

Straight life

Fixed annuities provide all of the following EXCEPT

hedge against inflation Fixed annuities invest premium payments into a general account - a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, and therefore providing protection against inflation.

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

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

Beneficiary If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.

Which of the following is a feature of a variable annuity?

Benefit payment amounts are not guaranteed Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent's license.

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing term

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.

An agent selling variable annuities must be registered with

FINRA

Which policy component decreases in decreasing term insurance?

Face amount

How long will a life annuity with a 15-year period certain pay?

For the life of the annuitant unless he/she dies within the first 15 years of the annuitization period; then the payments will last for 15 years

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.

Which of the following is TRUE regarding the accumulation period of an annuity?

It is a period during which the payments into the annuity grow tax deferred.

Which of the following best describes annually renewable term insurance?

It is level term insurance

A man decided to purchase a $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 type of whole life insurance policies only requires a payment of premium at its inception, and in addition to providing insurance protection for the life of the insured, endows at the insured's age 100?

Single premium whole life

What type of whole life insurance policy generates immediate cash value?

Single premium whole life

Which of the following is TRUE regarding variable annuities?

The annuitant assumes the risks on investment The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds". Therefore, the annuitant assumes the risk of the investment.

The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true?

The annuitant must be a natural person.

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?

The death benefit can be increased by providing evidence of insurability.

Which of the following determines the cash value of a variable life policy?

The performance of the policy portfolio The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.

what is the main reason for purchasing an annuity?

To provide income that the annuitant cannot outlive

What type of annuity requires an agent to have a securities license?

Variable annuity

When would a 20-pay whole life policy endow?

When the insured reaches age 100

Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?

The annuitant receives payments from the annuity during the annuitization period; the beneficiary receives benefits after the annuitant's death

Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be

Adjusted to the insured's age at the time of renewal

what type of life insurance policy provides permanent protection?

whole life