Life and Health - Chapter 3 Quiz - Policies and Riders

Jason has a Whole Life insurance policy with a face amount of $100,000, an annual premium of $1,000, and a cash value of $10,000. If he wants to borrow money from the insurer, what is the maximum he can obtain? The sum of the premiums paid up to that point in time $100,000 $90,000 $10,000

$10,000 When using a whole life policy for collateral for a loan from the insurer, the maximum amount of that loan is the amount of cash value in the policy.

An insured purchases a 20-Pay Life Policy with a face amount of $25,000 and an annual premium of $1,000. The insured dies 15 years later when the cash value is $5,000. What amount will the beneficiary receive? $15,000 $30,000 $20,000 $25,000

$25,000 If death occurs at any point prior to age 100, the beneficiary receives the death benefit of $25,000.

If Alvin purchases a Variable Universal Life Policy with a face amount of $250,000, and chooses death benefit Option B, upon his death the amount of the benefit payable to the beneficiary would be _________ if the policy had $25,000 in cash values. $275,000 $250,000 Nothing $225,000

$275,000 With an Option B death benefit, the beneficiary will receive the face amount plus the cash value as of the date of death.

If Jon dies with an outstanding policy loan of $10,000 on his $100,000 policy that has $15,000 of cash value, what will his beneficiary receive at the time of claim? $100,000 $115,000 $90,000 $105,000

$90,000 Upon death, the insurance company recovers any outstanding loan prior to paying out a claim to the beneficiary.

What is the typical time limit on life expectancy for a Viatical Settlement candidate? 2 years 5 years 4 years 3 years

2 years The life expectancy of a Viatical Settlement candidate is normally two years or less.

Which Term Life insurance policy would have the highest initial premium, all else being equal? 1-year Term 10-year Term 5-year Term 20-year Term

20-year Term The longer the term period, the higher the initial term premium.

For an insured to be deemed terminally ill under the accelerated death benefit rider, he or she must be expected to live no more than _____ months. 6 18 24 12

24 Generally, the rider will state that terminally ill means life expectancy is less than 24 months.

Joe has a whole life policy with a guaranteed insurability rider. He was 21 at the time the policy was issued. If he exercises all of the options at the ages specified under the typical rider, how many policies will he end up with? 7 6 2 3

7 Under the typical guaranteed insurability rider, Joe would have options to buy additional policies of the same type and face amount at ages 25, 28, 31, 34, 37, and 40, therefore he would buy 6 more to bring his total policies owned to 7.

The Double Indemnity Rider requires that the insured die within _____ days of the accident. 90 365 180 120

90 Death must occur within 90 days of the accident for the Accidental Death (Double Indemnity) Rider benefit to be paid.

Jacob owns a policy that pays a death benefit only if he dies within the 20-year policy period. If Jacob dies anytime that the policy is in force, his beneficiary will receive $100,000. The premium that Jacob pays for this policy will be the same throughout the 20-year policy period. Jacob owns: A Decreasing Term policy An Increasing Term policy A Level Term policy A Re-Entry Term policy

A Level Term policy The question specifies a death benefit only. The death benefit is constant (level) throughout the 20-year policy period, and the premium is the same (level) throughout the policy period.

Which of the following riders is used to increase the death benefit if death is the result of an unintended fatal injury, paying a multiple of the face amount? Accidental Death Payor Benefit Disability Benefit Accelerated Death Benefits

Accidental Death If death is ruled to be accidental, the Accidental Death Rider pays a multiple (usually double) of the death benefit of the underlying policy.

Which of the following best describes the return of premium rider? A benefit similar to waiver of premium, but is free of charge An increasing term benefit that matches the cumulative premiums paid A level term rider in the amount of 20 annual premiums An increasing term benefit that matches the cash value accumulation

An increasing term benefit that matches the cumulative premiums paid The return of premium rider is an increasing term policy which allows the insurer to pay out the policy's death benefit plus the cumulative premiums paid.

All of the following are true of a Universal Life policy, except: The cash value account earns interest at the current rate with a guaranteed minimum rate established Any borrowing or partial withdrawal from the cash value account terminates the policy Adjustments to the face amount may be requested by the policyowner to reflect changes in need It allows the owner to make additional contributions that increase the cash value or skip some premiums if the owner desires to do so

Any borrowing or partial withdrawal from the cash value would not terminate the policy. However, loans might reduce the interest amount credited to the cash value as well as reducing the overall payout upon death to the beneficiary.

A rider is usually requested at the time of ____________. First policy renewal Application Conversion Claim

Application A rider is usually requested at the time of application, but in certain instances one can be applied for while the policy is in force. Some riders require proof of insurability such as disability waiver of premium.

The premium charged for new policies obtained by exercising the Guaranteed Insurability Rider is based upon the: Attained age of the policyowner Original policy issue age of the insured Original policy issue age of the policyowner Attained age of the insured

Attained age of the insured Any time the Guaranteed Insurability Rider is exercised, the premium charged for the additional amount of insurance is based on the attained age of the insured.

