Chapter 3

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

Guaranteed Insurability

Allows the insured to purchase stated amounts of additional insurance every 3 years based on certain ages, events, or specified dates without evidence of insurability up to a maximum age.

What is the fastest way to pay up a traditional whole life policy?

Buy a single premium policy

Term life insurance will not pay out a death claim in which of the following situations?

Death after the term expires

A "level term" policy means that the _________ remains the same throughout the entire policy period.

Face amount

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

Accidental Death Benefit

In the event of a claim, the policy normally pays double or triple the face amount only if the insured's death was a result of an accident.

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

Variable Whole Life has all of the following features, except:

Partial surrender are allowed

Variable Whole Life

-The premium is determined by the insurer and remains fixed and level throughout the contract -The policy provides for both a general account and a separate account -The owner may select which separate account they want their premium to be investe

All of the following are true of a Universal Life policy, except:

Any borrowing or partial withdrawal from the cash value account terminates the policy

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

Death benefit

The net amount at risk in an Ordinary Whole Life Insurance Policy _________ over the life of the policy.

Decreases

Accidental Death and Dismemberment

Pays the principal sum of the rider (100% of the face amount) upon accidental death or double dismemberment and the capital sum (50% of the face amount) for accidental single dismemberment

Which of the following would have the lowest first-year annual premium for a 30-year-old, all other factors being equal?

Term to age 40 10 years of coverage is less costly than longer terms of coverage.

A producer is explaining the concept of limited-pay life insurance to a 40-year-old client. When comparing a straight life policy with a 10-pay life policy, which of the following statements is correct?

The cash value in a straight life policy will accumulate at a slower rate than the cash value in a 10-pay life

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

The face amount of the policy

Which statement is true for BOTH Universal Life and Whole Life?

The policy is supported by the insurer's general account

If a client owns an indexed product, what happens if the market falls in value by a large amount?

The policy's values can never decline due to negative index performance

Who receives the endowment value of a whole life policy?

The policyowner

If a policyowner of a convertible term life insurance policy exercises his/her right to convert, which of the following will happen?

The term policy will be replaced by a permanent life insurance policy

Which of the following are characteristics of universal life insurance policies?

Two death benefit options, an adjustable death benefit and flexible premiums

Which rider waives the cost of insurance and expenses if an insured becomes disabled?

Waiver of Monthly Deduction

C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. What is the insurer's net amount at risk?

$70,000

All of the following are true about riders, except:

-All riders are available free of charge and can be added at anytime without proof of insurability -All riders are provided for as long as the policy is in effect

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 Second to Die policy would be the most appropriate recommendation for which of the following?

A husband and wife concerned about paying estate taxes after they have died

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

15-year

Generally, Universal Life has how many death benefit options to choose from?

2

What type of policy has an endowment date, a face amount, and cash value?

A permanent life insurance policy

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

If a father were to add a Child Rider to a policy to cover his children, when would coverage become effective for a newborn?

At 14 or 15 days of age

Which of the following policies must be sold by prospectus?

Variable Whole Life Variable Whole Life is a security. It is required that the producer have a securities registration in order to sell it and the policy must be sold with a prospectus detailing all fees, charges, risks, and expenses.

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

Variable Life

-Cash value in separate account fluctuates based on market conditions -Fixed premium -Policy owner bears all investment risk -No guaranteed minimum return on cash value -Death benefit varies along with performance in separate account -Sold by individuals with a life license and securities (FINRA) registration

Universal Life

-Mortality charge for cost of pure insurance is deducted monthly -Flexible premium -Partial withdrawal or surrender available -Guaranteed minimum rate of return on cash value -2 death benefit options to choose from -Adjustable face amount

what is true about riders ?

