Type of Insurance Policies
A survivorship life insurance policy usually covers how many lives? - 1 - 2 - 3 - 4
2 Survivorship life insurance policies insure the lives of two people. It is a variation of a joint life policy that also insures the lives of two people. These policies, also known as second-to-die joint life insurance, only pay out a death benefit once both policyholders have died.
What type of premiums are associated with individual mortgage protection life insurance policies? - Level premiums - Flexible premiums - Modified premiums - Decreasing premiums
Level premiums Decreasing term policies are normally used for mortgage protection life insurance to which the premium remains level, but the coverage decreases over time.
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 Level term is provided by adding a children's rider to a life insurance policy.
A nonparticipating whole life insurance policy was surrendered for its $20,000 cash value. The total premiums paid had totaled $16,000. What were the federal income tax consequences to the policyowner on receipt of the cash value? - $16,000 was received as ordinary income and $4,000 as tax-free - $20,000 was received as capital gain - $20,000 was received as ordinary income - $16,000 was received tax-free and $4,000 as ordinary income
$16,000 was received tax-free and $4,000 as ordinary income
Which statement regarding universal life insurance is correct? - Cash value accumulations have a guaranteed minimum interest rate - Policyowner can change the face amount but not the premium - Policyowner can change the premium but no the face amount - Partial withdrawals cannot be made from the policy's cash value
Cash value accumulations have a guaranteed minimum interest rate Cash value accumulations are subject to a minimum interest guarantee in universal 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 A joint life insurance policy covers two or more individuals with the face amount payable upon the death of the first insured.
Which of these is NOT considered a type of limited payment whole life insurance? - Life paid-up at 65 - 20 payment life - 15 payment life - Endowment at age 70
Endowment at age 70
A "premature" distribution from a modified endowment contract (MEC) insurs a penalty tax of - 5% - 10% - 17.5% - 20%
10% Penalty taxes (10%) on premature distributions prior to age 59 1/2 from a modified endowment contract (MEC) normally apply to policy loans.
Which of the following is a TRUE statement regarding universal life insurance? - Death benefits are normally taxable - Policy loans are not permitted - Premiums or face amount cannot be changed - Policy indicates how much of each premium is used toward company expenses
Policy indicates how much of each premium is used toward company expenses Premium payments are separated and paid toward the insurance protection. The loading cost and the remaining balance is used to build the cash value.
An advantage of owning a flexible premium life insurance policy would be - Premiums are fixed for the first 5 years - The insurer can make policy changes without difficulty - The policyowner can make policy changes without difficulty - Evidence of insurability is required with any change in premium
The policyowner can make policy changes without difficulty One advantage of owning a flexible-premium life insurance policy is that changes may be made without difficulty by the policyowner.
Which statement regarding a single premium life insurance policy is NOT correct? - No further premiums are necessary - Policy loans are permitted - Cash value is immediately created - Additional premiums may be required under certain conditions
Additional premiums may be required under certain conditions Only one premium payment is required with a single premium life insurance policy.
Which is an accurate description of the premium in a graded premiuj life insurance policy? - Level premium for a stated number of years then increases annually for the remainder of the contract - Level premium for a stated number of years then decreases annually for the remainder of the contract - Annual decreases in premium for a stated number of years then remains level - Annual increases in premium for a stated number of years then remains level
Annual increases in premium for a stated number of years then remains level With a graded premium life insurance policy, the premium increases yearly for a stated number of years then remains level.
Which of these life insurance policies does NOT contain a cash value provision? - Modified whole life - Universal life - Decreasing term life - Adjustable life
Decreasing term life Term life products do not have the ability to gain cash value, so cash value provisions would not be found in any type of term insurance product.
Which statement concerning an adjustable life insurance policy is FALSE? - Cash surrender is possible - Evidence of insurability is required when there is a change in premium - Combines term and permanent insurance into a single plan - An extra premium paid is allowable
Evidence of insurability is required when there is a change in premium
Which statement concerning a decreasing term life policy is accurate? - Cash value decreases over the policy period - Premium decreases over the policy period - Face amount decreases over the policy period - Face amount stays the same over the policy period
Face amount decreases over the policy period With a decreasing term policy, the face amount of the policy decreases throughout the policy period. Mortgage insurance is the most common use of decreases term insurance.
