Types Of Life Policies: STUFF I GOT WRONG
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.
Which component increases in the increasing term insurance?
Death benefit Increasing term features level annual premiums and a death benefit that increases each year over the duration of the policy term.
All of the following entities regulate variable life policies EXCEPT: The Insurance Department. The Guaranty Association. Federal government. The SEC.
The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.
A Universal Life Insurance policy is best described as a/ an?
Annually Renewable Term Policy with a cash value acct A universal policy has 2 components: an insurance component and a cash acct. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.
Which two terms are associated directly with the way an annuity is funded?
Single payment or periodic payments Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installment varies.
Which of the following Life Insurance policies would be considered interest sensitive? Increasing term B Universal life C Adjustable life D Whole life
Universal life As well as being a flexible premium policy, universal life is also an interest-sensitive policy. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest.
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.
Which of the following is called a "second-to-die" policy?
Survivorship life Survivorship life (also referred to as "second-to-die" or "last survivor" policy) 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.
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? Flexible life Variable life Adjustable life Universal life
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.
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.
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.
Fixed annuities provide all of the following EXCEPT AFuture income payments. BHedge against inflation. CEqual monthly payments for life. DMinimum guaranteed rate of interest.
BHedge against inflation.
What license or licenses are required to sell variable annuities?
Both a life insurance license and a securities license Agents are required to have both a life insurance license and a securities license to sell variable annuities.
Which of the following best describes annually renewable term insurance?
t is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.
Annually renewable term policies provide a level death benefit for a premium that
Increases annually. Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.
All of the following are true about variable products EXCEPT APolicyowners bear the investment risk. BThe premiums are invested in the insurer's general account. CThe minimum death benefit is guaranteed. DThe cash value is not guaranteed.
The premiums are invested in the insurer's general account. Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk.
If the owner of a whole life policy who is also the insured dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary?
A full death benefit Whole life insurance policies guarantee the death benefit. If the insured lives to the age of 100, the insurance company pay the owner the face amount (equal the cash value). However, if the insured dies prior to the policy maturity date, the death benefit is paid to the beneficiary.
Which of the following is INCORRECT regarding a $100,000 20-year level term policy?
At the end of 20 years, the policy's cash value will equal $100,000. Term policies do not develop cash values. All the other statements are true.
The type of policy that can be changed from one that does not accumulate cash value to the one that does is a
Convertible Term Policy. A convertible term policy has a provision that allows the policyowner to convert to permanent insurance.
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.
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.
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.
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.
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.
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.
When would a 20-pay whole life policy endow? a) After 20 payments b) In 20 years c) When the insured reaches age 100 d) At the insured's age 65
When the insured reaches age 100 A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.
Which of the following is INCORRECT regarding a $100,000 20-year level term policy? If the insured dies before the policy expired, the beneficiary will receive $100,000. BThe policy will expire at the end of the 20-year period. CAt the end of 20 years, the policy's cash value will equal $100,000. DThe policy premiums will remain level for 20 years.
At the end of 20 years, the policy's cash value will equal $100,000. Term policies do not develop cash values. All the other statements are true.
Which of the following is NOT true regarding Equity Indexed Annuities? They earn lower interest rates than fixed annuities. The insurance company keeps a percentage of the returns. They have guaranteed minimum interest rates. They are less risky than variable annuities.
They earn lower interest rates than fixed annuities. Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
Which of the following is TRUE for both equity indexed annuities and fixed annuities? Both are considered to be more risky than variable annuities. BThey invest on a conservative basis. CThey have a guaranteed minimum interest rate. DThey are both tied to an equity index.
They have a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.
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.
All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT: Upon conversion, the premium for the permanent policy will be based upon attained age. Upon conversion, the death benefit of the permanent policy will be reduced by 50%. Evidence of insurability is not required. Most term policies contain a convertibility option.
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.
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?
Immediate annuity An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.
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.
Which of the following types of policies will provide permanent protection? Credit life Term life Group life Whole life
Whole life Whole life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured. Both the premiums and death benefit are guaranteed and will remain level for life.
To sell variable life insurance policies, an agent must receive all of the following EXCEPT life insurance license. SEC registration. FINRA registration. A securities license.
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.
What is the purpose of establishing the target premium for a universal life policy?
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.
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 of the following is NOT fundable by annuities?
Death benefits Annuities are most commonly used to fund a person's retirement, but they can technically be used to accumulate cash for any reason. Annuities can also be used to liquidate an estate. Annuities do not provide death benefits; those are provided by life insurance.
The LEAST expensive first-year premium is found in which of the following policies? Level Term BAnnually Renewable Term CIncreasing Term DDecreasing Term
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.
Who bears all of the investment risk in a fixed annuity?
The insurance company Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.
Which of the following statements is correct regarding a whole life policy? AThe policyowner is entitled to policy loans. BCash values are not guaranteed. CThe policy premium is based on the attained age. DThe death benefit may increase or decrease during the policy period
The policyowner is entitled to policy loans. Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans.
Which of the following is NOT true regarding the accumulation period of an annuity? It is also known as the pay-in period. It would not occur in a deferred annuity. It is the period during which the annuity payments earn interest. It is the period over which the owner makes payments into an annuity. Id: [E710455]
It would not occur in a deferred annuity. The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).
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 A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.
The death benefit under the Universal Life Option B
Gradually increases each year by the amount that the cash value increases. 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.
In which of the following cases will the insured be able to receive the full face amount from a whole life policy? A As soon as the cash value exceeds the face amount B If there are no named beneficiaries when the policy is paid up C At age 65 D If the insured lives to age 100
If the insured lives to age 100 Whole life insurance provides protection for the entire lifetime of the insured. If the insured lives to the age of 100, the company pays the face amount of the policy to the policyowner (usually the insured).
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.
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.
