Chapter 3 Practice Questions

In a Viatical Settlement transaction, the life insurance policyowner is referred to as the ___. A. Provider B. Viator C. Third Party D. Viatee

A. Provider *B. Viator* C. Third Party D. Viatee

The purchase of a policy from a terminally ill by the third party who becomes the new owner is considered a ____. A. Viatical Settlement B. Transfer for value C. Senior Settlement D. 1035 Exchange

*A. Viatical Settlement* B. Transfer for value C. Senior Settlement D. 1035 Exchange

An insured purchases a 20-Pay Life Policy with a face amount of $25,000 and an annual premium of $1,000. The insured dies 15 years later when the cash value is $5,000. What amount will the beneficiary receive? A. $25,000 B. $15,000 C. $20,000 D. $30,000

*A. $25,000* B. $15,000 C. $20,000 D. $30,000

A $100,000 policy with a waiver of premium rider and $30,000 of cash value is in force. The base policy costs $750 and the rider is $50. What is the total premium annually the policyowner must pay to keep the policy in force? A. $800 B. $50 C. $750 D. $700

*A. $800* B. $50 C. $750 D. $700

A Permanent life policy issued 30 years ago would endow at what age? A. 100 B. 65 C. 121 D. 95

*A. 100* B. 65 C. 121 D. 95

Which of the following is a true characteristic of Variable Universal Life Policy? A. As long as there is sufficient cash value to cover policy expenses when due, the insured is not required to pay the planned premium B. The policy requires only a life license to sell C. The insurer bears all risks in accumulating cash value D. The policy has fixed premium schedule

*A. As long as there is sufficient cash value to cover policy expenses when due, the insured is not required to pay the planned premium* B. The policy requires only a life license to sell C. The insurer bears all risks in accumulating cash value D. The policy has fixed premium schedule

Level, decreasing and increasing term refer to which policy feature? A. Death Benefit B. Premium C. Cash Value D. Renewable and Convertible

*A. Death Benefit* B. Premium C. Cash Value D. Renewable and Convertible

All of the following regarding term life insurance renewability is correct, except: A. It is similar to the re-entry provision found in some term policies B. Premiums increase at the beginning of each renewal period C. No evidence of insurability is required D. Renewable term costs more than non-renewable term

*A. It is similar to the re-entry provision found in some term policies* B. Premiums increase at the beginning of each renewal period C. No evidence of insurability is required D. Renewable term costs more than non-renewable term

If X has a life insurance policy that is no longer wanted or needed and is considering selling their policy, how much might X receive if the premiums are $10,000 annually, the cash value is $200,000, and the face amount is $1,000,000? A. More than $200,000 but less than $1,000,000 B. Less than $200,000 C. $200,000 D. Nothing, because selling the policy is a prohibited transaction

*A. More than $200,000 but less than $1,000,000* B. Less than $200,000 C. $200,000 D. Nothing, because selling the policy is a prohibited transaction

In order to convert a term policy to a permanent policy as the original issue age, all of the following must occur, except: A. The cash values will have to be paid out first before the conversion can be effected B. Back premiums will have to be paid at the time of conversion C. The request for conversion must be made on a timely basis D. Interest will be charged and have to be paid at the time of conversion

*A. The cash values will have to be paid out first before the conversion can be effected* B. Back premiums will have to be paid at the time of conversion C. The request for conversion must be made on a timely basis D. Interest will be charged and have to be paid at the time of conversion

All of the following regarding convertible term life insurance is true, except: A. The conversion can take place at any time B. Conversion is without evidence of insurability C. The new premium will be higher on the conversion policy compared to the original policy D. Conversion can be based on either the attained or original issue age of the insured

*A. The conversion can take place at any time* B. Conversion is without evidence of insurability C. The new premium will be higher on the conversion policy compared to the original policy D. Conversion can be based on either the attained or original issue age of the insured

