Chapter 6 - Life Insurance Premiums & Beneficiaries

Death benefits from a life insurance policy are normally considered to be...

Exempt from federal income tax

Life insurance premiums are computed on what three factors?

Mortality, interest, expenses

Which of the following statements about the installments for a fixed period settlement option in life insurance policies is NOT true?

The periodic payment amount is determined by the beneficiary's age

Which of these is an accurate statement regarding the fixed period settlement option on a life insurance policy?

A portion of the payments to the beneficiary comes from interest generated from policy loans

T is covered by an Accidental Death and Dismemberment (AD&D) policy that has an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?

Request of the change will be refused

Who is the beneficiary in a life insurance policy?

The stated person or entity who is designated to receive the death proceeds

A terminally ill policyowner decides to sell his life insurance policy at a discount to help support his family. This sale is called a(n)...

Viatical settlement

Which tax cost is normally associated with death?

Federal estate tax

Which settlement option makes minimum guaranteed dollar payments over a stated number of years?

Fixed-Period

When premiums are determined, one factor would be the expenses of the...

Insurer

Wyatt is shopping for life insurance and is mainly concerned with the policy's death benefit. Which index should he be looking at when making comparisons?

Net payment cost index

Which life insurance policy provision prohibits a beneficiary from "commuting, encumbering, withdrawing, or assigning" any portion of the proceeds prior to actual receipt from the company?

Spendthrift clause

A policyowner fell behind on the premium payments of a whole life policy, and it is now in the grace period. How much will the beneficiary receive if the insured dies during this grace period and the policy also contains an outstanding policy loan?

Full amount minus the past-due premium

During the early years of a whole life insurance policy, the cash value will normally be...

Less than the total premiums paid

A life policy's spendthrift clause would have no effect if the beneficiary is paid the proceeds as a...

Lump-sum payment

Which statement best describes a single premium whole life policy?

Paid-up policy that offers lifetime protection

A life insurance policy's contingent beneficiary is the...

Person who receives the death benefits if the primary beneficiary dies before the insured

What would be the disadvantage of naming a trust as beneficiary of a life insurance policy?

Trust administration fees would reduce policy proceeds

A life insurance company just paid a $100,000 death benefit to a beneficiary. When the insured died, the cash value was $15,000 and the total premiums-paid equaled $10,000. How much of the proceeds will be added to the beneficiary's gross income for federal income tax purposes?

Nothing

The beneficiary of a life insurance policy is normally selected by whom?

Policyowner

The highest mortality rate belongs to which group?

Age 70 males

When there is a named beneficiary on a life insurance policy, the death benefits...

Are paid directly to the beneficiary without interference from the insured's creditors

Kevin has an existing life insurance policy and assigns it to another insurer for a new contract. How would this transaction be treated for tax purposes?

As a Section 1035 exchange

Al surrenders his life insurance policy for its cash value. The total of the premiums paid into the policy minus total dividends received in cash or used to offset premiums is referred to as the...

Cost basis

Death proceeds from a life insurance policy are typically included in a deceased insured's gross estate...

For federal income tax reasons

How much is normally paid to a policyowner in a life (viatical) settlement?

Less than the death benefit

What kind of arrangement gives the policyowner the right to change the beneficiary?

Revocable designation

What effect does interest income have upon insurance premiums?

Decreases premium

How long do most states allow an insurance company to delay the payment of a cash surrender under the Delayed Payment provision?

6 months

A life insurance beneficiary dies after receiving only ix payments under the policy's life income settlement option. What happens with the remaining balance of the death proceeds?

Kept by the insurance company

What would be a valid reason for naming a trust as the beneficiary of a life insurance policy as opposed to naming as individual?

Management of proceeds would be provided