chapter 4a- life insurance policies- life policies
an nonparticipating whole life insurance policy was surrendered for its $20,000 cash value. the total premiums paid had totaled $16,000. What were the federal income tax consequences to the policy owner on receipt of the cash value?
$16,000 was received tax-free and $4,000 as ordinary income
when a 10 yr renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for
10 yr term insurance for a person aged 55
a "premature" distribution for a modified endowment contract (MEC) incurs a penalty tax of
10%
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?
100%
a survivorship life insurance policy usually covers how many lives?
2
which type of life insurance policy is best suited for paying off the outstanding balance of a 30 yr mortgage in the event of the insured's death?
30 yr decreasing term
what is a juvenile life insurance policy?
A life policy that covers the life of a minor
which of these is NOT an advantage of term life insurance?
a cash benefit will be provided if the insured is alive at the end of the policy period
which of the following combinations best describe a universal life insurance policy?
a flexible premium deposit fund and a monthly renewable term insurance policy
which statement regarding a single premium life insurance policy is NOT correct?
additional premiums may be required under certain conditions
an individual who purchases a modified life insurance policy expects
an improvement in future income
when does the insured stop making payments under a 30-payment whole life policy?
at the time of death or 30 years after the policy's inception, whenever comes first
which statement regarding the cash value of a whole life insurance policy is correct?
available to the policy owner when policy has been surrendered
Who normally pays the premiums for group credit life insurance?
borrower
which statement regarding universal life insurance is correct?
cash value accumulations have a guaranteed minimum interest rate
which of the following is generally a form of group credit life insurance?
decreasing term insurance
which of these life insurance polices does NOT contain a cash value provision?
decreasing term life
what statement concerning a decreasing term life policy is accurate?
face amount decreases over the policy period
which of these may NOT be deducted from premium payments or the cash value of a variable life insurance policy?
federal premium taxes
Rick owns a variable universal life policy and chooses a variable death benefit option. What will typically happen to the death benefit as a result of this selection?
fluctuate with changes in the cash amount
how long does one premium payment cover in a single whole life policy?
full life of the policy
a policy owner has just borrowed from a life insurance policy's cash value. which of these statements is true?
in the event of death, the loan amount is deducted from the policy proceeds
all of these are considered features of whole life insurance EXCEPT
initial premium is lower than for an equivalent amount of term insurance
the insurance coverage in a variable life insurance policy may vary based on the value of
its underlying investments
what type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?
joint life
the death proceeds of a credit life insurance policy are typically paid to the
lender
what is the guaranteed cash value of a whole life insurance policy when the insured turns 65 yrs old?
less than the policy's face amount
What type of premiums are associated with individual mortgage protection life insurance policies?
level premiums
Laura added a children's rider to her life insurance policy. what type of coverage was added?
level term
a life policy that has premiums that are lower than normal during the early years is called
modified life
which of the following is a TRUE statement regarding universal life insurance?
policy indicates how much of each premium is used toward company expenses
which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)?
policy loans
these are all accurate statements regarding universal life insurance EXCEPT
policy loans are not permitted
which statement regarding an adjusting life insurance policy is NOT true?
policy loans are not permitted
which typically changes at the re-entry options date found in some term life polices?
premium
how are level term policies able to provide level premiums?
premiums are averaged over the term of the policy
which of the following would NOT be a reason for purchasing life insurance on a child's life?
provide benefits for the child if one/both parents died
which of the following could be a future use of the cash value that builds in a recently-purchased whole life insurance policy?
provide supplemental income in 35 yrs
Assets that back the non-guaranteed values of variable life insurance products are held in which account?
separate account set up by the insurer
How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies?
survivorship life policy is lower
which statement concerning adjustable life insurance is accurate?
the face amount and premiums can be changed simultaneously by the policy owner
all of these statements concerning group credit life insurance are false EXCEPT
the face amount is based on the outstanding loan balance
Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes?
the gain is treated as taxable income and a penalty tax is imposed on the gain
what would be considered an advantage of purchasing term life insurance?
the initial premium is lower compared to an equivalent amount of whole life coverage
Under an adjustable life insurance policy, which of the following may NOT be changed without further underwriting?
the person insured
taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for
the policy is surrendered for less than what was paid into it
an advantage of owning a flexible premium life insurance policy would be
the policy owner can make policy changes without difficulty
which of the must be disclosed in a universal life policy?
the policy's surrender charges
how does a continuous premium whole life policy differ from a limited payment whole life policy?
the time period in which premiums will be paid
which of these is NOT a reason to buy a term life policy?
to accumulate savings
how long does protection normally extend to under a limited pay whole life policy?
until age 100
an insurance policy that can also be classified as a securities product is called
variable life
at what point are death proceeds paid in a joint life insurance policy?
when the first person dies