Each of the following are characteristics of Current Assumption Whole Life insurance policy, except: A. The death benefit is not guaranteed B. The insurance company can change the interest rate credited to the policy C. The insurance company can change the premium D. If interest rates increase premiums can be reduced or cash values can increase at a faster rate

*A. The death benefit is not guaranteed* B. The insurance company can change the interest rate credited to the policy C. The insurance company can change the premium D. If interest rates increase premiums can be reduced or cash values can increase at a faster rate

How long would a policyowner have to pay premiums on a term life policy to age 65 that was taken out at age 35? A. To the earlier of the insured's death, or to age 65 B. To age 65 C. 30 Years D. Whenever the insured dies

*A. To the earlier of the insured's death, or to age 65* B. To age 65 C. 30 Years D. Whenever the insured dies

Which of the following term life insurance policies cannot be renewed? A. Re-entry B. Level C. Increasing D. Decreasing

A. Re-entry B. Level C. Increasing *D. Decreasing*

A $100,000 policy with a waiver of premium rider and $30,000 of cash value is in force when the insured dies at age 65. The beneficiary receives how much of the policy's values. A. $70,000 B. $100,000 C. $30,000 D. $130,000

A. $70,000 *B. $100,000* C. $30,000 D. $130,000

Which of the following traditional whole life policies has the lowest first-year annual premium? A. 30-Pay Life B. 20-Pay Life C. 10-Pay Life D. 40-Pay Life

A. 30-Pay Life B. 20-Pay Life C. 10-Pay Life *D. 40-Pay Life*

How much of a cash value policy loan will an insurer normally grant with a variable type policy? A. 50-75% B. 100% C. 80-90% D. 75-90%

A. 50-75% B. 100% C. 80-90% *D. 75-90%*

The waiver of premium rider normally expires at age: A. 60 B. 55 C. 65 D. 70

A. 60 B. 55 *C. 65* D. 70

What rider is designed to help the insured offset the effects of future inflation on the policy's face amount? A. Accelerating Benefits B. Living Needs C. Decreasing Term D. Cost of Living

A. Accelerating Benefits B. Living Needs C. Decreasing Term *D. Cost of Living*

Which Whole Life policy is designed to provide a substantial immediate cash value? A. Adjustable B. Single Premium Whole Life Policy C. Ordinary Straight Life D. Indeterminate

A. Adjustable *B. Single Premium Whole Life Policy* C. Ordinary Straight Life D. Indeterminate

With a Variable Life Policy, which of the following is guaranteed? A. Cash value B. Investment returns C. Dividends D. Death Benefit

A. Cash value B. Investment returns C. Dividends *D. Death Benefit*

The cash value of a permanent life insurance policy can be used for all of the following, except: A. Cash withdrawals B. Policy loans C. Nonforfeiture options D. Accidental Death Benefits

A. Cash withdrawals B. Policy loans C. Nonforfeiture options *D. Accidental Death Benefits*

A rider is usually requested at the time of ___. A. Claim B. First policy renewal C. Conversion D. Policy Purchase

A. Claim B. First policy renewal C. Conversion *D. Policy Purchase*

The face amount of an Ordinary Whole Life Policy ___ over the life of the policy. A. Decreases B. Increases C. Varies D. Remains the Same

A. Decreases B. Increases C. Varies *D. Remains the Same*

All of the following riders will waive the premiums in the event of a disability, except: A. Disability Income B. Waiver of Premium C. Guaranteed Insurability D. Payor Benefit

A. Disability Income B. Waiver of Premium *C. Guaranteed Insurability* D. Payor Benefit

What is the "waiver of premium" called on a Universal Life insurance policy? A. Disability Premium Income B. Waiver of Cost of Insurance C. Waiver of flexible premium D. Monthly premium waiver

A. Disability Premium Income *B. Waiver of Cost of Insurance* C. Waiver of flexible premium D. Monthly premium waiver

A ___ is a contractual agreement that allows a company or person to buy one or more of the rights of ownership in a life policy on the life of another person, should the owner/insured become terminally ill. A. Emergency Fund Rider B. Leveraged Insurance Agreement C. Living Needs Rider D. Viatical Settlement

