CHAPTER 4 LIFE INSURANCE
Separate account investments (Premium payments for a Universal life policy are NOT used for separate account investments.)
15. Which of the following are the premium payments for a Universal life policy NOT used for?
A modified life contract which enjoys all the tax advantages of whole life insurance (A Modified Endowment Contract (MEC) can be described as a life insurance contract that has accumulated cash values higher than the IRS allows.)
A Modified Endowment Contract (MEC) is best described as
decreasing term life
The least expensive option to pay off a 30-year mortgage balance would be
Period of time after the premium is due but the policy remains in force (The grace period is a period of time after the premium is due but the policy remains in force.)
What is an insurance policy's grace period?
renewal
What is the automatic continuance of insurance coverage referred to as?
variable life insurance (A life insurance producer needs to possess a securities license to sell variable annuities.)
8. A securities license is required for a life insurance producer to sell variable life insurance
$500,000 (". In this situation, the death benefit would be the $500,000 face amount.)
11. Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be
Endowment policy (". A type of life insurance policy which provides for the payment of the face amount at the end of the specified period if the insured is still alive is an endowment policy.)
13. Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive?
provide coverage for a home mortgage (A common use for decreasing term life insurance is to cover a home mortgage.)
14. Decreasing term life insurance is often used to
Grace period (The grace period is the amount of time an insurer continues coverage in full force and will accept the premium from the insured as though it was NOT late.)
An insurer will accept a premium from the insured and continue the coverage in full force as though it was NOT late during which time period?
The shorter the payment period, the higher the premium
The statement which best describes the relationship between the premiums of a whole life policy and the premium payment period is
FAMILY TERM INS RIDER
Which of these riders will pay a death benefit if the insured's spouse dies?
Whole life policy with premiums paid up after 20 years
Which of these would be the best example of a limited pay life insurance policy?
Payor benefit (A payor benefit will waive the premium on a juvenile life insurance policy if the parent paying the premium dies.)
Which type of rider will waive the premium on a child's life insurance policy if the parent paying the premium dies?
Adjustable Life (Adjustable Life allows the policyowner to change two policy features: premium and face amount.)
5. A policyowner may change two policy features on what type of life insurance?
accidental death
All of these are common exclusions to a life insurance policy EXCEPT
disability (Disability is not one of the standard exclusions found in life insurance policies.)
All of these are standard exclusions found in a life insurance policy EXCEPT
Group policy (. A type of life insurance policy most commonly used by businesses for employees is a group policy.)
A business will typically use which type of life insurance to cover their employees?
equal the face amount of the policy
Level premium permanent insurance accumulates a reserve that will eventually
commercial aviation (Life insurance policies routinely cover losses arising from commercial aviation.)
Life insurance policies will normally pay for losses arising from
Equity index whole life (The type of policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index is equity index whole life.)
Peter has a policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index. What kind of policy is this?
Coverage is eliminated
What happens to the coverage under a children's term rider when that child reaches a certain specified age?
A nonforfeiture option can be used to increase the death benefit
All of these are valid options for an Adjustable Life Policy EXCEPT
accumulate without interest (Policyowner dividends normally accumulate WITH interest.)
All of these are valid options for what a policyowner may do with policy dividends EXCEPT
"Can be converted to permanent coverage without evidence of insurability". (An advantage of a children's term rider is the ability to convert to permanent insurance without evidence of insurability.)
20. Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider?
Last Survivor Life insurance (". Coverage of two or more individuals with the death benefit payable upon the last person's death is a feature of last survivor insurance.)
7. What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death?
Accumulation at Interest Option (The Accumulation at Interest Option invests the policyowner's money and adds interest earnings to the initial amount of the dividends.)
Which dividend option would an insurer invest the policyowner's money and add any interest earnings as the dividends accrue?
at a predetermined date or age, regardless of the insured's health (, regardless of the insured's health". Renewable Term Life insurance guarantees the policy can be renewed to a predetermined date or age, regardless of the insured's health status.)
A Renewable Term Life insurance policy can be renewed
Provide funds to help pay taxes
How are survivorship life insurance policies helpful in estate planning?
the policy would be payable, minus the premium amount (. If the insured dies during the grace period and premiums have NOT been paid, the policy would be payable, less the premium amount.)
If an insured dies during the grace period with no premiums paid
universal life (Universal life has a guaranteed interest rate with the possibility to earn an interest rate that is higher than the guaranteed rate.)
19. A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called
survivorship life policy (Under a multiple protective policy, the policy that pays on the death of the last person is called a survivorship life policy.)
