2.- Types of Life Policies
What type of life insurance policy offers pure death protection?
Term
What are the 2 phases of an annuity?
Accumulation (pay-in) and annuitization (pay-out)
What type of life insurance is best suited to cover a mortgage?
Decreasing term
Variable whole life insurance is based on what type of premium?
Level fixed
What universal life option has a gradually increasing cash value and a level death benefit?
Option A
Which of the following has the right to convert the existing term coverage to permanent insurance?
Policyowner
Which of the following policies would be classified as a traditional level premium contract?
Straight life
Which of the following best describes what the annuity period is?
The period of time during which accumulated money is converted into income payments
A domestic insurer issuing variable contracts must establish one or more
separate accounts
Which of the following is another term for the accumulation period of an annuity?
Pay-In period
Which type of life insurance policy generates immediate cash value?
Single Premium
Which of the following is a feature of a variable annuity?
Benefit payment amounts are not guaranteed
Which of the following is a feature of a variable annuity?
Benefit payment amounts are not guaranteed. Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent's license.
What license or licenses are required to sell variable annuities?
Both a life insurance license and a securities license
What policy component must decrease in decreasing term insurance?
Face amount
Which policy component decreases in decreasing term insurance?
Face amount
A whole life policy that requires the policyowner only pay premiums for a specified number of years is known as what kind of policy?
Limited pay whole life
Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?
Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100.
The premium of a survivorship life policy compared with that of a joint life policy would be
Lower - survivorship life pays on the last death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium that that which is typically charged for joint life.
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.
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.
What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?
Straight life
Which of the following is TRUE regarding variable annuities?
The annuitant assumes the risks on investment
The president of a company is starting f an annuity and decides that his corporation will be the annuitant. Which of the following statements is true?
The annuitant must be a natural person
The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as
The policy contains sufficient cash value to cover the cost of insurance.
What kind of policy allows withdrawals or partial surrenders?
Universal Life
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
Which of the following types of policies will provide permanent protection?
Whole life
An individual purchased a $100k Joint Life policy involves himself and his wife. 8 years later, he died in an automobile accident. How much will his wife receive from the policy?
$100k - in joint life policies, the death benefit is paid upon the first death only
Which statement is NOT true regarding a Straight Life Policy?
Its premium steadily decreases over time, in response to its growing cash value.
In a survivorship life policy, when does the insurer pay the death benefit?
Upon the last death. Survivorship life pays on the last death rather than upon the first death.
What are the two components of a universal policy?
Insurance and cash account
Which of the following best describes annually renewable term insurance?
It is level term insurance
An individual has just borrowed $10k from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?
Decreasing term - a decreasing term policy's face amount decreases as the amount of debt is reduced
Why is an equity indexed annuity considered to be a fixed annuity?
It has a guaranteed minimum interest rate.
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 is TRUE regarding the annuity period?
It may last for the lifetime of the annuitant. The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.
Which of the following is NOT a term for the period of time which the annuitant or the beneficiary receives income?
Depreciation period
The insured is also the policyowner of a whole life policy. What age must the insured attain in order to receive the policy's face amount?
100
If an annuitant dies before annuitization occurs, what will the beneficiary receive?
Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount
Equity Indexed Annuities
Seek higher returns
Which of the following would help prevent a universal life policy from lapsing?
Target premium
Term Life Insurance
Term insurance provides the greatest amount of coverage for the lowest premiums and has no cash value. Term insurance is temporary protection because it only provides coverage for a specific period of Rome.
The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?
The death benefit can be increased by providing evidence of insurability.
Which of the following is TRUE regarding the premium in term policies?
The premium in any type of term policy is level
A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it?
immediate
Mortality tables are used by insurance companies to predict what?
Life expectancy and the death rates for specific groups of individuals
All of the following entities regulate variable life policies EXCEPT
The Guaranty Association *The Insurance Department, Federal Government and the SEC regulate variable life policies
In annually renewable term policies, what is the annual premium based upon?