A. Emergency Fund Rider B. Leveraged Insurance Agreement C. Living Needs Rider *D. Viatical Settlement*

The purpose of the Re-entry Term option is to: A. Extend the length of time the original policy can be in effect B. Continue on with the existing policy but with a larger face amount C. Obtain a new term policy at a lower rate D. Obtain a permanent plan of insurance that builds cash value

A. Extend the length of time the original policy can be in effect B. Continue on with the existing policy but with a larger face amount *C. Obtain a new term policy at a lower rate* D. Obtain a permanent plan of insurance that builds cash value

A client wants to make sure that they can have a permanent life insurance policy several years from now when they can afford it without having to prove insurability. What feature should they make sure they have on their new term life insurance policy? A. Flexibility B. Adjustability C. Renewability D. Convertibility

A. Flexibility B. Adjustability C. Renewability *D. Convertibility*

A payor rider is used to keep what type of policy in force? A. Graded premium policy B. A joint like policy C. A juvenile insurance policy D. A viatical settlement

A. Graded premium policy B. A joint like policy *C. A juvenile insurance policy* D. A viatical settlement

C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. He applies for and receives a $10,000 policy loan from the insurer. All of the following about this transaction are true, except: A. If C died, his beneficiaries would receive $90,000, less any outstanding interest charges B. The loan carries a fixed or variable interest rate C. If the policy is surrendered, C would receive $20,000 less any outstanding interest charges D. If C were disabled, his beneficiaries would receive $70,000, less any outstanding interest charges

A. If C died, his beneficiaries would receive $90,000, less any outstanding interest charges B. The loan carries a fixed or variable interest rate C. If the policy is surrendered, C would receive $20,000 less any outstanding interest charges *D. If C were disabled, his beneficiaries would receive $70,000, less any outstanding interest charges*

As the cash value increases in a traditional whole life policy, the new amount at risk ____, but the face amount of the policy would remain the same. A. Increases B. Decreases C. Varies D. Remains the Same

A. Increases *B. Decreases* C. Varies D. Remains the Same

Mortgage or credit life refers to what type of life insurance coverage? A. Increasing Term B. Decreasing Term C. Level Term D. Renewable Term

A. Increasing Term *B. Decreasing Term* C. Level Term D. Renewable Term

Which of the following permanent policies could actually end up acting like term life insurance? A. Indeterminate Premium B. Adjustable Life C. Single Premium Whole Life D. Ordinary Straight Whole Life

A. Indeterminate Premium *B. Adjustable Life* C. Single Premium Whole Life D. Ordinary Straight Whole Life

What happens to the overall annual premium cost once a term rider expires? A. It begins to vary B. It increases C. It decreases D. It stays the same

A. It begins to vary B. It increases *C. It decreases* D. It stays the same

What is the name of the rider that requires that the premium payor become totally and permanently disabled before it will pay a claim? A. Jumping Waiver B. Payor Benefit (Waiver of Payor's Premium) C. Minor age waiver of premium D. Juvenile Waiver

A. Jumping Waiver *B. Payor Benefit (Waiver of Payor's Premium)* C. Minor age waiver of premium D. Juvenile Waiver

Which of the following types of term life insurance can be written as a rider to provide cost of living or return of premium benefits? A. Level term B. Increasing Term C. Decreasing Term D. Variable Term

A. Level term *B. Increasing Term* C. Decreasing Term D. Variable Term

The premium charged for new policies obtained by exercising the Guaranteed Insurability Rider is based upon the: A. Original policy issue age of the insured B. Attained age of the insured C. Attained age of the policyowner D. Original policy issue age of the policyowner

A. Original policy issue age of the insured *B. Attained age of the insured* C. Attained age of the policyowner D. Original policy issue age of the policyowner