With Joint Life Insurance policies, the premium is based on the: Age in a specialized table used for this type of policy Age of the youngest insured Average age of both insureds Age of the oldest insured

Average age of both insureds The premium on a Joint Life Policy is calculated on the average age of both insureds.

The value within a permanent life insurance policy that the policyowner can access through a policy loan or policy surrender is known as the ___________. Annuity Value Cash Value Endowment Value Rider Value

Cash Value The policyowner has the right to access the cash value through policy loans or policy surrender.

The net amount at risk in an Ordinary Whole Life Insurance Policy _________ over the life of the policy. Varies Increases Decreases Remains the same

Decreases As the cash values build, the net amount at risk for the insurer declines since the face amount is the benefit paid out upon the death of the insured. It is a way to keep the premiums affordable as the insured ages and the risk of death increases.

Which of the following is a type of life insurance that provides an amount of coverage that diminishes while the policy is in effect and is most often used to pay an outstanding loan or mortgage balance upon the death of the insured? Renewable Term Ordinary Term Decreasing Term Split Level Term

Decreasing Term Decreasing Term reduces in death benefit while the policy is in effect. It is most often used to cover the balance of an outstanding loan, for example, a mortgage.

The ________ is the amount payable to the beneficiary upon death of the insured named in a life insurance policy. Loan value Premium refund Face amount Cash value

Face amount The face amount is the death benefit amount payable to the beneficiary upon death of the insured. It is also referred to as the coverage amount.

The Return of Premium Rider, the Return of Cash Value Rider, and the Cost of Living Rider all use which type of term insurance to accomplish their objective? Increasing Term Decreasing Term Re-Entry Term Level Term

Increasing Term The purpose behind each of the 3 riders in the question is to increase the death benefit to fulfill the objective of the rider.

What is the name of a single policy covering two or more lives that pays benefits upon the death of the first insured? Accidental Death Joint Survivorship Life Joint Life Universal Life

Joint Life A Joint Life Policy covers two or more lives under a single policy, resulting in a reduction in premium, with the death benefit payable upon the death of the first to die.

Which of the following policies is used in estate planning to fund irrevocable trusts? Joint Survivorship Life Policy Variable Life Juvenile Insurance Joint Life

Joint Survivorship Life Policy A Joint Survivorship Life Policy pays the death benefit upon the death of the last insured to die. It is used in estate planning situations to fund irrevocable trusts.

A _________ policy is one that is written on the life of a minor. Joint Life Equity-Indexed Whole Life Joint Survivorship Life Juvenile

Juvenile A juvenile policy is a policy written on the life of a minor to pay for any funeral costs, protect future insurability, and to build up cash value.

A life insurance premium is paid each month. The insurer then subtracts a mortality and expense charge from the policy's cash value. This best describes which of the following life insurance policies? Universal Life Variable Whole Life Adjustable Whole Life Whole Life

Universal Life All premiums paid to a Universal Life Policy are placed in the policy's cash value account. The mortality charge (cost of protection) and expenses are then deducted from the cash value account.

Which of the following is NOT a type of Term Life Insurance Policy? Increasing Variable Decreasing Level

Variable The question is asking about types of Term Policies which are: Level, Increasing, and Decreasing.

Which of the following policies requires a producer to have both a life and securities license to sell? Equity-Indexed Indeterminate Premium Universal Variable Universal

Variable Universal Both Variable Life and Variable Universal Life require a securities and life license to sell. A securities license is not required for Adjustable Life, Universal Life, or Equity-Indexed Life.

All of the following life insurance policies have a cash value that increases based on interest being credited to the cash value, except: Equity-Indexed Whole Life Current Assumption Whole Life Universal Life Variable Universal Life

Variable Universal Life Variable Universal Life's cash values grow based on the performance of the separate accounts chosen by the policyowner, while the other three policies have interest credited to the cash values by the insurer.

Most group life insurance has a(n) ______ term death benefit. Decreasing Variable Increasing Level

Level Group term life insurance has a level death benefit.

Quentin, age 65, has a life insurance policy he no longer needs and no longer can afford, but he does have a need for cash. XYZ Inc. purchased his policy for less than the face amount but more than the cash value and is now the policyowner and premium payor. This was which of the following transactions? Viatical Trust Settlement Agreement Buy/Sell Agreement Life Settlement Living Needs Transaction

Life Settlement A Life Settlement is like a Viatical Settlement except it does not involve a terminally ill insured.

Which of the following Whole Life insurance policies has the lowest annual premium payment per $1,000 of coverage for a 35-year-old, all other factors being equal? Limited Pay Ordinary Whole to age 85 20-Pay Ordinary Life Ordinary Straight Whole Life 30-Pay Ordinary Life

Ordinary Straight Whole Life The longer the premium-paying period, the lower the annual premium. A $100,000 Ordinary Straight Whole Life Policy spreads the payments out over a longer period of time than a limited premium payment policy.

