Chapter 3- Types of policies and riders

Individual Term policies are generally stand-alone policies, but may be written with other types of policies as a(n): A Rider B Bonus C Endorsement D Dividend

A Rider

Which of the following would have the lowest first-year annual premium for a 30-year-old, all other factors being equal? A Term to age 70 B Term to age 40 C Term to age 50 D Term to age 60

B Term to age 40 10 years of coverage is less costly than longer terms of coverage.

Which of the following would have the highest first-year annual premium for a 30-year-old, all other factors being equal? A Term to age 50 B Term to age 70 C Term to age 60 D Term to age 40

B Term to age 70 40 years of coverage is more costly than shorter terms of coverage.

What "jumps" in a jumping juvenile policy?

The face amount (death benefit) jumps one time, usually five times the amount of insurance, at age 21 or 25.

Which of the following term life insurance policies would have the lowest 1st-year annual premium, all other factors being equal? A 1-year B 5-year C 15-year D 10-year

A 1-year The 1-year term life insurance policy would have the lowest first-year premium of the choices provided. In essence, one year of coverage is less risky to the insurer than being locked in to more years.

Which of the following is designed for someone with a large insurance need but with limited cash flow? A Whole Life Insurance B Variable Life Insurance C Term Life Insurance D Home Service Life Insurance

C Term Life Insurance Term Insurance is pure protection (i.e. no cash value develops.) Its cost per thousand dollars of coverage is significantly lower initially than Permanent Insurance

Credit life insurance is a special form of what type of term life insurance? A Annually renewable 30 year B Increasing C Level D Decreasing

D Decreasing Credit life insurance is a special form of decreasing term.

A "level term" policy means that the _________ remains the same throughout the lifetime of the policy. a. Cash value b. Pure cost of insurance c. Policyowner d. Policy proceeds

d Policy proceeds

What type of policy has an endowment date, a face amount, and cash value? A A permanent life insurance policy B A decreasing term life insurance policy C A mortgage life insurance policy D A traditional group life insurance policy

A A permanent life insurance policy Only a permanent life insurance policy would have all three features.

All of the following are characteristics of Ordinary Whole Life Insurance, except: A If insured lives to age 100, the total amount of premium paid over the lifetime of the insured is returned to the policyowner B Premiums remain uniform 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 If insured lives to age 100, the total amount of premium paid over the lifetime of the insured is returned to the policyowner If the insured lives to age 100, the face amount of the policy is paid to the owner of the policy. At age 100 the cash value equals the face value.

All of the following policies end when an insured dies, except: A Joint Survivorship B Juvenile Life C Variable Universal Life D Joint Life

A Joint Survivorship This policy continues on until the second insured (survivor) dies.

Equity Universal, Variable, and Variable Universal all have which of the following characteristics in common? A The overall policy performance has something to do with the stock market in general B A securities license is required to sell each policy C All have a guaranteed death benefit D The owner chooses the separate account(s) to invest the cash values in

A The overall policy performance has something to do with the stock market in general All of these policies do NOT have a guaranteed death benefit. Equity Universal life policy does NOT require a securities registration. However, all of them have a death benefit that is somehow tied to the stock market.

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 $20,000 B $25,000 C $30,000 D $15,000

B $25,000 If death occurs at any point prior to age 100, the beneficiary receives the death benefit ( face amount) of $25,000.

When must required disclosures be provided to a life settlement contract applicant? A At the first solicitation B At the time of the application C Within 3 business days after the application has been submitted D At the time the life settlement proceeds are delivered

B At the time of the application

Life insurance protection for a specified period of time is provided by what type of policy? A Straight Whole Life B Term C Period Certain D Fixed Period

B Term Term insurance is protection for a specified period of time or to a specified age.

Permanent insurance is designed to provide coverage ___________. A To age 65 B For a temporary period of time C For a specified period of time D For an entire lifetime

D For an entire lifetime While term insurance is designed to provide protection for a specified time period, permanent insurance is designed to provide coverage for an entire lifetime.

