Life Insurance Quiz 5 Chs. 18, 19, 22

All universal life policies have a guaranteed minimum interest rate, generally ranging from four to six percent.

True

Variable Life and Variable Universal Life are especially suited for many business insurance situations where flexibility and growth of cash value are attractive features.

True

Variable life is a whole life policy where the policyowners bear all investment risk.

True

Which of the following problems could be caused by the flexibility offered by a universal life insurance policy?

A death benefit reduction may cause the policy to be classified as a modified endowment contract.

A policy that automatically increases the death benefit without evidence of insurability will typically violate the MEC rules.

False

Universal life insurance is:

Flexible premium; adjustable death benefit; current assumption policy

A modified endowment contract is a life insurance policy that has failed

the seven-pay test

A key feature of variable life insurance is

there is no guaranteed minimum cash value

Which of the following could never be treated as a modified endowment contract?

A single-premium policy that was entered into on June 1, 1988

If the investment performance of a variable universal life policy is poor:

Policy owners may be required to pay additional premiums

Which of the following statements regarding universal life insurance is not true?

The policy is not susceptible to inadvertently becoming a modified endowment contract.

Which of the following statements regarding universal life insurance is true?

Universal life allows policyowners to participate in favorable investment, mortality and expense experience of the company. insurance policies

A policy that originally is not a modified endowment contract will be subject to re-testing if there is a "material change" in the contract. Which of the following would likely be a material change?

An exchange of one policy for another policy in a 1035 exchange.

Variable life or variable universal life insurance is well-suited to individuals desiring a minimum basic level of coverage.

False

Which of the following statements about the tax aspects of ownership of variable life insurance is false?

Gains received are taxable at capital gains rates.

Which of the following statements about variable universal and variable life insurance death benefits is not true?

Variable Life and Variable Universal Life bear no mortality or expense risk.

Which item is not a key factor to be weighed in choosing the best variable life or variable universal life policy?

the amount of the cash value guarantees

Surrendering a universal life policy results in considerable loss if the policy is surrendered during:

the first 5 to 10 years

Insurance companies generally recover sales commissions and initial policy expenses from variable universal life policies within:

the first ten years

In a MEC contract insuring a single insured, there is a no-look-back requirement.

False

Most universal life policies are issued with front-end load charges rather than back-end load charges.

False

Once a policy is classified as a modified endowment contract, with certain corrections, it can be later treated as not a modified endowment contract.

False

A 10% penalty applies to certain distributions from life insurance policies that are treated as modified endowment contracts.

True

Which of the following items are NOT treated as income-first when distributed from a modified endowment contract?

dividends retained by the insurer to premiums or other consideration for the contract

As long as cash values are sufficient to cover policy charges, a universal life policy owner may skip premium payments.

True

An insurance contract entered into before 1988 can never be considered a modified endowment contract?

False

Because of the way that it is taxed, a modified endowment contract is not considered a life insurance policy for tax purposes.

False

Which of the following is true regarding the interest credited to universal life policies?

The rate used may be linked to a well-known index of yields if it exceeds a minimum rate guaranteed in the policy.

One disadvantage of universal life is that policy owners bear more risk of adverse trends in mortality or expenses than if they owned traditional whole life policies.

True