Life Insurance

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 In joint life policies the death benefit is paid upon the first death only

An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined and the cash value fell to $10,000. If the insured dies, how much will be paid out?

$50,000; The cash value of a variable life insurance policy is not guaranteed. However, even if investments devalue significantly, they cannot be lower than the initial guaranteed benefit amount.

A Straight Life policy has what type of premium?

A level annual premium for the life of the insured Straight Life policies charges a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit.

Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be

Adjusted to the insured's age at the time of renewal.; If a level term product is renewed at the end of the term period the premium will be based upon the attained age of the insured. AIts premium steadily decreases over time, in response to its growing cash value.

The insured is also the policyowner of a whole life policy. What age must the insured attain in order to receive the policy's face amount?

Age 100

The LEAST expensive first-year premium is found in which of the following policies?

Annually Renewable Term; Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.

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; A decreasing term policy's face amount decreases as the amount of debt is reduced.

If an annuitant dies before annuitization occurs, what will the beneficiary receive?

Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount; If an annuitant dies before annuitization, the beneficiary will receive either the amount paid into the plan or the cash value of the plan, whichever is greater.

What type of premium do both Universal Life and Variable Universal Life policies have?

Flexible; Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, as long as there is enough value in the policy to fund the death benefit.

A Return of Premium term life policy is written as what type of term coverage?

Increasing; Return of premium (ROP) life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.

What are the two components of a universal policy?

Insurance and cash account: A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher.

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 Because the cash values are generated by investments, interest rates will affect the amount of the cash value

During partial withdrawal from a universal life policy, which portion will be taxed?

Interest; During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation

Which of the following is TRUE regarding the annuity period?

It may last for the lifetime of the annuitant.; The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

Variable Whole Life insurance is based on what type of premium?

Level Fixed Premium; Variable Whole Life insurance is a level fixed premium investment-based product.

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

Life Paid-up at Age 65; Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.

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. Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.

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

SEC registration.; Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.

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

Securities; Variable products are governed in part by the Securities and Exchange Commission; therefore, agents selling variable life policies must also secure a securities license.

Which type of life insurance policy generates immediate cash value?

Single Premium: like other types of whole life policies, single premium whole life (SPWL) endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing feature of a SPWL is the fact that it generates immediate cash value, due to the lump- sum payment made to the insurer.

Which two terms are associated directly with the way an annuity is funded?

Single payment or periodic payments

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. Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception.

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

Straight Life Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.

All of the following are true of an annuity owner EXCEPT

The owner must be the party to receive benefits.; The "owner" is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary

Which of the following is TRUE regarding the premium in term policies?

The premium is level.; Regardless of the type of term insurance purchased, the premium is level throughout the term of the policy. Only the amount of the death benefit may change.

Which of the following is NOT true regarding Equity Indexed Annuities?

They Earn lower interest rates than fixed annuities.

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; Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

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 policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

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%.; Convertible term insurance is convertible without proof of insurability up to the full-term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured's attained age.

Which of the following types of policies allows for a flexible premium and a variable investment component?

Variable universal life insurance; A variable universal life insurance policy combines a flexible premium with an investment component that allows for potentially great returns.

Which of the following is a key distinction between variable whole life and variable universal life products?

Variable whole life has a guaranteed death benefit.; Variable universal life insurance may or may not have a minimum death benefit, unlike variable whole life insurance which guarantees a minimum death benefit.

The main difference between immediate and deferred annuities is

When the income payments begin

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

a SEC registration. SEC registration is for securities, not agents.

Which of the following products provides income for a specified period of years or for life, and protects a person against outliving their money?

An annuity; An annuity is a contract used to accumulate funds that are to be distributed at a specified time in the future as a periodic payment of accumulated funds.

The minimum interest rate on an equity indexed annuity is often based on

An index like Standard & Poor's 500.; Equity indexed annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity, the equity indexed annuity has a guaranteed minimum interest rate. Interest rates on equity indexed annuities are often tied to a familiar index, such as the Standard and Poor's 500.

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

Annually Renewable Term policy with a cash value account. A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

In an annuity, the accumulated money is converted into a stream of income during which time period?

Annuitization period. This is the time during which accumulated money is converted into an income stream.

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

Face amount; Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages.

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. Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.

Which of the following is TRUE regarding the accumulation period of an annuity?

It is a period during which the payments into the annuity grow tax deferred.; The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.

Which of the following best describes annually renewable term insurance?

It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

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; The premium will remain level during the entire level premium term policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal.

Which statement is NOT true regarding a Straight Life policy?

Its premium steadily decreases over time, in response to its growing cash value. ; Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit

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. This policy covering two lives would be the least expensive b/c the premiums are based on an average age. It will pay a death benefit only at the first death.

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; Premium payments will cease at her age 65, but coverage will continue to her death or age 100.

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 In limited-pay policies, the premiums for coverage will be completely paid-up well before age 100, usually after a specified number of years.

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

Lower; Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.

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

Option A; Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures

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; Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.

An insured purchased an individual life insurance policy with a face amount of $15,000. He pays a premium each month. What type of policy is that?

Ordinary life. This type of life insurance is written on an individual basis with a face amount of $2,000 or more. The premiums are paid annually, semiannually, quarterly or monthly.

Which of the following is another term for the accumulation period of an annuity?

Pay-in period; The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity.

Which of the following is NOT one of the three types of term coverage based on what happens to the face amount during the policy term?

Renewable: The three basic types of term coverage available based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. No matter of the type of term insurance purchased, the premium is level throughout the term of the policy.

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

Target premium; The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

All of the following entities regulate variable life policies EXCEPT

The Guaranty Association; Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.

All of the following statements about equity index annuities are correct EXCEPT

The annuitant receives a fixed amount of return.; Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.

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

The performance of the policy portfolio The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.

All of the following are true about variable products EXCEPT

The premiums are invested in the insurer's general account. insurers selling variable products invest their customers' monies in a separate account. Which is very similar to a mutual fund. Because there is no GUARANTEED rate of return the customer must bear the investment risk,

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; The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

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

To keep the policy in force; The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

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

Universal life; The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

Equity indexed annuities

seek higher returns; Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.