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 the following could be a future use of the cash value that builds in a recently-purchased whole life insurance policy? - Convert the cash value to a paid-up term policy - Gives the policyowner ability to borrow against funds within two years - Increases the policy's face amount - Provide supplemental income in 35 years
Provide supplemental income in 35 years Whole life policies typically begin to accrue cash value during the 3rd year after issue. The cash value that accumulates can be used to supplement income during retirement years.
How does the cost for a survivorship life policy compare to the cost of combining two separate individual 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 Compared to the combined premium for separate life insurance policies on two individuals, the premium for a survivorship life policy is lower.
When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for - Ten year term insurance for a person aged 55 - Ten year term insurance for a person aged 45 - Yearly renewable term insurance for a person aged 55 - Yearly renewable term insurance for a person aged 45
Ten year term insurance for a person aged 55 A ten year renewable term policy permits the policyowner to renew the same coverage for another ten years at the end of the first ten-year term. The premiums for the renewal period will be higher than the initial period.
When would evidence of insurability be required for a person already covered with a variable universal life policy? - When the premium is increased - When the policy has renewed - When the death benefit is increased - When policy is being coverted to permanent coverage
When the death benefit is increased Evidence of insurability is normally required when the death benefit is increased in a variable universal life policy.
At what point are death proceeds paid in a joint life insurance policy? - When the first insured dies - When the second insured dies - Only after insurable interest has been confirmed to still exist - If both insureds die from the same accident
When the first insured dies A joint life policy covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured, at which time the policy terminates.
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 - If the adjustable life policy has cash value, the policyowner is permitted to take out a policy loan.
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income? - 0% - 25% - 50% - 100%
100% Funds withdrawn from an MEC are subject to last-in first-out (LIFO) tax treatment, which assumes that the investment or earnings portion of the contract's values is withdrawn first (making these funds fully taxable as ordinary income).
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 will be provided if the insured is alive at the end of the policy period - Temporary insurance needs can be met
A cash benefit will be provided if the insured is alive at the end of the policy period
Which of the following combinations best describe a universal life insurance policy? - A mutual fund and an endowment policy - A term insurance policy and a whole life policy - A modified endowment policy and an annual term insurance policy - A flexible premium deposit fund and a monthly renewable term insurance policy
A flexible premium deposit fund and a monthly renewable term insurance policy A universal life insurance policy can be described most accurately as a combination of a flexible premium deposit fund and a monthly renewable term insurance policy.
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 coveres the lives of both the parents and their children
A life policy that covers the life of a minor
What kind of life policy typically offers mortgage protection? - Whole life - Decreasing term - Increasing term - Level term
Decreasing term A mortgage protection life insurance policy uses a decreasing term policy. As the outstanding loan decreases, so does the amount of term coverage.
Which of the following is generally a form of group credit life insurance? - Decreasing term insurance - Increasing term insurance - Level term insurance - Whole life insurance
Decreasing term insurance Group credit life insurance is typically a form of decreasing term insurance.
Which of these may NOT be deducted from premium payments or the cash value of a variable life insurance policy? - Mortality costs - Administrative charges - Investment management fees - Federal premium taxes
Federal premium taxes All of these are allowable deductions to be made from premium payments or the cash value of a variable life insurance policy EXCEPT Federal premium taxes.
All of these are considered features of whole life insurance EXCEPT - Cash value accumulation - Permanent coverage - Initial premium is lower than for an equivalent amount of term insurance - Policy loans are allowed
Initial premium is lower than for an equivalent amount of term insurance The initial cost of whole life insurance is actually HIGHER than an equivalent amount of term insurance.
Which statement regarding whole life insurance is accurate? - Cash value loans are not permitted - Insurance coverage can continue for life - Policy normally matures at retirement - No cash value accumulations
Insurance coverage can continue for 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 When an insured reaches the age of 65, the guaranteed cash value of a whole life policy will be less than the face amount of the policy.
