Review - Life Policies
Randall purchased a 20-year family maintenance policy when he was 30 years old. He died at age 40. How many years will benefits be paid to his beneficiaries? Select one: a. None, because he died before the policy matured b. 10 years c. 20 years d. 25 years
In a family maintenance policy, the benefits would be paid for 20 years from when the death occurs . The correct answer is: 20 years
Group life insurance has similar characteristics and also characteristics that are different from individual life policies. Which of the following is not a similarity that the two types of policies share? Select one: a. Proceeds are not taxable when received as a lump sum payment b. Both can deduct premium payments c. Premiums paid by a company are not considered income to an employee d. All of the above
It does not matter if the premiums for a group life policy are paid entirely by the employer or shared by the employer and employee, the employee cannot deduct the premiums. The employer can deduct the premium payments as a business expense. Lump-sum proceeds are not taxable from either a group or individual policy. Premiums are not considered income to the employee. The correct answer is: Both can deduct premium payments
Term life insurance policies are used to provide temporary insurance protection, usually for a specific amount of time. If an insured provides evidence of insurability at the end of a term and qualifies for reduced premiums rates, the insured has a(n): Select one: a. Convertible term policy b. Reentry term policy c. Renewable term policy d. Interim term policy
A convertible term policy allows the insured to convert his/her temporary protection policy to a form of permanent protection without having to provide proof of insurability. It is the reentry term that allows the insured to take out new coverage at a reduced rate, providing he/she can show proof of insurability. Renewable term is for a specific time and can be renewed without providing evidence of insurability. The premiums will go up because it is based on the insured's age. Interim term is coverage used when the insured is contemplating some sort of permanent insurance. Usually it has an automatically convertible feature. The correct answer is: Reentry term policy
Angelina purchased a policy with a face value of $100,000. She died 10 years later and the policy paid a death benefit of $50,000. Why? Select one: a. Her policy was a level term. b. Her policy was not renewed. c. Her policy was a decreasing term. d. Her policy was an increasing term.
A level term policy has a fixed face amount. This amount remains the same for the entire term of the policy. Her policy was a 20-year decreasing term policy. Because the amount of benefit paid was half of the original face value after 10 years - we can see that it decreased 50% over 10 years. The correct answer is: Her policy was a decreasing term.
Timothy has a plan that provides coverage for life, but the premiums are not due beyond age 65. It has guaranteed premium, accumulates cash value and the coverage will never decrease. Timothy has purchased: Select one: a. A limited payment life plan b. An endowment at age 65 plan c. A term to age 65 plan d. A variable life plan
A limited payment life plan is one that provides the same benefits as a standard whole life plan, but has a shorter premium paying period. Limited payment plans can range from single premium whole life to life paid up at a specified age, for instance age 65. The policy holder pays the approximate same premium, discounted for interest earnings, as he would for a whole life plan payable for life. The correct answer is: A limited payment life plan
A universal life plan differs from a whole life plan in all of the following ways, EXCEPT: Select one: a. A whole life plan displays a detailed list of all mortality, expense and interest payments in the premium calculation. b. A universal life plan may have features that are not guaranteed. c. The cost of life insurance may vary from year to year on a universal life contract. d. The administrative expenses are a listed charge in universal life.
A whole life plan bundles all expenses and charges and they are not listed separately in the policy or any illustration. Universal life lists each component of the premium, which includes the cost of pure life insurance (mortality charge), the administrative expense and any cash accumulation after the first two expenses are accounted for. The cash account will also have a variable interest rate and the account may or may not have a guaranteed element involved. The correct answer is: The cost of life insurance may vary from year to year on a universal life contract.
One of the most common types of life insurance is the whole life insurance policy. Which of the following is a typical characteristic of a whole life policy? Select one: a. The premiums remain level for the entire period that the policy is in force. b. Whole life policies have a guaranteed cash value. c. The face amount of the policy does not change while the policy is in force. d. All of the above
All of the items listed are characteristics of a typical whole life insurance policy. The correct answer is: All of the above
Term coverage has many applications, such as mortgage protection. It gives the insured the best "bang for their buck." It is not without its disadvantages, however. Which of the following is a disadvantage of term insurance? Select one: a. It is pure death protection with no cash value b. It is generally not renewable after age 65 or 70. c. It becomes more expensive over time. d. All of the above
All of the items listed are disadvantages of term insurance. Although usually less expensive in the beginning, it becomes more and more expensive as the insured ages. Because it is generally not renewable after a certain age, betting on protection may be very difficult for the insured, once he/she attains that age. The correct answer is: All of the above
Matthew has recently purchased a variable life insurance policy. In reading his prospectus, he sees that the various accounts have the same managers as some of the mutual funds he owns. Matthew should understand which of the following: Select one: a. The money manager co-mingles the funds from his and other variable life plans with their various mutual funds. b. The insurance company maintains separate accounts for each investment and they are not co-mingled with other assets. c. Matthew does not need to be concerned about the performance, as it will mirror the performance of the mutual fund of the same name. d. Matthew can withdraw his money at any time penalty free.