The face amount of an Ordinary Whole Life Policy _________ over the life of the policy. Remains the same Increases Varies Decreases

Remains the same The face amount is the same as the death benefit and is the amount payable to the beneficiary upon the insured's death. Over the life of the policy it remains level.

Which of the following term life insurance policies would be the most expensive, everything else being equal at the time of issuance? Renewable Renewable and Convertible Non-Renewable and Non-Convertible Convertible

Renewable and Convertible To have a term policy with both features would mean that the term policy would be the most expensive of the ones listed.

An insured dies within the time limit of an Increasing Term Rider and the beneficiary receives the face amount plus the value of all paid premiums. Which rider is attached to the policy? Term to age 100 Return of Premium Waiver of Premium Return of Cash Value

Return of Premium With a Return of Premium Rider, if the insured dies within the period of the term, the beneficiary receives the death benefit of the Whole Life Policy and, through an increasing term rider, the equivalent of the premiums paid on the Whole Life Policy.

A(n)________ is an added benefit attached to a life insurance policy for which an additional premium is generally paid. Reduction Rider Extension Exception

Rider Generally, for an additional premium, a rider can be added to a life insurance policy, such as a child rider, spouse rider, or waiver of premium rider.

Timothy is the insured/owner of a universal life insurance policy and is concerned that in the event of disability, the policy might lapse. Which rider would keep the policy from lapsing if he became disabled? Waiver of Cost of Insurance Guaranteed Insurability Rider Waiver of Premium Rider Return of Premium Rider

Waiver of Cost of Insurance Tim has a Universal Life Policy which needs to have enough cash value in it in order to pay the monthly cost of insurance. If he is disabled, the Waiver of Cost of Insurance will keep the policy in force.

Which rider allows a disabled insured policyowner to forgo future premiums on his or her whole life insurance policy while continuing to enjoy full policy benefits? Living Needs Waiver of Premium Cost of Living Benefit Waiver of Cost of Insurance

Waiver of Premium If the insured policyowner were to become totally disabled, the Waiver of Premium Rider would waive future premiums for the duration of the disability and still allow the cash value and dividends to continue as though the premiums were being paid

If an insured is concerned about being unable to pay the premiums on his or her whole life policy in the event of a total disability, which of the following riders should be added to the policy? Waiver of Premium Waiver of Cost of Insurance Payor Benefit Disability Income Benefit

Waiver of Premium The Waiver of Premium Rider would waive premiums for a disabled insured. If the insured also wanted to replace income due to disability, then he or she would purchase the Waiver of Premium/Disability Income Rider.

Bess received information in regard to her individual Term Insurance explaining that she could convert the policy by doing which of the following? Without providing proof of insurability and pay the same level premium Prove insurability and pay the same level premium Prove insurability and pay higher premiums based on her attained age Without providing proof of insurability, pay higher premiums based on her attained age

Without providing proof of insurability, pay higher premiums based on her attained age Bess does not have to prove insurability to convert her individual Term Policy, but she will pay a higher premium because she is older than when she purchased the Term Policy, and because she is converting to a Permanent Policy.

Term life insurance is primarily a _______ form of life insurance protection. Convertible Temporary Renewable Permanent

Temporary Term Insurance provides temporary, not permanent, protection. Not all term insurance is renewable and/or convertible.

How is a Variable Universal Life Insurance policy different from a Universal Life Insurance policy? The ability to invest the cash values in various separate accounts The premium payments The death benefit options The adjustability of the face amount

The ability to invest the cash values in various separate accounts The policy has a variable component, meaning that the cash values can be invested outside of the insurer's general account in various separate accounts.

If an insured has a Life Paid-Up at 75 Policy (a limited-pay life paid-up at age 75), what would the beneficiary receive if the insured died at age 68? The face amount The face amount minus the cash value The cash value The face amount plus the cash value

The face amount The full face amount (death benefit) is payable to the beneficiary any time death occurs while the policy is in force.

If a policyowner of a convertible term life insurance policy exercises his/her right to convert, which of the following will happen? The new life insurance policy will likely have a much lower premium The new policy will only be issued after proof of insurability is provided The new policy will have much more life insurance coverage than the previous one The term policy will be replaced by a permanent life insurance policy

The term policy will be replaced by a permanent life insurance policy The Convertibility Option of a term policy allows the policy to be converted to a permanent policy without proof of insurability. The premium upon conversion is usually based upon attained age which results in a much higher premium. Some insurers will allow the new premium to be based on issue age of the original policy, but in that case, all back premiums (that is, the difference in cost between the original policy and the new policy for all years that the original policy was in force) will have to be paid at the time of conversion.