CLU HS323 - Chp 7 Quiz (Variable Life & Variable Universal Insurance)

The prospectus associated with a variable life insurance policy typically contains detailed information about all the following items, EXCEPT: (A) The SEC's evaluation of the merits of the policy (B) The investment options available to the policyowner (C) The expense charges levied by the insurer (D) The rights of the policyowner under the contract (E) The surrender charge applicable to policy surrenders

(A) The SEC's evaluation of the merits of the policy

Variable universal life insurance policies are most suitable for which of the following types of clients? (A) Those who want to assume the investment risk (B) Those who want their funds invested as part of the insurer's general investment account (C) Those who wish to track the daily changes in the value of their investment in the Wall Street Journal (D) Those who want guaranteed minimum cash values and the potential for equity returns

(A) Those who want to assume the investment risk

All the following statements concerning the cash value in typical variable life insurance policies are correct, EXCEPT; (A) The size of the cash value fluctuates daily (B) Policy loans are not available (C) The same basic non forfeiture options are available as in traditional whole life insurance (D) The amount credited to the cash value is often reduced by both an expense charge and a mortality charge

(B) Policy loans are not available

Which of the following statements concerning the federal income tax treatment of variable universal life insurance policies is (re) correct? I - Switching investments among funds within the insurance company entails payment at that time of taxes on any capital gains realized up to that point II - A death benefit reduction that forces a distribution of cash values to retain life insurance status under the Internal Revenue Code may result in taxable income to the recipient (A) I only (B) II only (C) Both I and II (D) Neither I nor II

(B) II only II - A death benefit reduction that forces a distribution of cash values to retain life insurance status under the Internal Revenue Code may result in taxable income to the recipient

Modern variable life insurance contracts offer which of the following to the policyowner? I - A narrower range of investment fund options that in the early stages of development of variable life insurance II - A managed portfolio fund option, in which the insurer makes the investment allocation decisions for the policyowner (A) I only (B) II only (C) Both I and II (D) Neither I nor II

(B) II only II - A managed portfolio fund option, in which the insurer makes the investment allocation decisions for the policyowner

Variable universal life insurance policies typically are characterized by which of the following? (A) Interest rate guarantees (B) Cash value guarantees (C) A prospectus (D) Premiums set at fixed redetermination rates

(C) A prospectus

A Variable life insurance policy is characterized by which of the following? I - Minimum guaranteed interest rates II - Minimum guaranteed cash values III - Required registration with the SEC as a security (A) I only (B) II only (C) III only (D) I & II only (E) II & III only

(C) III only III - Required registration with the SEC as a security

In a variable life insurance policy, the policyowner selects which of the following? I - The particular securities in which the savings element will be invested II - Whether the savings element will or will not be a part of the insurer's general investment portfolio III - The broad categories of investments in which the savings element will be invested (A) I only (B) II only (C) III only (D) I & II only (E) II & III only

(C) III only III - The broad categories of investments in which the savings element will be invested

All the following statements concerning the linkage of death benefits with investment performance in a variable life insurance policy are correct, EXCEPT: (A) The death benefits amount never falls below the amount of coverage that was present when the policy was first purchased (B) Under the level additions model, excess investment returns are used to buy single-premium level additions to the death benefit amount (C) Under the constant ratio model, excess investment earning are used to buy single-premium increasing additions to the death benefit amount (D) Actual investment performance that is below the targeted level of investment performance may result in downward adjustments in the death benefit amount.

(C) Under the constant ratio model, excess investment earning are used to buy single-premium increasing additions to the death benefit amount

All of the following are characteristics of variable adjustable life insurance policies, EXCEPT: (A) The size of the death benefit may be decreased (B) The length of the premium-paying period may be increased (C) The policyowner may make investment allocation decisions (D) The policyowner has the unilateral right to vary the size of each of the premium payments

(D) The policyowner has the unilateral right to vary the size of each of the premium payments

All the following statements concerning variable universal life insurance policies are correct, EXCEPT: (A) They are classified as securities by the SEC (B) The have a similar degree of premium flexibility as do universal life policies (C) They give the policyowner a choice as to the funds in which the savings element will be invested (D) They offer the policyowner only the level death benefit design

(D) They offer the policyowner only the level death benefit design