A Life Settlement Broker, for a fee or commission, offers to negotiate life settlement contracts between the owner of a life insurance policy and: A Life insurers B Beneficiaries C Third-party purchasers D Life settlement providers

D Life settlement providers A Life Settlement Broker, for a fee or commission, offers to negotiate life settlement contracts between an owner of a life insurance policy and life settlement providers.

Credit life insurance automatically names who as the beneficiary? A The debtor B The debtor's spouse C The debtor's estate D The creditor

D The creditor

A _______________ policy has a death benefit that can increase or decrease over time based on stock market performance, but with a guaranteed minimum death benefit, a choice of sub-accounts in which cash value may be allocated, and a fixed premium. a. Variable Life b. Variable Universal Life c. Equity indexed Universal Life d. Investment Grade Whole Life

a Variable Life Only Variable Life, also known as Variable Whole Life, has all of these characteristics. Variable Universal Life does not adjust the death benefit in relation to stock market performance. Equity Indexed Universal Life does NOT permit allocation of cash value in stock-based funds. There is no such thing as Investment Grade Whole Life.

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

A Death benefit The words level, decreasing and increasing as they apply to term insurance describe the death benefit, rather than the premium. Term life insurance has no cash value. Term life premiums can be level or increase, then never decrease.

Timothy is the insured/owner of a universal life insurance policy and is concerned that in the event of disability, the policy might lapse. Which rider would keep the policy from lapsing if he became disabled? A Waiver of Cost of Insurance B Waiver of Premium Rider C Return of Premium Rider D Guaranteed Insurability Rider

A Waiver of Cost of Insurance Tim has a Universal Life Policy which needs to have enough cash value in it in order to pay the monthly cost of insurance. If he is disabled, the Waiver of Cost of Insurance will keep the policy in force.

The applicant/insured wants a term life insurance policy that will last for 20 years and is willing to risk that the insurer is managing its financial affairs properly and is not concerned about the premium of the policy down the road so long as there is a cap on how much it can ultimately become, so the producer should show him/her a(n): A 20 year adjustable premium term life insurance policy B 20 year indeterminate premium term life insurance policy C 20 year guaranteed level premium term life insurance policy D 20 year non-guaranteed level premium term life insurance policy

B 20 year indeterminate premium term life insurance policy Indeterminate premium term can have the premium fluctuate between the current charge and a maximum rate stated in the policy based on the insurer's mortality, expenses, and investment returns.

An insured dies within the time limit of an Increasing Term Rider and the beneficiary receives the face amount plus the value of all paid premiums. Which rider is attached to the policy? A Term to age 100 B Return of Cash Value C Return of Premium D Waiver of Premium

C Return of Premium With a Return of Premium Rider, if the insured dies within the period of the term, the beneficiary receives the death benefit of the Whole Life Policy and, through an increasing term rider, the equivalent of the premiums paid on the Whole Life Policy.

To be permitted to operate as a Life Settlement Broker, a life insurance producer must be licensed as a life agent for at least: A 6 months B 9 months C 3 months D 1 year

D 1 year A life insurance producer licensed as a life agent for at least 1 year or as a licensed nonresident producer meets the licensing requirements and is permitted to operate as a Life Settlement Broker by notifying the Commissioner and paying the life settlement broker license fee.

If a father were to add a Child Rider to a policy to cover his children, when would coverage become effective for a newborn? A At 14 or 15 days of age B At birth C At 1 year of age D At 14 or 15 weeks of age

A At 14 or 15 days of age Children born after the rider is issued are covered automatically after 14 or 15 days, depending on the insurer, at no additional premium.

With a Guaranteed Universal Life policy the policy is guaranteed not to lapse as long as what premiums are paid? A The minimum required B Most C Flexible D Adjustable

A The minimum required With a Guaranteed Universal Life policy, there is a guarantee of term insurance for life, as long as the minimum required premiums are paid, which means the policy is guaranteed not to lapse.

Ordinarily, who would not be the owner of a juvenile policy from the outset? A A mother B A brother or sister C A father D A grandparent

B A brother or sister Typically it is the parents or grandparents who buy juvenile policies on their children or grandchildren.

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

B Single Premium Whole Life Policy A single premium policy is paid up (i.e. requires no more premiums due) after only one premium. As a result, it starts with substantial cash value.