2. The type of multiple protection coverage that pays on the death of the last person is called a(n)
A nonforfeiture option can be used to increase the death benefit (Increasing the death benefit by using one of the nonforfeiture options is not an option in an Adjustable Life Policy.)
4. All of these are valid options for an Adjustable Life Policy EXCEPT
stated payment insurance (Limited payment insurance is characterized by premiums that are fully paid up within a stated period, after which no further premiums are required.)
6. A life insurance policy that has premiums fully paid up within a stated time period is called
Family term insurance rider (A Family Term Insurance rider provides a death benefit if the spouse of the insured dies.)
9. Which of these riders will pay a death benefit if the insured's spouse dies?
The correct answer is "Provide funds to help pay taxes". (Survivorship life insurance policies are useful in estate planning because they can provide money to pay taxes on assets.)
1. How are survivorship life insurance policies helpful in estate planning?
Variable Whole Life (A Variable Whole Life policy has cash values that vary according to the investment performance of common stocks.)
10. A life insurance policy which contains cash values that vary according to its investment performance of stocks is called
Pre-death distributions are typically taxable". (Failing to meet the seven-pay test results in pre-death distributions likely to become taxable.)
12. Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test?
minus indebtedness and without interest (The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid minus indebtedness and without interest.)
The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid
provide evidence of insurability to the insurer (. In order to activate the reinstatement clause of a lapsed life insurance policy, the insured must provide evidence of insurability to the insurer.)
In order to activate the reinstatement clause of a lapsed life insurance policy, the insured MUST
decreasing term life (The least expensive option to pay off a 30-year mortgage balance would be decreasing term life.)
17. The least expensive option to pay off a 30-year mortgage balance would be
Which of these is NOT considered to be a common life insurance nonforfeiture option? (. All of these are common life insurance nonforfeiture options EXCEPT a life income annuity.)
Which of these is NOT considered to be a common life insurance nonforfeiture option?
Entire Contract (The provision that the policy and a copy of an application is endorsed upon or attached to the policy when issued is the entire contract provision.)
What is the name of the provision which states that a copy of the application must be attached to the policy when issued?
level premiums (A decreasing term policy is issued with a decreasing death benefit and level premiums.)
When a decreasing term policy is purchased, it contains a decreasing death benefit and
hedge against inflation (The securities component of index whole life insurance is considered an effective hedge against inflation.)
18. Index whole life insurance contains a securities component that acts as a(n)
Pre-death distributions will become taxable (The tax consequence of a Modified Endowment Contract is pre-death distributions are likely to become taxable.)
3. Under a Modified Endowment Contract, what are the likely tax consequences?
partial surrender (A partial surrender allows the policyowner to withdraw the policy's cash value interest free.)
A provision that allows a policyowner to withdraw a policy's cash value interest free is a(n)
When a whole life policy is surrendered, income taxes may be owed (Income taxes may be due when a whole life policy is surrendered. This statement is true.)
All of these statements concerning whole life insurance are false EXCEPT
the insured outlived the beneficiary (A common disaster provision states that if the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if the insured outlived the beneficiary. This allows the proceeds to go to the contingent beneficiary.)
An insured individual and the policy's beneficiary die from the same accident. The common disaster provision states the insurer will continue as if
A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age (In this situation, the insurer must pay a prorated amount of the policy based on the amount of insurance the insured's premiums would have been if purchased at the correct age.)
If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies?
When a whole life policy is surrendered, income taxes may be owed (When a whole life policy is surrendered, income taxes may be owed". Income taxes may be due when a whole life policy is surrendered. This statement is true.)
16. All of these statements concerning whole life insurance are false EXCEPT
revoke an absolute assignment
A life insurance policyowner does NOT have the right to
nonforfeiture provision (. A nonforfeiture provision in a cash value life insurance policy allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type.)
A provision in a whole life policy that allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type is called a(n)
collateral assignment (A collateral assignment provision allows a person to temporarily give up a portion of their ownership rights to secure a loan.)
A provision that allows a policyowner to temporarily give up ownership rights to secure a loan is called a(n)
without producing proof of insurability (". If Term Life insurance is renewable, the policyowner is purchasing the right to renew the policy without showing proof of insurability.)
A renewable Term Life insurance policy allows the policyowner the right to renew the policy
the policy loan value which the insured may borrow against (The accumulated cash value of a whole life insurance policy becomes the policy loan value upon which the insured may borrow.)
A whole life insurance policy accumulates cash value that becomes
