Chapter 3: Life Insurance Policies
All of the following could own group life insurance EXCEPT
A group needing low-cost life insurance
A Universal Life Insurance policy is best described as a/an
Annually Renewable Term policy with a cash value account.
Which of the following features of the Indexed Whole Life policy is NOT fixed?
cash value growth Under the Indexed Whole Life policy, the premium is fixed, and the death benefit is guaranteed. Cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed.
Which of the following would help prevent a universal life policy from lapsing?
Target premium The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
All of the following entities regulate variable life policies EXCEPT
The Guaranty Association Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.
Who has the authority to regulate the issuance and sale of variable contracts?
The Superintendent
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
Which of the following best describes annually renewable term insurance?
It is level term insurance Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.
Which of the following is an example of a limited-pay life policy?
Life Paid-up at Age 65 Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.
To sell variable life insurance policies, an agent must receive all of the following EXCEPT
SEC registration Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.
In a group life insurance policy, the employer may select all of the following EXCEPT
beneficiary Employees must be allowed to select a beneficiary.
A Straight Life policy has what type of premium?
A level annual premium for the life of the insured Straight Life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit.
Which of the following statements is correct regarding a whole life policy?
The policyowner is entitled to policy loans.
Which of the following Life Insurance policies would be considered interest sensitive?
Universal life
When would a 20-pay whole life policy endow?
When the insured reaches age 100 A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.
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 LEAST expensive first-year premium is found in which of the following policies?
Annually Renewable Term
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. Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.
Which of the following determines the cash value of a variable life policy?
The performance of the policy portfolio
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 In limited-pay policies, the premiums for coverage will be completely paid-up well before age 100, usually after a specified number of years.
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
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 In group underwriting the evidence of insurability is usually not required of each participant unless he or she is enrolling for coverage outside of the normal enrollment period.
Which of the following types of insurance policies would provide the greatest amount of protection for a 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 is less than other types of policies that create cash values.
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid
For 20 years or until death, whichever occurs first. Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.
Annually renewable term policies provide a level death benefit for a premium that
Increases annually. Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.
Which of the following has the right to convert the existing term coverage to permanent insurance?
Policyowner Convertible term insurance gives the policyowner the right to convert the policy to a permanent insurance policy without evidence of insurability.
All of the following are true about variable products EXCEPT
The premiums are invested in the insurer's general account.
Which of the following is correct regarding credit life insurance?
It insures the life of a debtor. Credit life insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor.
The premium of a survivorship life policy compared with that of a joint life policy would be
Lower Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint 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. There is no individual underwriting for group life insurance.
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?
Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.
A Universal Life Insurance policy is best described as a/an
annually renewable term policy with a cash value account A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.
Which of the following policies would be classified as a traditional level premium contract?
Straight life Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.
All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT
Upon conversion the death benefit of the permanent policy will be reduced by 50%. Convertible term insurance is convertible without proof of insurability up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured's attained age.
The LEAST expensive first-year premium is found in which of the following policies?
Annually Renewable Term Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.
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 Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.
The type of policy that can be changed from one that does not accumulate cash value to the one that does is a
Convertible term policy
What characteristic makes whole life permanent protection?
Coverage until death or age 100 Whole Life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured or till the insured's age 100.
Which of the following types of insurance policies is most commonly used in credit life insurance?
Decreasing term
Which statement is NOT true regarding a Straight Life policy?
Its premium steadily decreases over time, in response to its growing cash value.
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 A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.
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 is called a "second-to-die" policy?
Survivorship life
Which of the following would help prevent a universal life policy from lapsing?
Target premium
Which of the following types of policies will provide permanent protection?
whole life Whole life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured. Both the premiums and death benefit are guaranteed and will remain level for life.
Which of the following is TRUE about credit life insurance?
Creditor is the policyowner. In credit life insurance, the creditor is the policyowner and the beneficiary; the debtor is the insured.
Which Universal Life option has a gradually increasing cash value and a level death benefit?
Option A Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures.
An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy?
She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan. If a person has life insurance under a group plan and then leaves the group, he/she may convert group coverage to individual coverage within 31 days of leaving the plan without proof of insurability.