Which of the following is not a feature of term life insurance? a. Cash surrender value b. Low cost c. Limited duration d. Pure protection

a Cash surrender value

What is the face amount of insurance? a. The cash value b. The limit of liability c. The cash surrender value d. The maximum loan value

b The limit of liability

A "level term" policy means that the _________ remains the same throughout the lifetime of the policy. A Policy proceeds B Policyowner C Pure cost of insurance D Cash value

A Policy proceeds The policy proceeds are also known as the death benefit or face amount of insurance. In term life, at each renewal the premium will increase based on the age of the insured. The pure cost of insurance is gross premium minus the insurer's expenses and profit and without adjustment for interest earnings on reserves.

Even though this rider can pay out upon death, it also pays out a benefit if the insured loses a limb, eyesight, or hearing as a result of an accident. What is this rider benefit called? A Dismemberment B Reimbursement C Indemnity D Reattachment

A Dismemberment Accidental Death and Dismemberment is a rider that provides an additional benefit in addition to the base of the policy. --- The rider pays 50% of the rider amount (capital sum) for accidental dismemberment losses, such as the loss of a limb, or eyesight. ---Double dismemberment benefits are provided at 100% of the rider (2 times the capital sum). Benefits are only payable if the loss is accidental and occurs within 90 days of the accident.

A Life Settlement Contract is a financial transaction in which the owner of a life insurance policy sells an unneeded policy to a third party for how much? A More than the cash surrender value and less than the face value B 80% of the face value of the policy if the insured is between the ages of 65 and 70 C 2 times the premium paid into the policy D 3 times the cash value

A More than the cash surrender value and less than the face value A Life Settlement Contract is a financial transaction in which the owner of a life insurance policy sells an unneeded policy to a third party for more than the cash surrender value and less than the face value.

When a whole life policy endows, what happens to the policy's cash value? A The face amount of the policy is paid to the policyowner B The cash value reverts to the insurance company C Cash value is only found in term life policies, not whole life D The cash value is deducted from the death benefit and the remainder is paid to the policyowner

A The face amount of the policy is paid to the policyowner At endowment, because the insured has not already died, a whole life policy's cash value will equal the face amount of insurance. The policy ends and the face value is paid to the policyowner.

A Last-to-Die policy would be the most appropriate recommendation for which of the following? a. A husband and wife concerned about paying estate taxes after they have died b. A business owner who wants to make sure his wife has enough money to buy the business from his partner if he should die before his partner does c. A corporation concerned that its CEO might die before the end of his employment contract d. Two business partners who are concerned about the future success of the business and want to provide funds to purchase the business from the decedent's family

A A husband and wife concerned about paying estate taxes after they have died Married couples worried about estate taxes would be best served in most cases by a Last-to-Die, or Survivorship, policy

What "jumps" in a jumping juvenile policy? a. The premium jumps five times over the life of the policy, beginning at age 21 or 25 b. The face amount jumps one time, usually to five times the amount of insurance, at age 21 or 25 c. The premium increases by a factor of five on the child's 21st or 25th birthday d. The premium and the face amount jump by a factor of five after the child's 21st or 25th birthday

B The face amount jumps one time, usually to five times the amount of insurance, at age 21 or 25 A "jumping juvenile" policy will normally increase the face amount of insurance by a factor of five with no change in premium at the next anniversary after the child turns anywhere from age 21-25 (depends on the policy). Ownership of the policy also changes at that time to the child, who is now an adult.

The value within a permanent life insurance policy that the policyowner can access through a policy loan or policy surrender is known as the ___________. A Endowment Value B Cash Value C Annuity Value D Rider Value

B Cash Value The policyowner has the right to access the cash value through policy loans or policy surrender.

What type of term life insurance policy has a policy premium that can fluctuate between the current charge and a maximum rate stated in the policy based on the insurer's mortality, expenses, and investment returns? A Adjustable B Indeterminate C Flexible D Increasing

B Indeterminate Indeterminate premium term can have the premium fluctuate between the current charge and a maximum rate stated in the policy based on the insurer's mortality, expenses, and investment returns.