All of the following are characteristics of Ordinary Whole Life Insurance, except: A. Premiums remain uniform B. If insured lives to age 100, the total amount of premium paid over the lifetime of the insured is returned to the policyowner C. Premiums are designed to be paid throughout the life of the insured D. The policy pays the face value if the insured dies before age 100

A. Premiums remain uniform *B. If insured lives to age 100, the total amount of premium paid over the lifetime of the insured is returned to the policyowner* C. Premiums are designed to be paid throughout the life of the insured D. The policy pays the face value if the insured dies before age 100

Bess received information in regard to her individual Term Insurance explaining that she could convert the policy by agreeing to which of the following? A. Prove insurability and pay higher premiums based on her attained age B. Without providing proof of insurability, pay higher premiums based on her attained age C. Without providing proof of insurability and pay the same level premium D. Prove insurability and pay the same level premium

A. Prove insurability and pay higher premiums based on her attained age *B. Without providing proof of insurability, pay higher premiums based on her attained age* C. Without providing proof of insurability and pay the same level premium D. Prove insurability and pay the same level premium

Bert is the owner and insured of a permanent life insurance policy he purchased 20 years ago. He has never missed a premium payment. He would like to buy a new car but his bank account is running low. How can he obtain the necessary funds while still maintaining coverage? A. Reduce the policy's face amount which will reduce his premium payment B. Surrender part of the policy and for the balance take a policy loan C. Take a policy loan from the insurer D. Surrender the policy back to the insurer

A. Reduce the policy's face amount which will reduce his premium payment B. Surrender part of the policy and for the balance take a policy loan *C. Take a policy loan from the insurer* D. Surrender the policy back to the insurer

A(n) ___ is an added benefit attached to a life insurance policy for which an additional premium is generally paid. A. Reduction B. Exception C. Rider D. Extension

A. Reduction B. Exception *C. Rider* D. Extension

The owner of a Variable Life Policy may allocate the premium into a sub-account which is owned by the insurer, this sub-account is a part of what is also known as the: A. Side Fund B. Allocation Account C. Accumulation Account D. Separate Account

A. Side Fund B. Allocation Account C. Accumulation Account *D. Separate Account*

Which of the following is a type of insurance that provides an amount of coverage that diminishes while the policy is in effect and is most often used to pay an outstanding loan or mortgage balance upon the death of the insured? A. Split Level Term B. Ordinary Term C. Renewable Term D. Decreasing Term

A. Split Level Term B. Ordinary Term C. Renewable Term *D. Decreasing Term*

In a Universal Life policy, the minimum separation between the cash value and the death benefit is called the _____. A. The earned interest B. The MEC limit C. Risk Corridor D. The cash value

A. The earned interest B. The MEC limit *C. Risk Corridor* D. The cash value

Allen purchases an estate builder (jumping juvenile) policy for his 5-year old son, Donald. Suppose that when Donald reaches age 21 his father presents him with the policy as a gift. Which of the following statements is NOT correct? A. The face value of Donald's policy has increased by 5 times B. Donald must change the beneficiaries immediately C. Donald has enjoyed protection against the problems of premature death D. The premium will continue to be based on his original age of 5

A. The face value of Donald's policy has increased by 5 times *B. Donald must change the beneficiaries immediately* C. Donald has enjoyed protection against the problems of premature death D. The premium will continue to be based on his original age of 5

If a policyowner of a convertible term life insurance policy exercises his/her right to convert, which of the following will happen? A. The new life insurance policy will likely have a much lower premium B. The term policy will be replaced by a permanent life insurance policy C. The new policy will only be issued after proof of insurability is provided D. The new policy will have much more life insurance coverage than the previous one

A. The new life insurance policy will likely have a much lower premium *B. The term policy will be replaced by a permanent life insurance policy* C. The new policy will only be issued after proof of insurability is provided D. The new policy will have much more life insurance coverage than the previous one

