Chapter: Life Insurance Policies

Which of the following is called a "second-to-die" policy?

Survivorship life

In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?

5

Which of the following features of the Indexed Whole Life policy is NOT fixed?

Cash value growth

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?

Withdrawals are not taxable.

All of the following could own group life insurance EXCEPT

A group needing low-cost life insurance.

All of the following are true regarding a decreasing term policy EXCEPT

The payable premium amount steadily declines throughout the duration of the contract.

Both Universal Life and Variable Universal Life have a

Flexible premium.

A Straight Life policy has what type of premium?

A level annual premium for the life of the insured

A key person insurance policy can pay for which of the following?

Costs of training a replacement

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.

The premium of a survivorship life policy compared with that of a joint life policy would be

Lower.

Which component increases in the increasing term insurance?

Death benefit

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?

Premiums are not tax deductible as a business expense.

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.

Which of the following would help prevent a universal life policy from lapsing?

Target premium

An Adjustable Life policyowner can change which of the following policy features?

The coverage period

An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term?

The insured may renew the policy for another 10 years, but at a higher premium rate.

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.

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an

Modified endowment contract.

An insured owns a term policy with a guaranteed renewable option. When the end of the policy draws near, the insured answers medical questions in order to prove insurability and qualifies for a discounted premium rate. Which option best describes this scenario?

Re-entry

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy?

The employer is the owner and beneficiary.

All of the following are true of key person insurance EXCEPT

The plan is funded by permanent insurance only.

Which of the following is an example of a limited-pay life policy?

Life Paid-up at Age 65

Which of the following statements is TRUE concerning whole life insurance?

Lump-sum death benefits are not taxable.

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

When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n)

Executive bonus.

When would a 20-pay whole life policy endow?

When the insured reaches age 100

An individual purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy?

$100,000

An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an

Interest-sensitive Whole Life.

Concerning Juvenile Life insurance, which of the following statements is INCORRECT?

Juvenile Life is classified as any life insurance purchased by a minor.

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Limited pay whole life

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?

The death benefit can be increased by providing evidence of insurability.

What are the two components of a universal policy?

Insurance and cash account

All of the following are characteristics of group life insurance EXCEPT

Premiums are determined by the age, sex and occupation of each individual certificate holder.

To sell variable life insurance policies, an agent must receive all of the following EXCEPT

SEC registration.

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.

Your customer doesn't mind paying a higher premium as long as he gets a life insurance product that would allow for a faster growth of the cash value. What kind of policy would you recommend?

An endowment policy

In Modified Life policies, what happens to the premium?

It is level at the beginning and increases after the first few years.

A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that?

Joint Life Policy

Which of the following has the right to convert the existing term coverage to permanent insurance?

Policyowner

Which of the following determines the cash value of a variable life policy?

The performance of the policy portfolio

What percentage of a company's employees must take part in a noncontributory group life plan?

100%

Which of the following is INCORRECT regarding a $100,000 20-year level term policy?

At the end of 20 years, the policy's cash value will equal $100,000.

Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount?

Buy-sell agreement

An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?

It will increase because the insured will be 5 years older than when the policy was originally purchased.

What does "level" refer to in level term insurance?

Face amount

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

Which type of life insurance policy allows the policyowner to pay more or less than the planned premium?

Universal life

If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this?

Jumping juvenile policy

A Universal Life insurance policy has two types of interest rates that are called

Guaranteed and Current.

Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount?

Universal life

The death protection component of Universal Life Insurance is always

Annually Renewable Term

All other factors being equal, the least expensive first-year premium payment is found in

Annually Renewable Term.

Graded-Premium Whole Life policy premiums are typically lower initially, but gradually increase for a period of 5 to 10 years. After the period of increase the premiums will

Be level thereafter.

Which of the following statements concerning buy-sell agreements is true?

Buy-sell agreements are normally funded with a life insurance policy.

When an employee terminates coverage under a group insurance policy, coverage continues in force

For 31 days.

B just bought a new car, which he anticipates will be paid for 4 years from now. He also wants to buy a life insurance policy, but is financially limited until the car is paid off. Which of the following types of policies would be best for B?

Modified Life

If an agent wishes to sell variable life policies, what license must the agent obtain?

Securities

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.

In a group life insurance policy, the employer may select all of the following EXCEPT

The beneficiary.

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen?

The insurer will pay the full death benefit from the group policy to the beneficiary.

What is the purpose of establishing the target premium for a universal life policy?

To keep the policy in force

In a survivorship life policy, when does the insurer pay the death benefit?

Upon the last death

A Universal Life Insurance policy is best described as a/an

Annually Renewable Term policy with a cash value account.

All of the following are true about variable products EXCEPT

The premiums are invested in the insurer's general account.

In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT

The type of investment.

Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT?

100% participation of members is required in noncontributory plans.

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing term

The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as

The policy contains sufficient cash value to cover the cost of insurance.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

The policy is owned by the company.

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%.

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.

Which of the following policies is characterized by a provision where the premiums are lower in the early years of the policy and increase over time to a point where they become level for the remainder of the policy?

Graded premium whole life

Which of the following Life Insurance policies would be considered interest sensitive?

Universal life

Which policy component decreases in decreasing term insurance?

Face amount

What is the main purpose of the Seven-pay Test?

It determines if the insurance policy is a MEC.

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called

Single premium whole life.

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

Any form of life insurance

The type of term insurance that provides increasing death benefits as the insured ages is called

Increasing term.

Which of the following is the required number of participants in a contributory group plan?

75%

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?

Executive is the owner, and the executive pays the premium.

Which statement is NOT true regarding a Straight Life policy?

Its premium steadily decreases over time, in response to its growing cash value.

Which of the following statements about group life is correct?

The cost of coverage is based on the ratio of men and women in the group.

The death benefit under the Universal Life Option B

Gradually increases each year by the amount that the cash value increases.

Annually renewable term policies provide a level death benefit for a premium that

Increases annually.

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 best defines target premium in a universal life policy?

The recommended amount to keep the policy in force throughout its lifetime

A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?

Level term

What type of whole life insurance policy has premiums that are adjusted so that during the first years of the policy, the premiums are lower than those of a straight whole life policy, and in subsequent years the premiums are higher than those of a straight whole life policy?

Modified life

Which Universal Life option has a gradually increasing cash value and a level death benefit?

Option A

Which type of life insurance policy generates immediate cash value?

Single Premium

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then

The benefit is received tax free.

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

A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why?

The purpose of the group was to purchase life insurance.

All other factors being equal, which of the following lists from the largest annual premium to the smallest annual premium?

20-year endowment, 20-pay life, 20-year level term, 20-year decreasing term

An insured has a Level Term Life Insurance policy that is guaranteed renewable and also includes a re-entry provision. The re-entry provision would allow the insured to renew the policy and

Pay a lower renewal premium by proving insurability.

Which of the following policies would be classified as a traditional level premium contract?

Straight Life

Which of the following is INCORRECT concerning a noncontributory group plan?

The employees receive individual policies.

Which of the following are generally NOT considered when underwriting group insurance?

The insureds' medical history

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

What is the purpose of key person insurance?

To lessen the risk of financial loss because of the death of a key employee