A _______________ policy has a death benefit that can increase or decrease over time based on stock market performance, has a guaranteed minimum death benefit, a choice of sub-accounts in which cash value may be allocated, and a fixed premium. A Equity Indexed Universal Life B Variable Life C Variable Universal Life D Investment Grade Whole Life

B Variable Life Only variable life, also known as variable whole life, has all of these characteristics. Variable universal life does adjust the death benefit in relation to stock market performance but does not have a guaranteed minimum death benefit. Equity indexed universal life does not permit allocation of cash value in stock-based funds.

A mother with a teenage son purchases a life policy on his life. The policy includes an optional rider called the Payor Benefit. What will happen to the policy if the mother dies or is disabled before her son reaches age of majority? A The policy would pay out a modest lump sum to the beneficiary B The premiums would be suspended and later paid back by the son C The premiums on the son's policy would be waived until the son reaches a specified age D The amount of coverage is reduced as the policy is paid up

C The premiums on the son's policy would be waived until the son reaches a specified age The Payor Benefit Rider is used in third-party policies in which the insured and owner are not the same. The insurer continues the policy as if the owner were still making premium payments.

Which of these best describes a disability income rider? a. Provides for double the face amount if the insured is disabled and has no income b. Pays a percentage of the annual premiums as monthly income to the insured if she is totally disabled c. Pays a percentage of the death benefit as monthly income to the insured when totally disabled d. Automatically creates an unlimited loan fund in the amount of

C Pays a percentage of the death benefit as monthly income to the insured when totally disabled A disability income rider pays monthly income to a totally disabled insured. The income is a specified number of dollars per $1,000 of death benefit, which may be expressed as a percentage of the death benefit. Waiver of premium allows the insured to avoid paying premiums when totally disabled. Money paid as income under a disability income rider does not affect the death benefit in any way.

Which of the following are characteristics of universal life insurance policies? A Fixed death benefit for life, premiums may be increased or decreased B Adjustable death benefit, premiums are fixed for life C Death benefit options, premiums fixed for life D Death benefit options, death benefit and premiums may be changed

D Death benefit options, death benefit and premiums may be changed Death benefits options are a key characteristic of all forms of universal life insurance. All UL policies permit the policyowner to make changes in both the amount and timing of premium payments, including making no payments at all, and the death benefit may be increased or decreased in accordance with the terms and provisions of the policy.

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 Decreasing term C Variable term D Increasing term

D Increasing term

All of the following statements are true of a juvenile policy, except: A The premiums remain level B The death benefit can increase at a specified age usually 21 or 25 without proof of insurability C The death benefit increase is typically 5 times the original issue amount D The insured is the premium payor

D The insured is the premium payor The premium payor is an adult typically the parent of the minor insured.

Which of the following statements about Annual Renewable Term premiums is TRUE? A Premiums are level over time B Premiums initially start out higher than comparable permanent coverage and decrease as the insured's age increases C Premiums are variable D The premium increases over time as the insured's age increases

D The premium increases over time as the insured's age increases

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 30 years B Whenever the insured dies C To age 65 D To the earlier of the insured's death, or to age 65

D To the earlier of the insured's death, or to age 65

What does a long-term care rider do that a Living Needs (Terminal Illness) rider does not? a. Provides money equal to a portion of the death benefit to an insured expected to die in the next 2 years b. Establishes a trust fund for the insured's family so that home health care can be paid for with insurance premiums instead of paying the money to the life insurance company c. Pays a percentage of the death benefit as monthly income for an insured who cannot perform any one of the six activities of daily living d. A long-term care rider provides an advance payment of the death benefit for the covered expenses of long-term care a chronically ill person may incur.

D A long-term care rider provides an advance payment of the death benefit for the covered expenses of long-term care a chronically ill person may incur. A long-term care rider provides an advance payment of the death benefit for the covered expenses of long-term care a chronically ill person may incur.