Always remember that the investments in a variable product are referred to as a separate account. While the name of the manager on the account may be the same as well known investment companies, the investments may not be exactly the same. The account will be managed by the same people and the same philosophy, but money flow and timing may cause the performance of a separate account to differ from the mutual fund managed by the same managers. The correct answer is: The insurance company maintains separate accounts for each investment and they are not co-mingled with other assets.
As Samantha considers her options to purchase life insurance, she looks at the advantages of a graded premium life policy. Which of the following is not an advantage of such a policy? Select one: a. In the beginning, a greater amount of the premium is applied to the death benefit, less to the cash value. b. The policy has a level death benefit as long as it remains in force. c. Once the premiums level off, they remain level for the remaining term of the policy. d. The initial premium is much lower than whole life insurance.
Because of the lower premium, cash values grow much more slowly, initially. A greater percentage of the premium in the initial years is applied to the death benefit, less is applied to cash values. This is a disadvantage of this type of policy. The correct answer is: In the beginning, a greater amount of the premium is applied to the death benefit, less to the cash value.
Universal life policies are similar to whole life in that they: Select one: a. Both provide death protection and cash value b. Both provide flexibility c. Both treat cash withdrawals as a partial surrender d. Both provide fixed and guaranteed benefits.
Both a whole life policy and a universal life policy provide death protection and cash value. The similarities end there. The universal life policies offer flexibility, but benefits are not fixed and guaranteed as they are in the whole life policies. Whole life policies do not treat cash withdrawals as partial surrenders. The correct answer is: Both provide death protection and cash value
All of the following are true concerning Interest Sensitive Whole Life (ISWL), EXCEPT: Select one: a. The death benefit is guaranteed as long as premiums are paid. b. Policy loans are available. c. The policyholder will always know the amount of cash value available. d. The cash account accumulates tax free inside the policy.
By definition, the cash value of an interest sensitive policy will vary. There may be a minimum guarantee, but the final cash account will be determined by the actual interest credited from year to year. An interest sensitive plan will allow the policyholder to earn a market-based interest, but the minimum guarantees for the plan are generally lower than a standard whole life. The correct answer is: The policyholder will always know the amount of cash value available.
Which of the following types of whole life policy offers flexible premium payments tied to interest rate fluctuations? Select one: a. Continuous premium whole life b. Limited payment whole life c. Current assumption whole life d. Economatic whole life
Continuous premium whole life, the most common type of whole life, has premium payments over the life of the insured up to 100 years of age. With a limited payment whole life policy, the entire policy is paid up at a specific age, usually a shorter period of time. Limited premium whole life policies have higher premiums because they are paid over a shorter period of time. Current assumption whole life offers flexible payments tied to interest rates. The premiums can be raised or lowered by the insurance company, usually annually. A term rider is part of the economatic policy that uses dividends to purchase additional paid-up insurance. The correct answer is: Current assumption whole life
Credit life insurance is a type of decreasing term insurance. It was designed to protect creditors in the event that the debtor dies. All of the following are true statements about credit life, EXCEPT: Select one: a. It can be written on both a group and an individual basis. b. The insurance premiums are often financed in conjunction with the item purchased. c. The number of insureds on the policy can range from 1-50. d. The policy does not have a conversion option.
Credit life policy provisions include that a certain level of insureds must be maintained (usually 100+). If the number of insureds drops below the specified level, the insurer may not insure new debtors. The correct answer is: The number of insureds on the policy can range from 1-50.
What type of life insurance policy offers the same guarantees as traditional whole life insurance with a lower initial premium that remains level for the first five years of the policy? Select one: a. Ordinary life b. Adjustable life c. Equity-indexed life d. Modified life
Modified life is a life insurance policy that offers the same guarantees as traditional whole life insurance with a lower initial premium that remains level for the first five years of the policy. The correct answer is: Modified life
Valerie is looking at types of insurance to enhance her retirement. Which of the following should she NOT consider in planning her retirement? Select one: a. Term insurance b. Endowment c. Whole life d. Current Assumption Whole life
Term is not considered a retirement plan policy. Term is used to cover a need for a fixed period of time. There is no cash value at the end of the term. The correct answer is: Term insurance
The cash value in a whole life policy is held in the insurance company's: Select one: a. Cash value account b. Separate account invested in government bonds c. General account d. Separate account for that class of policies
The cash value of a whole life policy is held in the company's general account. That means the money is co-mingled with other assets and the investments for that account are usually subject to state and/or federal regulation. When a policyholder makes a loan, for instance, on a whole life plan, the money is loaned from the general fund, and not the cash value of the policy. The correct answer is: General account
Continuous premium, limited premium and single premium are types of whole life policies. Which of the following is indicative of a continuous premium method? Select one: a. It has immediate cash value. b. It is also called 20-pay life. c. It has the lowest cost over the life of the insured. d. It has the lowest annual premium.