All of the following are true regarding re-entry term, except: A. The new policy's premium will be based on the rates in effect by the insurer at the time of re-entry B. The new policy's premiums will be based on the insured's attained age C. The new policy's premium will be based on the premium class approved by the company D. The new policy's premium will be based on the insured's original age

A. The new policy's premium will be based on the rates in effect by the insurer at the time of re-entry B. The new policy's premiums will be based on the insured's attained age C. The new policy's premium will be based on the premium class approved by the company *D. The new policy's premium will be based on the insured's original age*

What is required to add a nonfamily member to a life insurance policy under a term rider? A. The nonfamily members commitment to pay the premium for the rider B. Permission of the producer C. Insurable interest D. The insured must be under the age 40

A. The nonfamily members commitment to pay the premium for the rider B. Permission of the producer *C. Insurable interest* D. The insured must be under the age 40

How is a life settlement transaction similar to a viatical settlement transaction? A. The policy is about to lapse B. The insured is terminally ill C. A third party buys a life insurance policy for less than its face amount D. The policy is overfunded

A. The policy is about to lapse B. The insured is terminally ill *C. A third party buys a life insurance policy for less than its face amount* D. The policy is overfunded

If a client owns an equity-indexed product, what happens if the market falls in value by a large amount? A. The policy's losses must first be made up before any future interest can be credited B. The policy's values are reduced in proportion to the loss C. The policy's values can never be impaired due to negative index performance D. The policy's values are reduced on a dollar-for-dollar basis

A. The policy's losses must first be made up before any future interest can be credited B. The policy's values are reduced in proportion to the loss *C. The policy's values can never be impaired due to negative index performance* D. The policy's values are reduced on a dollar-for-dollar basis

All of the following are TRUE regarding a Waiver of Premium Rider, except: A. There is usually a 6 month period before premiums are waived B. The insurer foregoes the premium should the insured be disabled C. In a Whole Life Policy, cash values continue to build D. The insured must repay the unpaid premiums

A. There is usually a 6 month period before premiums are waived B. The insurer foregoes the premium should the insured be disabled C. In a Whole Life Policy, cash values continue to build *D. The insured must repay the unpaid premiums*

Each of the following choices are true of whole life, except: A. They have nonforfeiture values and options are offered B. The death benefit and cash values are guaranteed C. The policy can be converted into a term life insurance plan at anytime D. As an insured ages, the premium remain the same

A. They have nonforfeiture values and options are offered B. The death benefit and cash values are guaranteed *C. The policy can be converted into a term life insurance plan at anytime* D. As an insured ages, the premium remain the same

A policyowner would like more coverage than $100,000 Whole Life Policy being proposed, but does not have enough discretionary income to pay a lot more money to do so. What can a producer recommend that will allow the policyowner to have the Whole Life policy, but with more total death benefit at an affordable price? A. Use the automatic premium loan feature of the policy B. Use the equity in the prospects home and buy a Single Premium Life Policy C. Add a term rider D. Buy an Indeterminate Premium Life Policy instead

A. Use the automatic premium loan feature of the policy B. Use the equity in the prospects home and buy a Single Premium Life Policy *C. Add a term rider* D. Buy an Indeterminate Premium Life Policy instead

Which of the following situations will require proof of insurability? A. Variable Whole Life insurance as the cash values grow due to favorable separate account investment earnings B. Adjusting the face amount up on a Universal Life insurance policy with Option A death benefit selected. C. Universal Life insurance with Option B death benefit as the cash values grow due to additional premium payments and favorable interest rate crediting D. Current Assumption Whole Life when the interest crediting is so favorable that the insurer adds a corridor of protection to keep the policy from endowing

A. Variable Whole Life insurance as the cash values grow due to favorable separate account investment earnings *B. Adjusting the face amount up on a Universal Life insurance policy with Option A death benefit selected.* C. Universal Life insurance with Option B death benefit as the cash values grow due to additional premium payments and favorable interest rate crediting D. Current Assumption Whole Life when the interest crediting is so favorable that the insurer adds a corridor of protection to keep the policy from endowing