Timothy is the insured/owner of a universal life insurance policy and is concerned that in the event of disability, the policy might lapse. Which rider would keep the policy from lapsing if he became disabled? A Waiver of Cost of Insurance B Return of Premium Rider C Waiver of Premium Rider D Guaranteed Insurability Rider

A Waiver of Cost of Insurance Tim has a Universal Life Policy which needs to have enough cash value in it in order to pay the monthly cost of insurance. If he is disabled, the Waiver of Cost of Insurance will keep the policy in force.

Ed purchased policies on behalf of his grandchildren. He wanted to be certain they could purchase additional policies at specified ages. He was able to do this by adding which rider? A Cost of Living Rider B Child Rider C Waiver of Premium Rider D Guaranteed Insurability Rider

D Guaranteed Insurability Rider The Guaranteed Insurability Rider would allow his grandchildren at future specified dates, ages, or events to purchase additional amounts of insurance without evidence of insurability.

Which of the following are characteristics of universal life insurance policies? a. Fixed death benefit for life, premiums may be increased or decreased b. Adjustable death benefit, premiums are fixed for life c. Death benefit options, premiums fixed for life d. Death benefit options, death benefit and premiums may be changed

d Death benefit options, death benefit and premiums may be changed

Which of the following policies offers the least guarantees? A Straight Whole Life B Variable Universal Life C Universal Life D 30 year Term Life

B Variable Universal Life Variable Universal Life has no guaranteed death benefit and no guaranteed cash values.

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

C It decreases A term rider is added to another policy at an additional cost. Once the rider has expired, the premium for that rider ends. Therefore, the overall annual premium cost will decrease.

How would a term policy normally be used to pay off a mortgage upon death? A By using the policy as collateral for a policy loan B Through a viatical or life settlement C Using the death proceeds after the insured has died D By using the policy's cash values

C Using the death proceeds after the insured has died Term can be used as mortgage insurance which typically provides a decreasing term benefit.

If there is a number of premium payments, such as 20-pay, 30-pay or the premium is payable for a specified period of time, such as, to age 65, after which no further premium is required to be paid, what premium paying method was used? A Reduced B Adjustable C Limited D Modified

C Limited With a Limited Payment, there is a number of premium payments, such as 20-pay, 30-pay or the premium is payable for a specified period of time, such as, to age 65, after which no further premium is required to be paid.

With equity-indexed life, the interest credited to the policy is: A Established by the full amount of a stock market advance, including dividends B Declared by the insurer's board of directors C Equal to the dividends paid on a stock index's underlying securities D Based on a percentage of the increase in a stipulated stock index

D Based on a percentage of the increase in a stipulated stock index When there is an increase in the specified stock market index, a given percentage of the gain is used to determine the interest credited to the policy.

When a whole life policy endows, what happens to the policy cash value? a. The cash value reverts to the insurance company b. The cash value is deducted from the death benefit and the remainder is paid to the policyowner c. The face amount of the policy is paid to the policyowner d. Cash value is only found in term life policies, not whole life

c The face amount of the policy is paid to the policyowner

An insured dies within the time limit of an Increasing Term Rider and the beneficiary receives the face amount plus the value of all paid premiums. Which rider is attached to the policy? A Return of Premium B Term to age 100 C Waiver of Premium D Return of Cash Value

A Return of Premium With a Return of Premium Rider, if the insured dies within the period of the term, the beneficiary receives the death benefit of the Whole Life Policy and, through an increasing term rider, the equivalent of the premiums paid on the Whole Life Policy.

A is the insured under a $100,000 10 year term life insurance policy with her spouse named as her beneficiary. If she dies in year 9, what will her spouse receive? A The face amount of the policy B The policy's cash values C A refund of all premiums paid D Nothing since this is term insurance

A The face amount of the policy Since the policy was in force when Angie died, Richard will receive a claim payment equal to the face amount of the policy.

All of the following are correct pertaining to Decreasing Term, except: A The premium declines throughout the term of the policy B The death benefit decreases C The premium stays level D Its most common use is in credit life insurance

A The premium declines throughout the term of the policy A decreasing term policy has a death benefit that reduces over a defined number of years, but the premium remains the same in all years.