The continuous premium whole life has the lowest annual premium, and requires that payments be made for the longest period of time. The cash value grows slowly with a continuous premium policy. It is a single premium whole life policy that has immediate cash value, and the lowest cost over the life of the insured. A limited pay whole life is also called 20-pay life. The correct answer is: It has the lowest annual premium.
Helen and Mark have purchased a policy to cover both of their lives. They know that there are benefits and also disadvantages of such a policy. Which of the following is not something that would be regarded as a benefit of a joint policy? Select one: a. Premiums and face value cannot be changed. b. Premiums usually are lower than for two separate policies. c. The policy can be written as whole life or term life. d. The premiums are usually lower.
The fact that the premiums and face value of the policy cannot be changed are regarded as drawbacks of a joint life policy. Another drawback is that the premiums are an average of the ages of the two policyholders which could result in the younger policyholder paying more than he/she would if they took out an individual policy. The correct answer is: Premiums and face value cannot be changed.
Combination plans are intended to be representative of the needs of the insured. One such plan is called the ______________ , which combines ordinary life and level term insurance. It provides monthly income for a stated period of 10, 15, or 20 years, or to an age, as selected by the insured. Select one: a. Family income policy b. Family maintenance policy c. Family protection policy d. Endowment policy
The family income policy, not commonly sold, combines whole life and decreasing term. The family maintenance policy combines ordinary life and level term and does provide an income stream for a designated number of years of a designated age. The family protection policy consists of whole life on the breadwinner, and convertible term on the spouse and children. The correct answer is: Family maintenance policy
Charles and Rick have started an electronics business. Their business is young and their cash flow is tight. What is the primary advantage of them purchasing a modified premium whole life policy? Select one: a. It is guaranteed renewable. b. They are able to purchase a larger policy than traditional whole life. c. They are able to add term riders. d. It has a level premium.
The primary advantage of modified premium whole life is that you get more for you money in the initial phase. Modified whole life is often used early in the life of a business, to supplement retirement, and to protect family and mortgage. The correct answer is: They are able to purchase a larger policy than traditional whole life.
Samantha wants to purchase life insurance, but her funds are limited at this time. Her agent has recommended a whole life policy that starts out with a premium that is lower than usual. The premium increases every year for a specified number of years. This type of policy is called a: Select one: a. Modified life policy b. Graded premium life policy c. Universal life policy d. Variable whole life policy
The scenario described by Samantha's agent fits a graded premium life policy. The advantage is that she can get into the policy for a relatively low premium (similar to a term premium). The disadvantage is that in the long run, the insurance may cost her more. This type of policy is sometimes referred to as a graduated premium life insurance policy. The correct answer is: Graded premium life policy
An agent who wants to qualify to sell variable life plans must: Select one: a. Seek an exemption from the state to endorse his license b. Secure a license from FINRA, as well as the state c. Secure a license from FINRA, which supersedes the state d. Test for a special state variable product license
To offer variable products, an agent must be licensed from both the state and FINRA (formerly NASD), because variable plans are regulated as securities. Failure to do either could result in some very harsh penalties. The correct answer is: Secure a license from FINRA, as well as the state
Arnold has purchased an Adjustable Life plan. His agent has told him that he may do all of the following, EXCEPT: Select one: a. Pay varying premiums each year b. Quit paying premiums after 7 years when they vanish. c. Pay a minimum amount as long as he funds the mortality cost d. Pay a higher premium if he wants to build cash faster
Using the term vanishing premium is not legal. While it may be possible to fund a life policy to eliminate premiums over time, that feature is not guaranteed and it depends on a number of factors that may change after the illustration has been prepared. As an example: Interest rates were much higher in 1995 than they are in 2012. That change in interest rates can create a substantial difference in what might be available in the policy in later years. The correct answer is: Quit paying premiums after 7 years when they vanish.
Which of the following regulates variable life insurance products? Select one: a. Department of Insurance b. Securities and Exchange Commission c. NAIC d. The state legislature
Variable life insurance products are securities contracts and are regulated by the Securities and Exchange Commission (SEC). The correct answer is: Securities and Exchange Commission
