Life Insurance Policies - Provisions, Options and Riders

Which statement regarding universal life insurance is correct? Cash values 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 values have a guaranteed minimum interest rate

What is payable to a policyowner if 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

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 is provided if the insured is still alive at the end of the policy period Temporary insurance needs can be met

A cash benefit is provided if the insured is still alive at the end of the policy period

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 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

Which of these statements is true regarding an adjustable life insurance policy? Policyowners are given the option of alternating between forms of term and whole life insurance Cash value loans are not permitted Evidence of insurability required for conversion Settlement options are limited compared to straight whole life policies

Policyowners are given the option of alternating between forms of term and whole life insurance

When does the insured stop paying premiums under a thirty-payment whole life policy? When the insured dies or 30 years from 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

When the insured dies or 30 years from the policy's inception, whichever comes first

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

Whole life

Who normally pays the premiums for group credit life insurance? Creditor and borrower share the cost equally Borrower Creditor Beneficiary

Borrower

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

Cash payments are not directly provided to the policyowner

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

Decreasing term insurance

Which of these life insurance policies do NOT contain cash value provisions? Modified whole life Universal life Decreasing term life Adjustable life

Decreasing term life

RIDERS TEST SECTION

RIDERS TEST SECTION

Which of these must be disclosed in a company's universal life policy? The internal rate of return The policy's surrender charges The commissions earned from the sale of the policy The maximum amount of coverage an individual can purchase

The policy's surrender charges

When a $50,000 life insurance policy is issued as a substandard risk on a graded death benefit basis, the amount of the policy's death benefit is $0 $50,000 initially less than $50,000 and decreases over time initially less than $50,000 and increases over time

initially less than $50,000 and increases over time

The insurance coverage in a variable life insurance policy may fluctuate according to the AM Best rating the company has received its underlying investments the consumer price index the total premiums paid

its underlying investments

Which statement concerning an adjustable life insurance policy is FALSE? Cash surrender is possible Evidence of insurability is always necessary when there is a change in premium Combines term and permanent insurance into a single plan Cash value loans are allowable

Evidence of insurability is always necessary when there is a change in premium

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

Which nonforfeiture 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 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 policyowner are tax-deductible

Interest payments made by policyowner are tax-deductible

Which of these statements regarding the life insurance premium for a children's term rider is correct? Decreasing premium as each child becomes an adult Level premium no matter how many children Increasing premium as additional children are born No premium is normally charged for a children's rider

Level premium no matter how many children

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

Level premiums

These are all accurate statements regarding universal life insurance EXCEPT Mortality charge is deducted from the policy's cash value each month Policy loans are not permitted Flexible premiums as long as the cost of insurance protection is covered Policy states what percentage of the premium is contributed to the cash value and which pays for the cost of insurance

Policy loans are not permitted

Straight whole life insurance can be accurately described in all of these statements EXCEPT Policy protection normally expires at age 65 Nonforfeiture values are available to the policyowner Provides level protection with level premiums Cash value loans are permitted

Policy protection normally expires at age 65

All of these statements concerning group credit life insurance are false EXCEPT Cash value loans are allowable Dividends can reduce the premium payments The face amount and premiums are flexible The face amount is determined by the outstanding loan balance

The face amount is determined by the outstanding loan balance

What kind of life insurance policy allows the policyowner the choice of investments along with adjustable premiums? Variable universal life Modified endowment contract Adjustable life Graded premium whole life

Variable universal life

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

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

How is the insured protected if a payor benefit rider is attached to the life insurance policy? Premiums are waived if the payor becomes financially insolvent Policy loan will automatically cover the premiums if payor becomes disabled or dies Premiums are waived in the event the payor becomes disabled or dies Policy loan will automatically cover the premiums if payor becomes financially insolvent

Premiums are waived in the event the payor becomes disabled or dies

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

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

Assigns specific ownership rights to a creditor

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

When the extended term life nonforfeiture option is chosen, the coverage 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

In what form can an insurance company provide an accidental death benefit on a life policy? As an optional policy rider As a provision of the policy As a nonforfeiture option As a mandatory policy rider

As an optional policy rider

Which statement is correct regarding the waiver of premium rider in a life insurance policy? Insurer waives the premium payments in the event the insured becomes financially insolvent Insured is relieved of premium payments in the event of total disability Insurer provides a policy loan to cover the premium payments in the event the insured becomes totally disabled This rider is required on all life insurance policies

Insurer waives the premium payments in the event the insured becomes financially insolvent

An insurance policy that can also be classified as a securities product is called variable life insurance modified life insurance universal life insurance a Modified Endowment Contract

variable life insurance

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

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 authorizes a policy loan to pay an overdue premium at the end of the grace period

provision that authorizes a policy loan to pay an overdue premium at 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 or part of the next premium due Surrender the policy's cash value

Surrender the policy's cash value

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

What is the end result of an absolute assignment? The assignee receives all incidents of ownership 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

The assignee receives all incidents of ownership

Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated for federal income tax purposes? The gain is added to his gross income and a penalty tax is assessed 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 a MEC is considered a tax and penalty-free transaction

The gain is added to his gross income and a penalty tax is assessed on the gain

An insured that has a guaranteed insurability rider attached to his life insurance policy has the ability to purchase life insurance policies on his children as they are born purchase life insurance on a spouse after becoming married purchase additional life insurance at anytime purchase additional insurance at stated intervals

purchase additional life insurance at anytime

A source of supplemental income for a life insurance policyowner can be derived from the policy's cash value payor benefit consideration face amount

cash value

Which statement regarding the cash value of a whole life insurance policy is correct? Can be borrowed against starting in the policy's fifth year Cash value accumulation is based on the performance of a separate investment account Available to the policyowner when policy has been surrendered Starts growing with the initial premium

Available to the policyowner when policy has been surrendered

A policyowner has just borrowed from a life insurance policy's cash value. Which of these statements is true? In the event 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 on the loan amount is prohibited

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

Which of these is NOT a typical life insurance nonforfeiture option? Reduced paid-up option Extended term option Cash surrender option Life income annuity

Life income annuity

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

Face amount plus total premiums paid

Rick owns a variable universal life policy and selected a variable death benefit option. What will normally happen to the death benefit as a result of this selection? It will remain the same It will decrease but never increase It will increase but never decrease It will fluctuate with changes in the cash account

It will fluctuate with changes in the cash account

Which of these situations would an accelerated (living) benefit rider provide funds to an insured? Insured expected to be confined to a nursing home for life Insured recently had a minor heart attack Insured has lost use of one arm Insured is having dire financial problems

Insured expected to be confined to a nursing home for life