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

Which of the following is not a way to access the money accumulated in a traditional ordinary permanent life insurance policy? A Partial withdrawal B Cash surrender C Endowment D Policy loan

A Partial withdrawal Partial withdrawals are typically available only on universal life insurance types of policies.

Which of the following best describes the return of premium rider? A A level term rider in the amount of 20 annual premiums B An increasing term benefit that matches the cumulative premiums paid C A benefit similar to waiver of premium, but is free of charge D An increasing term benefit that matches the cash value accumulation

B An increasing term benefit that matches the cumulative premiums paid The return of premium rider is an increasing term policy which allows the insurer to pay out the policy's death benefit plus the cumulative premiums paid.

All of the following are life insurance disability riders, except: A Payor Benefit B Jumping Juvenile C Disability Income Benefit D Waiver of Premium

B Jumping Juvenile A payor benefit can be added to a jumping juvenile policy.

A Guaranteed No-lapse Rider is attached to what type of policy ensuring the policy will not lapse if the cash value is reduced to zero? A Variable whole life B Adjustable life C Universal life D Family plan

C Universal life A Guaranteed No-lapse Rider is attached to a universal life insurance policy and ensures the policy will not lapse if the cash value is reduced to zero.

All of the following life insurance policies have a cash value that increases based on interest being credited to the cash value, except: A Current Assumption Whole Life B Equity-Indexed Whole Life C Variable Universal Life D Universal Life

C Variable Universal Life Variable Universal Life's cash values grow based on the performance of the separate accounts chosen by the policyowner, while the other three policies have interest credited to the cash values by the insurer.

Which type of term protection has an increasing face value as the insured gets older? A Renewable Term B Convertible Term C Increasing Term D Level Term

C increasing Term Increasing Term, as its name implies, increases the death benefit on an annual basis. Used primarily as a rider attached to a permanent policy, the annual premium typically stays level.

A producer is explaining the concept of limited-pay life insurance to her client. Which of these statements is incorrect? A By paying over a shorter period of time, each of the payments will be lower B A policy fully paid up at age 65 will not endow until age 100 C Paying over a longer period of time will make the total payments higher D By paying over a shorter period of time, each of the payments will be higher

A By paying over a shorter period of time, each of the payments will be lower The basic concept of insurance premiums is that by paying less often, a person will pay less in total premium. However, in cash value policies, because the payments are funding the cash value, the actual amount per payment in a limited payment policy will be higher as the number of payments is reduced. A 10-pay policy will have higher premiums than a 20-pay policy, but the total of the 10 payments will be much less than the total of the 20 payment

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

A Payor Benefit (Waiver of Payor's Premium) A Payor Benefit (Waiver of Payor's Premium) is a rider most typically available on a juvenile insurance policy. The premium is waived if the premium payor becomes totally disabled or dies prior to the juvenile's reaching the age of majority.

All of the following statements regarding the Living Needs Rider are true, except: A The insurer charges an annual premium for this rider which creates a pool of money from which to pay out the benefit B It allows a partial payment of the face amount before death if the insured becomes terminally ill C The rider is most often added without an additional premium charge D At death, the early payment is deducted from the beneficiary's benefit

A The insurer charges an annual premium for this rider which creates a pool of money from which to pay out the benefit The benefit comes from the acceleration of the death benefit, so no additional coverage or cost is involved. The rider merely explains the terms and conditions associated with exercising the rights in the rider.

With a Guaranteed Universal Life policy, if the owner uses the cash value to cover the premium, or misses a premium payment, what happens? A The no-lapse guarantee is removed from the policy B The policy owner/insured can be charged back premium plus interest as a penalty for breach of contract C The policy automatically converts to an annual renewable term life insurance policy D The policy automatically lapses

A The no-lapse guarantee is removed from the policy

Which of the following pays a current interest rate and also guarantees a minimum interest rate that will be credited to the cash values of the life insurance policy? A Universal Life B Variable Whole Life C Variable Universal Life D Ordinary Whole Life

A Universal Life Universal Life insurance has a current interest rate which is generally higher than the guaranteed minimum interest rate. It depends on the interest rates the insurer can earn on the assets in its general account.

