CH.4
Which type of life insurance provides pure death protection?
Term
What are the two major types of life insurance?
Term and whole
Pure death protection only is provided by which life insurance policy?
Term life insurance
All of the following characterize term life insurance, EXCEPT:
Term life insurance provides living benefits (cash accrual).
All of the following are false regarding convertible term policies, EXCEPT:
The converted policy's premiums will be based on the insured's attained or original age.
Which of the following best describes option B/option 2 under a universal life policy?
The death benefit is the policy face amount and the cash value.
Which of the following best describes a limited payment life insurance policy?
The insured is covered for their entire life and premiums are paid for a restricted period of time.
What happens when the cash value of a life insurance policy equals the face value?
The policy endows.
What happens when the cash value in a universal life insurance policy reaches zero and the grace period has lapsed?
The policy expires.
Limited payment whole life policies differ from ordinary whole life policies in all of the following ways, EXCEPT:
The policy pays out earlier.
Which of the following permanent life insurance policies is interest-sensitive?
Universal life insurance
All of the following term life insurance policies have level premiums, EXCEPT:
Annual renewable term
All of the following are characteristics of term insurance, EXCEPT:
Cash value
An indexed-linked policy is linked to:
Consumer Price Index
In a universal life insurance policy, the two most common adjustments made during a month are:
Cost of death protection deducted and current interest rate credited
What type policy is on the life of the debtor?
Credit
In a MEC, all of the following are taxable EXCEPT:
Death benefits
All of the following are ways that an adjustable life insurance policy can be altered when an extra premium payment is made, EXCEPT:
Decrease the policy's nonforfeiture values
Which type of life insurance coverage is used to provide mortgage protection?
Decreasing term
______________ whole life policies provide a lower initial premium that can fluctuate up to a maximum premium as stated in the policy.
Indeterminate premium
Whole life and universal life policies have some similarities and differences. Which of the following is NOT a characteristic of a universal life policy?
Interest earned by the cash account cannot vary
A limited payment life insurance policy is best suited for:
Josh, a 25-year old successful entrepreneur with extra funds, who doesn't want to pay life insurance premiums when he retires.
Gina and Jerry are purchasing life insurance. They decided on policies that would be paid up in 20 years. What type of policies did they purchase?
Limited payment policies
The primary difference between universal life and adjustable life is:
Premium payments can be skipped.
Shane and Casey are looking at joint life and survivorship policies, which should they buy if they want to pay the taxes on the estate
Survivorship Life
Which of the following characteristics does not describe convertible term life insurance policies?
The attained age is the insured's age upon purchase of the term life insurance policy.
Wesley purchases an increasing term life insurance policy. Which of the following elements must increase in Wesley's policy?
The death benefit
Which of the following best describes option 1 under a universal life policy?
The death benefit is a level benefit
Which of the following is not a way that limited pay policies differ from ordinary whole life policies?
The death benefit is paid out earlier.
What happens when a universal life policyholder pays the minimum premium?
The policy will resemble term life insurance.
After looking at his options, Randy decided on a single premium whole life policy. What is an advantage of this type of policy?
The total premium is lower.
Why are whole life policies more expensive than some other insurance options?
They must cover cash values, net insurance and mortality costs, as well as expenses.
Which of the following best describes a circumstance in which the insurer would increase the death benefit of a universal life insurance policy
To prevent the cash value from growing too quickly
What policy can be described as an annual renewable term with a cash value account?
Universal life
All of the following are true regarding adjustable life policies, EXCEPT:
When the premium is decreased, the insured is not required to provide evidence of insurability.
Which type of life insurance provides living benefits?
Whole
Mr. Barnes purchased a universal life policy with a death benefit of $200,000 several years ago. With a current cash value of $50,000, he selected benefit option B. What is his current death benefit?
$250,000
When considering different types of whole life policies, it is important to know the amount of the premium can vary, depending on the policy chosen. The monthly premium payment would be highest for:
20-payment whole life
Blaine wants a life insurance policy that builds cash value the quickest. Which of the following policies best fits Blaine's needs?
25-pay life
Judith wants her life insurance policy to grow cash value quickly. Which policy would you recommend to her?
25-pay life
What policy year does cash value begin to accumulate in a whole life policy?
3rd
Marci's universal life policy is currently crediting its cash value with 5% interest. The interest rate on policy loans is currently 6%. Based on these figures, at what interest rate is Marci's cash value accumulating?
5% on the entire cash value
What is the age and penalty for early withdrawals from a MEC?
59 1/2, 10%
All of the following statements are true regarding annual renewable term (ART) policies, EXCEPT:
ART is guaranteed renewable on an annual basis with proof of insurability.
Sandra wants to have flexibility with her life insurance policy to accommodate changes in her situation. She should consider:
Adjustable life
Proof of insurability is required to increase the policy face amount.If Jaime has an adjustable life policy, he can:
All of the above
Which life insurance policy has annual increasing premiums and does not build cash value?
Annual renewable term
Which term policy has increasing premiums and a level face amount?
