Unit 3- Life & Variable Life Insurance

Guaranteed cash value is a standard feature found in which of the policies listed below? A)Whole life and variable life. Guaranteed cash value is a standard feature found in which of the policies listed below? A)Whole life and variable life. B)Whole life. C)Term life. D)Variable life.

B)Whole life. Whole life policies offer guaranteed cash values and death benefits. The insurer assumes the investment risk by promising a fixed rate of policy return, regardless of investment performance. Term insurance is pure insurance protection and builds no cash value. Variable life cash value is not guaranteed, though cash value may be available depending on the performance of investments in the separate account.

A thirty-five year-old client purchases a variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is: A)8.5% per premium payment. B)9%. C)9% per premium payment. D)8.5% of total premiums over the life of the plan.

B)9%. A variable life insurance plan may charge a maximum sales charge of 9% over a period not to exceed 20 years.

How long is the free-look period for a variable life insurance policy? I-10 days after delivery. II-10 days after issue. III-45 days after delivery. IV-45 days after application. A)I and III B)I and IV C)II and III D)II and IV

B)I and IV The insurer must extend a free-look period to the owner of a variable life policy for 45 days from the execution of the application, or for 10 days from the time the owner receives the policy, whichever is longer. During the free-look period, the policy owner may terminate the policy and receive all payments made.

Which of the following best describes the purpose of life insurance? A)It eliminates an estate. B)Tax-sheltered earnings. C)Retirement benefits you cannot outlive. D)It creates an estate.

D)It creates an estate. Life insurance provides funds upon death that may be used to continue to sustain the beneficiaries. It therefore "creates" rather than eliminates an estate. It may be used to eliminate (payoff) estate taxes. Although the cash value build up is tax deferred, that is not the primary purpose of buying a life insurance policy.

According to federal law, an insurance company under the provisions of the Investment Company Act of 1940 must allow a variable life policyholder the option to convert the policy into a permanent form of insurance contract for a period of: A)12 months. B)24 months. C)45 days. D)18 months.

B)24 months. Although state law may allow for periods longer than 24 months, federal law requires a two-year conversion privilege.

Which of the following statements regarding sales charges on variable contracts of insurance companies are TRUE? I-The Conduct Rules call for a maximum sales charge on variable annuities of 8.5% of the purchase payment. II-The Conduct Rules do not impose a specific maximum on sales charges for variable annuities. III-Variable life insurance contracts are limited to a maximum sales charge of 9% over the life of the contract. IV-Variable life insurance contracts are limited to a maximum sales charge of 9% over the life of the contract, but not to exceed 20 years. A)II and III. B)I and IV. C)II and IV. D)I and III.

C)II and IV. Variable annuities' sales charges are held only to a standard of reasonableness. The Investment Company Act of 1940 sets the limits for variable life insurance.

A customer has a variable life insurance policy and has made two annual premium payments. If the customer terminates the policy after the end of the second year, which of the following statements are TRUE? A)The customer receives the policy cash value only. B)The customer is refunded any cash value and a portion of the sales charges. C)The customer is not entitled to a policy refund but may exchange the policy for a traditional whole life policy. D)The customer is refunded all premiums paid.

A)The customer receives the policy cash value only. The variable life refund provision returns cash value only if it is surrendered after the second year.

When discussing the purchase of a scheduled premium variable life insurance policy with a client, it would be CORRECT to state that: A)by surrendering the policy its cash value may be obtained. B)premiums will vary based upon performance of the separate account. C)you will receive a statement of your death benefit no less frequently than semiannually. D)if a policy loan exceeds the policy cash value, the deficiency must be remedied within ten business days to keep the policy from lapsing.

A)by surrendering the policy its cash value may be obtained. Surrender of the contract requires the insurance company to pay out its cash value. Death benefit is adjusted annually.

In promoting a variable life insurance contract to a customer, which of the following statements would be permissible? A)This product is a good investment for anyone wishing to provide for retirement. B)If you already have a variable annuity, you can exchange it for this type of insurance with no adverse tax consequences. C)This product gives you the possibility of a greater death benefit in exchange for accepting investment risk. D)Variable life insurance gets you a higher death benefit for less money.

C)This product gives you the possibility of a greater death benefit in exchange for accepting investment risk. Variable life insurance may be sold only as an insurance device, not as a retirement device. Under Section 1035, insurance may be exchanged for an annuity without adverse tax consequences, but not the reverse.

A customer has a variable life policy and has made 2 annual premium payments. From the 1st year's premium, $600 was deducted in sales charges. From the 2nd year's premium, $400 was deducted. If the customer terminates the policy after 2 years, which of the following statements are TRUE? A)The customer is refunded cash value plus a portion of premiums paid. B)The customer receives the policy cash value only. C)The customer is refunded cash value plus all premiums paid. D)The customer is not entitled to a policy refund but may exchange the policy into a traditional whole life policy with no medical questions or underwriting.

B)The customer receives the policy cash value only.

For an insurance company, mortality risk turns out unfavorably if: I-an annuitant lives longer than expected. II-an annuitant dies sooner than expected. III-a life insurance holder lives longer than expected. IV-a life insurance holder dies sooner than expected. A)II and III. B)I and III. C)II and IV. D)I and IV.

D)I and IV. Mortality assumptions are based on life expectancy or mortality tables prepared by insurance company actuaries. If an annuitant lives longer than expected, the insurance company will have to continue payments longer than expected. If an insurance holder dies sooner than expected, the insurance company will have to pay the death benefit sooner than expected-that is, before receiving some of the expected premium payments.

An individual purchasing a flexible premium variable life contract should know which of the following? I-Timing and amount of premiums generally are discretionary. II-The death benefit will generally be higher than that of a comparable whole life policy. III-The face amount is fixed at the beginning of the contract. IV-The performance of the separate account directly affects the policy's cash value. A)I and III. B)II and III. C)II and IV. D)I and IV

D)I and IV A flexible premium policy allows the insured to determine the amount and timing of premium payments, provided minimums are met. Depending on the policy, the face amount (death benefit) is recalculated each year. It is intended that the death benefit receive some inflation protection, but this cannot be guaranteed. If separate account performance causes the cash value to drop below an amount necessary to maintain the policy in force, the policy lapses unless the requisite amount is received within 31 days.

Which of the following is a possible advantage of variable life insurance over whole life insurance? A)Greater guaranteed cash value. B)Less risk in the underlying investment instruments. C)Possible inflation protection for the death benefit. D)Flexibility of premium payments.

C)Possible inflation protection for the death benefit. Variable life has scheduled, not flexible, premium payments. The distinguishing factor is the variable death benefit. The insured assumes more risk, not less, in exchange for the possibility that the death benefit will provide protection from inflation.