Credit life insurance typically covers all of the following types of debts, except: A Personal & educational loans B Business loans C Mortgages loans D Loans covering the purchase of appliances, motor vehicles, mobile homes, and farm equipment

B Business loans Credit life insurance typically covers the following debts, personal and educational loans, mortgage loans, loans covering the purchase of appliances, motor vehicles, mobile homes, and farm equipment, and bank credit and revolving check loans.

What is the name of a single policy covering two or more lives that pays benefits upon the death of the first insured? A Accidental Death B Joint Life C Universal Life D Joint Survivorship Life

B Joint Life A Joint Life Policy covers two or more lives under a single policy, resulting in a reduction in premium, with the death benefit payable upon the death of the first to die.

How is Variable Whole Life different from Variable Universal Life? A Cash values can be invested in a separate account B The policy has a guaranteed minimum face amount C The policy owner takes on all of the investment risk D It is designed to provide a hedge against inflation

B The policy has a guaranteed minimum face amount (death benefit). Generally speaking, Variable Whole Life has a guaranteed minimum death benefit provided that all premiums are paid in full and on time as scheduled, whereas a Variable Universal Life policy has no guaranteed death benefit (face amount).

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 $130,000 C $100,000 D $30,000

C $100,000 Only the face amount is paid out to the beneficiary.

If Alvin purchases a Variable Universal Life Policy with a face amount of $250,000, and chooses death benefit Option B, upon his death the amount of the benefit payable to the beneficiary would be _________ if the policy had $25,000 in cash values. A $250,000 B Zero C $275,000 D $225,000

C $275,000 With an Option B death benefit, the beneficiary will receive the face amount plus the cash value as of the date of death.

Which rider allows a disabled insured policy owner to forgo future premiums on his or her whole life insurance policy while continuing to enjoy full policy benefits? A Living Needs B Waiver of Cost of Insurance C Waiver of Premium D Cost of Living Benefit

C Waiver of Premium

Which of the following Whole Life insurance policies has the lowest annual premium payment per $1,000 of coverage for a 35-year-old, all other factors being equal? A 20-Pay Ordinary Whole Life B Limited Pay Ordinary Whole to age 85 C 30-Pay Ordinary Whole Life D Ordinary Straight Whole Life

D Ordinary Straight Whole Life The longer the premium-paying period, the lower the annual premium. A $100,000 Ordinary Straight Whole Life Policy spreads the payments out over a longer period of time than a limited premium payment policy.

Who can change the premium on a fixed premium policy? A The agent who sold the policy B The agency the agent who sold the policy works for C The policy owner of the policy D The insurer who issued the policy

D The insurer who issued the policy With Fixed Premium, the premium amount is determined by the insurance company and while they do not have to be level, they cannot be changed by the policy owner.

Life Settlement proceeds will be sent to the owner within how many business days after the life settlement provider has received acknowledgment that ownership of the life insurance policy has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract? A 3 B 7 C 14 D 10

A 3 Life Settlement proceeds will be sent to the owner within 3 business days after the life settlement provider has received acknowledgment that ownership of the life insurance policy has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract.

If the insured qualifies for long-term care benefits based on being chronically ill as defined in the Long-Term Care rider, how will this impact the ultimate death benefit payable to the beneficiary? A It will be reduced B It will have no impact so long as the policyowner pays the required fee and any interest charges C It will be increased D It will have no impact

A It will be reduced A Long-Term Care Rider provides up to 100% of the policy's death benefits if the insured qualifies for long-term care benefits based on being chronically ill as defined in the rider, this will reduce the ultimate death benefit payable to the beneficiary.

A married couple wants to have funds available so that the heirs to their estate have the funds necessary to pay the estate taxes. Which of the following would be the most economical and effective way to accomplish this? A Buy a Joint Survivorship Life policy B Buy a Joint Life policy C Buy a Whole Life policy on each spouse D Have one spouse buy a whole life policy and the other one a Universal Life policy

A Buy a Joint Survivorship Life policy Joint Survivorship Life pays upon the death of the last to die, and for this reason it is a popular policy with couples who want to defer estate taxes until both are deceased. It is also more economical to buy this one policy than to buy two separate policies.