Which of these statements accurately portrays an adjustable life insurance policy? - Policy can alternate between forms of term and whole life insurance - Cash value loans are not permitted - Evidence of insurability required for conversion - Settlement options are limited
Policy can alternate between forms of term and whole life insurance Adjustable life insurance allows the policyowner to adjust the policy's face amount, premium, and type of protection without having to compete a new application or exchange policies. Example: converting a term policy to whole life or vice versa.
Which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)? - Policy loans - Claim on a death benefit - Extended term settlement option - Policyowner reaching the age of 70 1/2
Policy loans If a policy is classified as MEC, policy loans will be subject to penalty taxes.
Which of these policies is considered a whole life policy? - Credit life - Single premium life - Renewable life - Convertible life
Single premium life
Which statement concerning adjustable life insurance is accurate? - Cash value loans are not permitted - The face amount and premiums can be changes simultaneously by the policyowner - Settlement options are limited - Only the face amount can be changed by the policyowner
The face amount and premiums can be changed simultaneously by the policyowner Adjustable life insurance combines features of both term and whole life coverage. Length of coverage, accumulated cash value, and the premiums can be adjusted to fit specific needs.
Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes? - The gain is treated as taxable income and a penalty tax is imposed 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 an MEC is considered a tax and penalty-free transaction
The gain is treated as taxable income and a penalty tax is imposed on the gain If an MEC is surrendered prior to age 59 1/2, the gain is taxable as well as a 10% penalty imposed on that gain.
Which of these is NOT a reason to buy a term life policy? - To pay a mortgage balance if an insured dies - To offer temporary protection - To offer low-cost insurance coverage - To accumulate savings
To accumulate savings
What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued? - $0 - $50,000 - Under $50,000 initially, but decreases annually over time - Under $50,000 initially, but increases over time
Under $50,000 initially, but increases over time The initial face amount of a $50,000 graded death benefit life insurance policy is under $50,000, but increases annually until fully insured.
The death proceeds of a credit life insurance policy are typically paid to the - Borrower - Lender - Annuitant - Borrower's dependents
Lender Credit life insurance is designed to cover the life of a debtor. The beneficiary of such a policy is usually the lender.
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 based on the outstanding loan balance
The face amount is based on the outstanding loan balance The amount of credit life insurance applied for is based on the outlanding loan balance amount.
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 Cash value is available to the policyowners when policies are surrendered.
How long does one premium payment cover in a single premium whole life policy? - Until the policy's first renewal date - One month - One year - Full life of the policy
Full life of the policy
A life policy that has premiums that are lower than normal during the early years is called - Decreasing term - Modified life - Variable life - Limited-pay life
Modified life Modified life has premiums that are lower than normal during the early years of the policy.
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 insurace
Policy loans are not permitted Policy loans are allowed in universal life insurance policies.
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
What typically changes at the re-entry option date found in some term life policies? - Beneficiary - Amount of coverage - Premium - Contestable period
Premium A re-entry option gives the insured the opportunity to provide evidence of insurability at the end of the term to qualify to renew the policy at a lower premium.
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 Level term policies are able to offer level premiums because the premiums are averaged over the term of the policy.
Which of the following would NOT be a reason for purchasing life insurance on a child's life? - Provide benefits for the child if the parents die - Pay for the child's funeral expenses - Provide a start on the child's personal insurance - Help provide funds for the child's education
Provide benefits for the child if the parents die An insurance policy on a child would not pay any benefits if one or both of the parents died. All of the other answers are valid reasons for buying life insurance on a child.
Assets that back the non-guaranteed values of variable life insurance products are held in which account? - Trust account set up by the insured - Separate account set up by the insurer - General account of the insurer - Money market account
Separate account set up by the insurer Assets that back the non-guaranteed values of variable life insurance products are held in a separate account set up by the insurer.
What would be considered an advantage of purchasing term life insurance? - Cash value can be borrowed against - The coverage is permanent - Nonforfeiture values are available - The initial premium is lower compared to an equivalent amount of whole life coverage
The initial premium is lower compared to an equivalent amount of whole life coverage
Taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for - A cash value loan is taken out - Automatic premium loan provision is utilized - The policy is surrendered for less than what was paid into it - Dividend is issued
The policy is surrendered for less than what was paid into it All of these transactions may result in taxable income EXCEPT for when an owner surrenders the policy for less than what was paid.