The insured's attained age
Why are policy loans not available on term insurance?
There is no cash value to borrow against
In what type of life insurance policies can the policyowner skip premium payments without the policy lapsing?
Universal Life
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium?
Universal Life
All of the following are true about variable products EXCEPT
Policy owner bears the investment risk, the minimum death benefit is guaranteed and the cash value is not guaranteed EXCEPT the premiums invested in the insurer's general account
Which of the following best defines target premium in a universal life policy?
The recommended amount to keep the policy in force throughout its lifetime
With a single premium deferred annuity, when will the annuity payments become available?
No sooner than 1 year after the annuity purchase
An annuity purchased with multiple payments that begins income payments after one year from the moment of purchase is known as what type of annuity?
Flexible premium deferred annuity
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid
For 20 years or until death, whichever occurs first.
All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT
Evidence of insurability is not required, most term policies contain a convertibility option and upon conversion, the premium for the permanent policy will be based upon attained age EXCEPT upon conversion, the death benefit of the premium will be reduced by 50% Convertible term insurance is convertible without proof of insurance up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured'a attained age
In which of the following cases will the insured be able to receive the full face amount from a whole life policy?
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)
Fixed annuities provide all of the following EXCEPT
Minimum guaranteed rate of interest; Future income payments; Equal monthly payments for life; EXCEPT Hedge against inflation
Which of the following is NOT true regarding the annuitant?
The annuitant must be a natural person, the annuitant's life expectancy is taken into consideration for the annuity and the annuity receives the annuity benefits EXCEPT the annuitant cannot be the same person as the annuity owner
Which of the following statements is correct regarding a whole life policy?
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 products provide income for a specified period of years or life and protects a person against outliving his/her 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 of the following is incorrect regarding a $100k 20-year level term policy?
At the end of 20 years, the policy's cash value will equal $100k Term policies do not develop cash values.
The term "fixed" in a fixed annuity refers to all of the following EXCEPT
Equal annuity payments, amount and length of payments and guaranteed rate of interest EXCEPT death benefit
An agent selling variable annuities must be registered with
FINRA
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
Interest-sensitive whole life
Which two terms are associated directly with the way an annuity is funded?
Single payment or periodic payments
An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term?
The insured may renew the policy for another 10 years, but at a higher premium rate.
All of the following are true of an annuity owner EXCEPT
The owner pays the premiums on the annuity, has the right to name the beneficiary and is the party who may surrender the annuity EXCEPT the owner must be the party to receive benefits.
Which of the following determines the cash value of a variable life policy?
The performance of the policy portfolio
When would a 20-pay whole life policy endow?
When the insured reaches age 100
A universal life insurance policy is best described as an
annually renewable term policy with a cash value account
Which of the following features of the indexed whole life policy is NOT fixed?
cash value growth *Under the indexed whole life policy, the premium is fixed and the death benefit is guaranteed. Cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed
Which of the following is NOT a type of whole life insurance?
increasing term There are several types of whole life policies. The first 3, Straight Life, Limited Payment and Single Premium, are the basic forms of whole life.
What is correct regarding a whole life policy?
the policyowner is entitled to policy loans
What is called a "second-to-die" policy?
Survivorship life
What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?
Life income with period certain
How is the premium determined in a joint life insurance policy?
The premium is based on the average age of the insureds
What are the death benefit options in universal life policies?
Option A is the level death benefit option, and Option B is the increasing death benefit option.
What characteristic makes whole life permanent protection?
Coverage until death or age 100
An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n)
Equity indexed annuity *The interest rates of Equity Indexed Annuities are tied to the Standard and Poor's Index
To sell variable life insurance policies, an agent must receive all of the following EXCEPT
FINRA registration; A securities license; A life insurance license; EXCEPT SEC registration
What does "level" refer to in level term insurance?
Face amount (death benefit)
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.