-Once a rider drops from the policy, the additional premium will also drop -Most riders are added at the time of policy issue -Riders added after the policy has been issued usually require evidence of insurability

Permanent Insurance

-Policy loans available -Premium builds a reserve known as cash value -Premiums may be payable for life, a limited period, or as a lump sum -Issued with a level face amount -Policy matures or endows when cash value equals the face amount -Designed to provide coverage for a lifetime

Payor Benefit

If the payor (policyowner) dies or becomes disabled and is unable to make the premium payments, the insurer will waive the premiums payments for a specified period of time

The cash value in an Indexed Life insurance policy:

Is based on the performance of a designated quity index over a specified period of time

Which of the following is TRUE of a term rider when attached to a permanent life policy?

It can provide additional temporary coverage on the insured or on other members of the family

What happens to the overall policy premium when most riders on a life insurance policy expire?

It goes down

A viatical settlement is an agreement between a third party and a(n) ___________.

Policy owner insuring the life of a terminally ill insured with 2 years or less life expectancy

Long-Term Care

Provides up to 100% of the policy benefits if the insured qualifies for benefits as defined in the rider, such as the inability to perform 2 out of 6 activities of daily living.

Mary decides to convert her Term Policy to permanent protection. Which of the following statements is true regarding the conversion?

She may convert without evidence of insurability

The face amount of insurance is also referred to as the:

The limit of liability

Waiver of Monthly Deduction

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.

Term Insurance

-Pure insurance Death benefits may be level, decreasing, or increasing -Temporary protection -Written for a specified time period or to a specified age -Coverage may be renewable -Coverage may be convertible

Universal Life policy

-The cash value account earns interest at the current rate with a guaranteed minimum rate established -It allows the owner to make additional contributions that increase the cash value or skip some premiums if the owner desires to do so -Adjustments to the face amount may be requested by the policyowner to reflect changes in need

Q has an ordinary straight whole life insurance policy for $100,000. Due to a change in circumstances, Q finds that there is now a need for more coverage, but the budget is not sufficient for another similar policy. What can Q do to satisfy the need for additional coverage at a low price?

Add a term rider Adding a term life insurance rider will allow for the additional coverage to be put into place at an affordable price, without having to acquire another policy. Ordinary straight whole life does not allow for an increase in face amount, as it is a fixed benefit policy

Waiver of Premium

If the insured becomes totally disabled, the insurer will waive premiums for the duration of the disability or the end of the policy, whichever occurs first

When buying a $25,000 life insurance policy on his daughter, a father wanted to make sure the premium would be paid, even if he became disabled, so he also purchased a:

Payor Rider

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

Which of the following is a feature of term life insurance?

Pure protection Lower initial cost Limited duration

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

Remains the same

All of the following are TRUE regarding a Waiver of Premium Rider, except:

The insured must repay the unpaid premiums

Which of the following statements about 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

Which of the following statements is correct regarding a Waiver of Premium Rider on a participating whole life policy?

The premiums are waived until either the insured recovers from the disability, the policy achieves paid-up status, or the insured dies

A mother with a teenage son purchases a life policy on his life. The policy includes an optional rider called the Payor Benefit. What will happen to the policy if the mother dies or is disabled before her son reaches age of majority?

The premiums on the son's policy would be waived until the son reaches a specified age

Universal Life is similar to Whole Life in all of the following ways, except:

The timing and amount of premium is flexible

If a policyowner has a whole life insurance policy with a disability waiver of premium rider, when does the rider benefit start if a qualifying disability should occur?

Typically 6 months after the disability occurs

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

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.

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

Which type of rider pays out a capital sum in case an insured loses a limb or their eyesight?

Accidental Death and Dismemberment

Return of Premium

An increasing term insurance rider that provides additional coverage equal to the amount of premiums paid.

A client wants to make sure that they can have a permanent life insurance policy several years from now when they can afford it without having to prove insurability. What feature should they make sure they have on their new term life insurance policy?

Convertibility

Which of the following products requires a producer to obtain a securities registration in addition to an insurance license to solicit?

Variable Universal