Which of these must be disclosed in a universal life policy? - Maximum coverage that can be purchased - The policy's surrender charges - The commissions earned from the sale of the policy - The producer's license expiration date
The policy's surrender charges The surrender charges of a universal life policy must be disclosed.
A material change in a modified endowment contract (MEC) results in - The contract becoming void - A new contestable period - The seven pay test, adjusted for cash value, applies again - A tax penalty
The seven pay test, adjusted for cash value, applies again Under the rules for an MEC, if there is a material change in the contract, the seven pay test applies again.
How does a continuous premium whole life policy differ from a limited payment whole life policy? - The time period in which premiums will be paid - The avaiability of cash value loans - The availability of nonforfeiture options - The settlement options
The time period in which premiums will be paid The feature that separates a continuous premium whole life policy from a limited payment whole life policy is the length of time premiums will be paid.
The insurance coverage in a variable life insurance policy may vary based on the value of - The AM Best rating the company has received - Its underlying investments - The consumer price index - The total premiums paid
The underlying investments The amount of insurance protection in a variable life insurance policy may vary according to the value of underlying investments.
How long does protection normally extend to under a limited pay whole life policy? - It depends on the performance of the underlying investment account - When premiums are no longer required as stated in the contract - Until age 65 - Until age 100
Until age 100 Under a limited payment whole life insurance policy, protection usually continues to age 100. Keep in mind that even though the premium payments are limited to a certain period, the insurance protection extends until the insured's death, or to age 100.
Which type of life insurance policy is best suited for paying off the outstanding balance of a 30-year mortgage in the event of the insured's death? - 30-year endowment - 30-year increasing term - 30-year decreasing term - 30-year whole life
30-year decreasing term Decreasing term life insurance provides a death benefit that gradually decreases over the span of the policy. Decreasing term life insurance is commonly used for paying off an outstanding mortgage balance in the event of an insured's death (mortgage insurance).
An individual who purchases a modified life insurance policy expects - A higher rate of return - Coverage for two people - An improvement in future income - A flexible face amount
An improvement in future income The purpose of modified whole life policies is to make the initial purchase of permanent insurance easier and more attractive, especially for individuals who have limited financial resources, but the promise of an improved financial position in the future.
When does the insured stop making payments under a thirty-payment whole life policy? - At the time of death or 30 years after 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
At the time of death or 30 years after the policy's inception, whichever comes first Under a thirty-payment whole life insurance policy, the insured stops paying premiums at the earlier of date of death or 30 years after the policy's inception.
Who normally pays the premiums for group credit life insurance? - Creditor and borrower share the cost equally - Borrower - Creditor - Beneficiary
Borrower The borrower typically pays the premiums on any credit life insurance policy.
Rick owns a variable universal life policy and chooses a variable benefit option. What will typically happen to the death benefit as a result of this selection? - Remain the same - Decrease but never increase - Increase but never decrease - Fluctuate with changes in the cash account
Fluctuate with changes in the cash account When a variable universal life policyowner selects a variable death benefit option, the death benefit generally will fluctuate with changes in the cash account.
Under an adjustable life insurance policy, which of the following may NOT be changed without further underwriting? - The person insured - The period of coverage - The payment period - The plan of coverage
The person insured
Which of the following statements about universal life insurance is NOT true? - Death benefit can be increased - Premiums are flexible - Universal life insurance normally has a minimum guaranteed cash value for duration of the policy - The cash value interest rate must equal or exceed a guaranteed minimum value
Universal life insurance normally has a minimum guaranteed cash value for duration of the policy
An insurance policy that can also be classified as a securities product is called - Variable life - Modified life - Universal life - A Modified Endowment Contract
Variable life Because of the transfer of investment risk from the insurer to the policyowner, variable insurance products are considered securities contracts as well as insurance contracts.
Which type of life insurance policy allows a policyowner the choice of investments along with flexible premium payments? - Variable universal life - Modified endowment contract - Adjustable life - Graded premium whole life
Variable universal life Variable universal life involved a guaranteed death benefit plus premium and investment flexibility.