During partial withdrawal from a universal life policy, which portion will be taxed?
Interest. During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.
If an agent wishes to sell variable life policies, what license must the agent obtain?
Securities
Level Term Insurance
The word level refers to the death benefit and premium that does not change throughout the life of the policy; The premium will be based on the insured's attained age of renewed
Which of the following products requires a securities license?
Variable annuity
The main difference between immediate and deferred annuities is
when the income payments begin *Immediate annuities will begin payments within the first year *Deferred annuities will not begin payments until sometime after the first year.
The minimum interest rate on an equity indexes annuity is often based on
An index like Standard & Poor's 500
The LEAST expensive first-year premium is found in which of the following policies?
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 an annuity, the accumulated money is converted into a stream of income during which time period?
Annuitization period. The "annuitization period" (annuity period) is the time during which accumulated money is converted into an income stream.
Annually Renewable Term Insurance
The death benefit remains level; The policy may be guaranteed to be renewable each year without proof of insurability; The premium increases annually according to the attained age.
Which of the following is not true regarding Equity Indexed Annuities?
The insurance company keeps a percentage of the returns; They have guaranteed minimum interest rates; They are less risky than variable annuities; EXCEPT They earn lower interest rates than fixed annuities.
Which of the following is TRUE for both equity indexed annuities and fixed annuities?
They have a guaranteed minimum interest rate.
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?
Universal Life
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
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.
An individual has been making periodic premium payments on an annuity. The annuity income payments are schedule to begin after 1 year since the annuity was purchased. What type of annuity is it?
Deferred
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?
The full death benefit
What are the 3 basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term?
Level, increasing and decreasing
What is the purpose of establishing the target premium for a universal life policy?
To keep the policy in force 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.
Which of the following types of policies allows for a flexible premium and a variable investment component?
Variable universal life insurance
The death protection component of Universal Life Insurance is always
Annually Renewable Term. *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.
The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE?
The beneficiary will receive the greater of the money paid into the annuity or the cash value.
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 five 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
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.
When an annuity is written, whose life expectancy is taken into account?
Annuitant The annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and annuity owner are often the same person but do not have to be.
Which of the following is TRUE regarding the accumulation period of an annuity?
It is a period during which the payments into the annuity grow tax deferred.
Which of the following is TRUE regarding the annuity period?
It may last for the lifetime of the annuitant
All of the following are true regarding a decreasing term policy EXCEPT
the contract pays only in the event of death during the term and there is no cash value, the face amount steadily declines throughout the duration of the contract and the death benefit is $0 at the end of the policy term EXCEPT the payable premium amount steadily declines throughout the duration of the contract
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
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
Which of the following is NOT true regarding the accumulation period of an annuity?
It is also known as the pay-in period; Is it the period during which the annuity payments earn interest; and It is the period over which the owner makes payments into an annuity; EXCEPT 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 Rome during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).
A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that?
Joint Life Policy
All of the following statements about equity index annuities are correct EXCEPT
They have a guaranteed minimum interest rate; The interest rate is tied to an index such as the Standard & Poor's 500; and They invest on a more aggressive basis aiming for higher returns; EXCEPT The annuitant receives a fixed amount of return
Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be
Adjusted to the insured's age at the time of renewal
What type of premium do both Universal Life and Variable Universal Life policies have?
Flexible
The death benefit under the Universal Life Option B
Gradually increases each year by the amount that the cash value increases
A Return of Premium (ROP) term life policy is written as what type of term coverage?
Increasing - ROP life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid
Decreasing Term Inusrance
Level premium; Death benefit decreases each year over the duration of the policy term; Commonly purchased to insure the payment of a mortgage or other debts because the amount of needed protection decreases over time; Convertible but not renewable since the death benefit is $0 at the end of the policy term.
Which of the following is an example of a limited-pay life policy?
Life Paid-up at Age 65
Which Universal Life option has a gradually increasing cash value and a level death benefit?
Option A *Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures
