Chapters 4 - 5 Exam Prep

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A source of supplemental income for a life insurance policyowner can be derived from the.... - Cash value - Payor benefit - Consideration - Face amount

Cash value

A "premature" distribution form a modified endowment contract (MEC) incurs a penalty tax of..... - 5% - 10% - 17.5% - 20%

10%

Any employee insured under a group life insurance plan is normally..... - Given a master certificate - Covered on a noncontributory basis - Required to show proof of insurability - Covered with term life insurance

Covered with term life insurance

A life insurance policy provision that has the ability to reduce the death benefit is called the..... - Accelerated (living) benefit - Insuring clause - Payor benefit - Spendthrift clause

Accelerated (living) benefit

An individual who purchases a modified life insurance policy expects.... - A higher rate of return - Coverage for two people - An improvement in future income - A flexible face amount

An improvement in future income

How may an insurance company classify an accidental death benefit on a life policy? - As am optional policy rider - As a provision of the policy - As a nonforfeiture option - As a mandatory policy rider

As an optional policy rider

When would evidence of insurability be required for a person already covered with a variable universal life policy? - When the premium is increased - When the policy has renewed - When the death benefit is increased - When policy is being converted to permanent coverage

When the death benefit is increased

At what point are death proceeds paid in a joint life insurance policy? - When the first insured dies - When the second insured dies - Only after insurable interest has been confirmed to still exist - If both insureds die from the same accident

When the first insured dies

Which life insurance policy would be eligible to include an automatic premium loan provision? - Increasing term - Level term - Decreasing term - Whole life

Whole life

The conversion option for group term insurance may be exercised by an employee.... - At any time while still employed - Within 2 years of the hire date - Within 31 days of terminated employment - After providing proof of insurability

Within 31 days of terminated employment

Which of the following is generally a form of group credit life insurance? - Decreasing term insurance - Increasing term insurance - Level term insurance - While life insurance

decreasing term insurance

Which life insurance clause prohibits an insurance company from questioning the validity of the contract after a stated period of time has passed? - Entire contract provision - Grace period provision - Incontestable clause - Insuring clause

Incontestable clause

All of these are considered features of whole life insurance EXCEPT.... - Cash value accumulation - Permanent coverage - Initial premium is lower than for an equivalent amount of term insurance - Policy loans are allowed

Initial premium is lower than for an equivalent amount of term insurance

Which statement regarding whole life insurance is accurate? - Cash value loans are not permitted - Insurance coverage can continue for life - Policy normally matures at retirement - No cash value accumulations

Insurance coverage can continue for life

In what way is a life insurance policy affected by an accelerated benefit payment? - Decreases the premiums - Extends the grace period - Increases the policy loan balance - Decreases the death benefit

Decreases the death benefit

Which of the following would NOT be a reason for purchasing life insurance on a child's life? - Provide benefits for the child if the parents die - Pay for the child's funeral expenses - Provide a start of the child's personal insurance - Help provide funds for the child's education

Provide benefits for the child if the parents die

Which of the following could be a future use of the cash value that builds in a recently-purchased whole life insurance policy? - Convert the cash value to a paid-up term policy - Gives policyowner ability to borrow against funds within two years - Increases the policy's face amount - Provide supplemental income in 35 years

Provide supplemental income in 35 years

What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued? - $0 - $50,000 - Under $50,000 initially, but decreases annually over time - Under $50,000 initially, but increases over time

Under $50,000 initially, but increases over time

An insured has a $25,000 whole life insurance policy with $6,000 cash value available. Under the extended term nonforfeiture option, what is the amount of insurance available to the insured? - $6,000 - $19,000 - $25,000 - $31,000

$25,000

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? - 0% - 25% - 50% - 100%

100%

What is a juvenile life insurance policy? - Coverage normally sold as a term rider - A life policy that covers the parents of a minor - A life policy that covers the life of a minor - A life policy that covers the lives of both the parents and their children

A life policy that covers the life of a minor

The absolute assignment of a life insurance policy results in.... - All incidents of ownership transferred to the assignee - The assignee receives partial incidents of ownership - The transfer of ownership is revocable at the discretion of the original policyowner - Evidence of insurability must be proven before ownership is transferred