Annual renewable term
Which of the following best describes how the cash value in a universal life policy grows?
At a guaranteed minimum rate, but may earn a higher current rate
Ordinary whole life insurance death benefits are:
Fixed
___________ policies have premiums that fluctuate between the current rate and maximum rate, as stated in the policy.
Indeterminate premium
An adjustable life policy allows the policyowner to make all of the following changes, EXCEPT:
Invest premiums in a separate account
Which of the following changes may the policyowner of an adjustable life policy NOT make?
Invest premiums in the insurer's separate account
All of the following are drawbacks of term life insurance, EXCEPT:
Living benefits are available to the policyholder in the form of cash accrual.
If Sandra chooses an adjustable life policy, all of the following are flexible, EXCEPT:
No requirement for proof of insurability
With respect to whole life insurance, which of the following statements is false?
None of the above
All of the following are characteristics of whole life policies, EXCEPT:
Opportunity to change components of the policy
All of the following are characteristics of whole life insurance, EXCEPT:
The cash value in a permanent life insurance policy is not a nonforfeiture benefit.
What happens when a universal life policyholder pays the target premium?
The policy will resemble whole life insurance.
This life insurance policy provides death protection for the insured's entire life, but premiums are not paid for the insured's entire life.
20-pay life
What elements are guaranteed in a straight life policy?
Both cash value and death benefit
All of the following statements are correct regarding adjustable life policies, EXCEPT:
Cash value always accrues in the policy.
Which of the following statements incorrectly describes cash value in an ordinary whole life policy?
Cash value may be used as a policy loan, without affecting the death benefit.
Term insurance is categorized by all of the following, EXCEPT:
Policy cash value grows tax-deferred
Compared to straight life, a limited payment life insurance policy is characterized by all of the following, EXCEPT:
Premium-paying period is longer.
For what reason would the insurance company raise the death benefit of a universal life policy?
Prevent the cash value from growing too quickly
What are the benefits of a convertible and renewable term life insurance policy?
Proof of insurability is not required to convert or renew coverage.
Which of the following policies allows a policyowner to renew a term policy and receive a lower premium by providing proof of insurability
Reentry term
Kara is interested in purchasing a life insurance policy that has steady premiums. She doesn't want to pay higher premiums when she is older. What policy should you not recommend to her?
Renewable and convertible term
All of the following statements regarding renewable term life insurance policies are false, EXCEPT:
Renewable term life insurance policies are renewable at the insured's option.
Ben wants to pay his entire whole life policy premium at once. Which policy would you recommend to him?
Single premium whole life
Of the basic types of whole life insurance, which policy has the lowest premium payment?
Straight life
What are the two premiums in a universal life insurance policy?
Target premium; minimum premium
Which of the following is not a characteristic of decreasing term life insurance?
The premium decreases to zero by the end of the policy period.
All of the following are basic types of whole life insurance, EXCEPT:
interim term
Term life insurance provides ________________. Whole life insurance provides _______________.
pure death protection; death benefit and living benefits.
All of the following are advantages of whole life insurance, EXCEPT:
the premium-paying period may extend beyond the income-earning years.
What type test is a MEC subject to?
7-pay test
What policy provides flexible premiums, cash values, face amounts, premium-paying period and length of coverage?
Adjustable life
Blake just bought a home and needs insurance to cover his mortgage. He does not have a lot of money to spend on this coverage. What policy would you recommend to Blake?
Decreasing term
Mortgage protection insurance uses what type of life insurance coverage?
Decreasing term
Which of the following life insurance policies is most appropriate for mortgage protection?
Decreasing term
Which policy works the same way as universal life, but has an interest rate that is tied to the stock market index?
Equity indexed universal life
What type policy is tied to an index like the S&P 500 or the DJIA?
Equity-indexed
What part of a mortgage reduction policy decreases over time?
Face amount
A single premium whole life policy has all of the following features, EXCEPT:
Face amount is variable
Ordinary whole life insurance premiums are:
Fixed
Compared to ordinary whole life policies, universal life interest rates are:
Higher
Sheldon wants a life insurance policy with premiums that do not increase over time. Which of the following policies would you recommend to him?
Increasing term
The cash value in permanent life insurance policies is characterized by all of the following, EXCEPT:
Interest earned on cash value is taxable in the year it is earned.
Which of the following policies is most appropriate for a 23-year old who wants a year of life insurance protection before getting married
Interim term
A Modified Endowment Contract:
Is an overfunded life Policy
Which of the following is not true regarding the cash value in an ordinary whole life policy?
It may be used as a policy loan without affecting the death benefit.
What type policy would pay the death benefits after the first person dies if it covers two or more lives?
Joint life
Which of the following policies has a level face amount with level premiums?
Level premium term
Which term policy has level premiums and a level face amount?
Level premium term
What type policy would pay the death benefits after the second person dies if it covers two or more lives?
Survivorship life
A person who has a universal life policy and needs cash from the policy, but does not want to have an outstanding policy loan should:
Take a partial surrender of the policy's cash value