All incidents of ownership transferred to the assignee

Which type of policy can group term life insurance normally be converted to? - An individual renewable policy - An individual level term policy - An individual permanent life insurance policy - A group permanent life insurance policy

An individual permanent life insurance policy

When does the insured stop making payments under a thirty-payment whole life policy? - At the time of death or 30 years after the policy's inception, whichever comes first - It depends on the performance of the underlying investment account - When the cash value surpasses the face amount - At age 100

At the time of death or 30 years after the policy's inception, whichever comes first

In the event of premium default, which life insurance provision will use the cash value to keep the policy in force? - Waiver of premium - Automatic premium loan - Reinstatement - Policy loan

Automatic premium loan

Which statement regarding the waiver of premium rider is accurate? - Policy lans are used to keep the policy active - Cash payments is not directly provided to the policyowner - Insurance companies are required to offer this to policyowners - Premiums are waived in the event of bankruptcy

Cash payments is not directly provided to the policyowner

Which statement regarding universal life insurance is correct? - Cash value accumulations have a guaranteed minimum interest rate - Policyowner can change the face amount but not the premium - Policyowner can change the premium but not the face amount - Partial withdrawals cannot be made from the policy's cash value

Cash value accumulations have a guaranteed minimum interest rate

The policy provision that permits an employee to change from group life coverage to individual life policy is called the..... - Assignment provision - Conversion provision - Certificate provision - Modification provision

Conversion provision

What kind of policy typically offers mortgage protection? - Whole life - Decreasing term - Increasing term - Level term

Decreasing term

Group credit life insurance is typically a form of - Decreasing term insurance - Increasing term insurance - Level term insurance - Whole life insurace

Decreasing term insurance

Which of the following is NOT guaranteed in a whole life policy? - Settlement options - Nonforfeiture options - Dividend scale - Policy loan values

Dividend scale

Which statement about group like insurance is INCORRECT? - Cost can be shared between employer and employees - Each participant requires evidence of insurability - A minimum number of employees participating may be required - Employer is issued a master policy

Each participant requires evidence of insurability

An employer has a group life coverage for his employees. How would an employee in poor health be treated in this situation? - Approved on a graded basis - Not eligible for insurance on this plan - Eligible for the same type of coverage as the other employees - Must pay a rating based on risk

Eligible for the same type of coverage as the other employees

Which of these is NOT considered a type of limited payment whole life insurance? - Life paid-ip to 65 - 20 payment life - 15 payment life - Endowment at age 70

Endowment at age 70

Which life insurance policy option allows the policyowner to have coverage equal to the net death benefit of the lapsed policy? - Reduced paid-up nonforfeiture option - Accelerated benefits option - Extended term nonforfeiture option - Cash surrender option

Extended term nonforfeiture option

Which statement concerning a decreasing term life policy is accurate? - Cash value decreases over the policy period - Premium decreases over the policy period - Face amount decreases over the policy period - Face amount stays the same over the policy period

Face amount decreases over the policy period

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? A. Remain the same B. Decrease but never increase C. Increase but never decrease D. Fluctuate with changes in the cash account

Fluctuate with changes in the cash account

How long does one premium payment cover in a single premium whole life policy? - Until the policy's first renewal date - One month - One year - Full life of the policy

Full life of the policy

What is an insurance contract that identifies individuals by relationship to a specific organization? - Employer insurance - Group insurance - COBRA plan - Industrial insurance

Group insurance

A policyholder has just borrowed from a life insurance policy's cash value. Which of these statements is true? - In the even of death, the loan amount is deducted from the policy proceeds - The policy lapses if not repaid within 5 years - A policyowner must -pre-qualify for the loan to determine creditworthiness - Interest in the loan amount is prohibited

In the event of death, the loan amount is deducted from the policy proceeds

Which of these statements is NOT true regarding a cash value loan against a life insurance policy? - Interest normally accrues on unpaid balances - Loan cannot exceed the policy's cash value - Policy contract terms dictate the interest rate - Interest payments made by the policyowners are deductible

Interest payments made by the policyowners are deductible

Which of these would NOT be a valid reason to add the waiver of premium rider to a life insurance policy? - Prevents a policy from lapsing in the event of total disability - Premiums waived by the insurer do not have to be repaid by the policyowner - Policy's cash value would still increase as policy premiums are being waived - It allows a policy loan to cover premium payments if the policyowner becomes totally disabled

It allows a policy loan to cover premium payments if the policyowner becomes totally disabled

Which statement regarding the certificate of insurance is accurate? - It is an insurance contract between the employer and insurer - It indicates evidence of an employee's insurance coverage - Each certificate of insurance is underwritten on an individual basis - It is issued by the employer to the employee

It indicates evidence of an employee's insurance coverage

What is the guaranteed cash value of a whole life insurance policy when the insured turns 65 years old? - Greater than the policy's face amount - Less than the policy's face amount - Depends on the performance of the separate underlying investment account - Equal to the policy's face amount

Less than the policy's face amount

Joe is a life insurance policyowner who has failed to pay interest on his policy loan. What will result from this nonpayment? - The insurer can charge a higher rate of interest - Loan amount is increased to reflect the amount of interest due - Future loan privileges will be suspended - The loan balance becomes due immediately

Loan amount is increased to reflect the amount of interest due

Tim is confined to a nursing home but doesn't have a terminal illness. Which life insurance rider is designed to help pay for this type of expense? - cash value rider - Viatical rider - Accelerated (living) benefit rider - Long-term care benefit rider

Long-terms care benefit rider

Why do insurers require a minimum number of employees participate in a group life insurance plan? - Efficiency is maximized - Minimize adverse selection - Profits are maximized - Claims are minimized

Minimize adverse selection

A life insurance guaranteed insurability rider gives the insured the right, without proving insurability, to..... - Purchase life insurance policies on his children as they are born - Purchase life insurance on a spouse after becoming married - Purchased additional life insurance at anytime - Periodically purchase additional insurance

Periodically purchase additional insurance

What happens to a life insurance policy when the policy loan balance exceeds the cash value? - Nonforfeiture options are offered - Policy becomes paid-up - Automatic premium loan provision is utilized - Policy will no longer be in force

Policy will no longer be in force

The automatic premium loan provision can be accurately described as a.... - Provision that charges a premium for the right to borrow against the cash value - Provision that provides a loan for necessary expenditures such as hospital bills, mortgage payments, etc - Provision that automatically waives an unpaid premium at the end of the grace period - Provision that provides a policy loan to pay any premiums by the end of the grace period

Provision that provides a policy loan to pay any premiums by the end of the grace period

Which of the following is NOT a dividend option for a life insurance policy? - Elect to take the dividends in cash - Allow the dividends to accumulate with interest - Use the dividends to pay all of part of the next premium due - Receiving the entire policy cash value

Receiving the entire policy cash value

What happens to the death benefit of a life insurance policy if the insured elects a partial payment from the accelerated (living) benefit provision? - None will be given - Increased - Reduced - No change

Reduced

What effect can a long-term care benefit rider have on a life insurance policy? - Increased cash value - Decreased cash value - Increased death benefit - Reduced death benefit

Reduced death benefit

What could be the potential result of taking out a cash value loan under a life insurance policy? - Death benefit will be subject to income taxes if insured dies with an outstanding loan balance - Interest that accrues on policy loan is tax-deductable to the policywner - Loan amount will be added to the policyowner's gross income - Reduces the amount receivable upon surrender of the contract

Reduces the amount receivable upon surrender of the contract

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 - Survivorship life policy is higher - Depends on the investment performance of the underlying accounts - Both have the same actuarial costs

Survivorship life policy is lower

When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for..... - Ten year term insurance for a person aged 55 - Ten year term insurance for a person aged 45 - Yearly renewable term insurance for a person aged 55 - Yearly renewable term insurance for a person aged 45

Ten year term insurance for a person aged 55

A material change in a modified endowment contract (MEC) results in.... - The contract becoming void - A new contestable period - The 7-pay test, adjusted for cash value, applies again - A tax penalty

The 7-pay test, adjusted for cash value, applies again

A survivorship life insurance policy usually covers how many lives? - 1 - 2 - 3 - 4

2

The death proceeds of a credit life insurance policy typically paid to the.... - Borrower - Lender - Annuitant - Borrower's dependents

Lender

Which statement regarding an adjustable life insurance policy is NOT true? - Combines term and permanent insurance into a single plan - Allows flexibility as insurance needs change - Plan of coverage may be changed by the policyowner - Policy loans are not permitted

Policy loans are not permitted

What typically changes at the re-entry option date found in some term like policies? - Beneficiary - Amount of coverage - Premium - Contestable period

Premium

An insurance policy that can also be classified as a securities product is called..... - Variable life - Modified life - Universal life - A MEC

Variable life

Which type of life insurance policy allows a policyowner the choice of investments along with flexible premium payments? - Variable universal life - Modified endowment contract - Adjustable life - Graded premium whole life

Variable universal life

When can a life insurance policy be issued WITHOUT the insured's consent? - When an employer purchases a policy on the life of an employee - When a parent purchases a policy on the life of a minor child - When a partner purchases a policy on the life of another partner - When a creditor purchases a policy on the life of a borrower

When a parent purchases a policy of the life of a minor child

A policyowner is permitted to take out a policy loan on a whole life policy at what point? - When the policy has a cash value - When the policy has been in force 2 years - When the cash value equals the face amount - When the policyowner has demonstrated financial need

When the policy has a cash value

Which statement concerning an adjustable life insurance policy is FALSE? - Cash surrender is possible - Evidence of insurability is required when there is a change in premium - Combines term and permanent insurance into a single plan - An extra premium paid is allowable

Evident of insurability is required when there is a change in premium

Which life insurance policy provision allows a policyowner to cancel the policy and receive a full refund within a limited time period after policy delivery? - Grace period - Incontestable period - Elimination period - Free-look period

Free-look period

What is the name of the rider that provides an additional purchase option in a life insurance policy? - Payor rider - Cost of living rider - Waiver of premium rider - Guaranteed insurability rider

Guaranteed insurability rider

What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured? - Joint and survivorship - Survivorship life - Universal life - Joint life

Joint life

What type of premiums are associated with individual mortgage protection life insurance policies? - Level premiums - Flexible premiums - Modified premiums - Decreasing premiums

Level premiums

Laura added a children's rider to her life insurance policy. What type of coverage was added? - Level term - Increasing term - Decreasing term - Juvenile term

Level term

After the extended term life nonforfeiture option is chosen, the available insurance will be.... - Increasing term for a stated period of time - Level term for a stated period of time - Decreasing term for a stated period of time - Renewable for a stated period of time

Level term for a stated period of time

Group life insurance is typically issued as.... - Whole life insurance - Decreasing term insurance - Increasing term insurance - Level term insurance

Level term insurance

How long can an insurer legally defer paying the cash value of a surrendered life insurance policy? - 2 months - 4 months - 6 months - 12 months

6 months

Which of these is NOT an advantage of term life insurance? - The greatest amount of coverage can be provided for the initial premium paid - It can be provided as a rider to another policy - A cash benefit will be provided if the insured is alive at the end of the policy period - Temporary insurance needs can be met

A cash benefit will be provided if the insured is alive at the ends of the policy period

Which of the following combinations best describe a universal life insurance policy? - A mutual fund and an endowment policy - A term insurance policy and a whole life policy - A modified endowment policy an a n annual term insurance policy - A flexible premium deposit fund and a monthly renewable term insurance policy

A flexible premium deposit fund and a monthly renewable term insurance policy

Which of these statements accurately portrays an adjustable life insurance policy? - Policy can alternate between forms of term and whole life insurance - Evidence of insurability required for conversion - Settlement options are limited

Policy can alternate between forms of term and whole life insurance

Which of the following is a TRUE statement regarding universal life insurance? - Death benefits are normally taxable - Policy loans are not permitted - Premiums or face amount cannot be changed - Policy indicates how much of each premium is used toward company expenses

Policy indicates how much of each premium is used toward company expenses

If an insured dies during the grace period without having a paid the premium, how much will the insurer pay? - Policy's face amount - Total premiums paid will be returned - Policy's face amount minus any premiums due - Nothing

Policy's face amount minus any premiums due

Which statement regarding the life insurance premium for a children's rider is true? - Decreasing premium as each child becomes an adult - Premium remains the same no matter how many children - Increasing premium as additional children are born - No premium is normally charged for a children's rider

Premium remains the same no matter how many children

Assets that back the non-guaranteed values of variable life insurance products are held in which account? - Trust account set up by the insured - Separate account set up by the insurer - General account of the insurer - Money market account

Separate account set up by the insurer

If an employer pays for accidental death and dismemberment insurance for its employees, the amount paid by the employer is generally.... - Tax deductible to the business - Non-deductible to the business - Partially deductible to the business - Considered taxable income to each employee

Tax deductible to the business

What is payable to the policyowner of a whole life policy is surrendered prior to its maturity date? - The loan value - The cash value - The face amount minus any past due premiums and outstanding loans - Nothing

The cash value

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 - The gain is treated as taxable income but no additional penalties are applied - The gain is not taxable but a penalty is assessed - Surrendering an MEC is considered a tax and penalty-free transaction

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? - Cash value can be borrowed against - The coverage is permanent - Nonforfeiture values are available - The initial premium is lower compared to an equivalent amount of whole life coverage

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 - The period of coverage - The payment period - The plan of coverage

The person insured

Taxable income may by the result from all of these modified endowment contract (MEC) transactions EXCEPT for... - A cash value loan is taken out - Automatic premium loan provision is utilized - The policy is surrendered for less than what was paid into it - Dividend is issued

The policy is surrendered for less than what was paid into it

Which of the following statements about universal life insurance is NOT true? - Death benefit can be increased - Premiums are flexible - Universal life insurance normally has a minimum guaranteed cash value for duration of the policy - The cash value interest rate must be equal or exceed a guaranteed minimum value

Universal life insurance normally has a minimum guaranteed cash value for duration of the policy

What minimum percentage of all eligible employees must participate in a group life insurance plan if the premiums are completely paid for by the employer? - 0% - 50% - 75% - 100%

100%

The insurance coverage in a variable life insurance policy may vary based on the value of..... - the AM Best rating the company has received - Its underlying investments - The consumer price index - The total premiums paid

Its underlying investments

Which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)? - Policy loans - Claim on a death benefit - Extended term settlement options - Policyowners reaching the age of 70 1/2

Policy loans

How are level term policies able to provide level premiums? - Policy dividends - Yearly policy fees - Yearly reductions in face amount - Premiums are averaged over the term of the policy

Premiums are averaged over the term of the policy

What happens when a policyowner borrows against the cash value of his life insurance policy? - The policy proceeds would be reduced by the outstanding loan balance - No additional loans can be taken out in the future - The amount borrowed is added to the policyowner's gross income for tax purposes - The interest on the loan is tax- deductible

The policy proceeds would be reduced by the outstanding loan balance

What is considered the collateral on a life insurance policy loan? - No collateral is needed - The policy's cash value - The policy's face value - The equity in a policyowner's home

The policy's cash value

Which of these must be disclosed in a universal life policy? - Maximum coverage that can be purchased - The policy's surrender charges - The commissions earned from the sale of the policy - The producer's license expiration date

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 - The availability of cash value loans - The availability of nonforfeiture options - The settlement options

The time period in which premiums will be paid

Which of these is NOT reason to buy a term life policy? - To pay a mortgage balance if an insured dies - To offer temporary protection - To offer low-cost insurance coverage - To accumulate savings

To accumulate savings

A life insurance policy that includes a return of premium rider will pay the beneficiary how much upon the insured's death? - Total premiums paid plus the policy face amount - Face amount plus interest accrued - Interest accrued plus total premiums paid - Face amount minus any outstanding loan balances

Total premiums paid plus the policy face amount

How is a collateral assignment used in a life insurance contract? - Transfers permanent ownership rights to a creditor - Assigns complete ownership rights to a creditor - Transfers specific ownership rights to a creditor - Assigns ownership rights to the primary beneficiary

Transfers specific ownership rights to a creditor

A life insurance policeyowner would like a dividend option that results in a limited current outlay of funds. Which dividend option would be chosen? - Paid-up additions - Accumulation at interest - 1-year term - Reduction of premium payment

Reduction of premium payment


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