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

A If C were disabled, his beneficiaries would receive $70,000, less any outstanding interest charges Policy loans carry a fixed or variable loan interest rate. If the policy is surrendered or a death claim is paid, the proceeds are reduced by the outstanding policy loan and policy loan interest.

M purchased a traditional permanent life insurance plan many years ago. What happens when he attains age 100? A M gets a check for the face amount of the policy B M gets a dividend check from the insurer C M receives nothing from the insurer because the traditional permanent insurance plan expires D M gets a refund of all premiums paid

A M gets a check for the face amount (DEATH BENEFIT) of the policy At age 100 of a traditional permanent life insurance policy purchased many years ago, when the cash values reach the policy's face amount the policy is said to endow, and M would receive a check in the amount of the face value of the contract.

Generally, Universal Life has how many death benefit options to choose from? A 4 B 3 C 2 D 1

C 2 Universal Life allows you to choose from two death benefit options, Option A or Option B.

A producer is explaining the concept of limited-pay life insurance to her client. Which of these statements is incorrect? a. By paying over a shorter period of time, each of the payments will be higher b. Paying over a longer period of time will make the total payments higher c. A policy fully paid up at age 65 will not endow until age 100 d. By paying over a shorter period of time, each of the payments will be lower

d By paying over a shorter period of time, each of the payments will be lower

While a Guaranteed No-lapse Rider relieves the policyowner of the responsibility of monitoring the policy's cash value what is required of him/her to make sure that the policy's no-lapse rider remains in effect? A Pay the premium in full and on time B Do not change to a more hazardous occupation C Keep his/her address up-to-date with the insurer D Remain in good health

A Pay the premium in full and on time A Guaranteed No-lapse Rider relieves the policy owner of the responsibility to monitor the policy's cash value and comes with a required payment schedule, as long as the policyholder adheres to the payment schedule, the policy will not lapse.

All of the following are true regarding the accelerated death benefit rider, except: A These benefits do not include disability income B Accelerated death benefits have to be repaid if the insured's health improves C These benefits could be provided based on an insured qualifying for long-term care, if unable to perform activities of daily living D These benefits could be provided based on an insured qualifying as catastrophic illness, such as the need for an organ transplant

B Accelerated death benefits have to be repaid if the insured's health improves Accelerated death benefits do NOT have to be repaid if the insured's health improves.

If the premium payable for the first few years of the policy (e.g. 3-5) are lower than an ordinary whole life policy in order to make it more affordable, what premium paying method was used? A Reduced B Modified C Adjustable D Graded

B Modified With Modified Premium, the premium payable for the first few years of the policy (3-5) are lower than an ordinary whole life policy in order to make it more affordable.

How is a Variable Universal Life Insurance policy different from a Universal Life Insurance policy? A The adjustability of the face amount B The ability to invest the cash values in various separate accounts C The death benefit options D The premium payments

B The ability to invest the cash values in various separate accounts The policy has a variable component, meaning that the cash values can be invested outside of the insurer's general account in various separate accounts.

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 insured must repay the unpaid premiums C In a Whole Life policy, cash values continue to build D The insurer foregoes the premium should the insured be disabled

B The insured must repay the unpaid premiums To have to repay the unpaid premiums would defeat the purpose of the rider.

Equity Universal, Variable, and Variable Universal all have which of the following characteristics in common? A The owner chooses the separate account(s) to invest the cash values in B The overall policy performance has something to do with the stock market in general C All have a guaranteed death benefit D A securities license is required to sell each policy

B The overall policy performance has something to do with the stock market in general All of these policies do not have a guaranteed death benefit, and the Equity Universal life policy does not require a securities registration. However, all of them have a death benefit that is somehow tied to the stock market.

What happens to a spouse or child rider just prior to it expiring? A They must prove insurability in order to continue on with the rider B The spouse or child has a conversion option C The spouse or child receives a premium refund D The policyowner receives a premium refund

B The spouse or child has a conversion option Both spouse and child riders will also provide a conversion provision permitting the spouse or child to convert to permanent coverage without evidence of insurability prior to the termination of the rider or upon the death of the insured under the basic policy (or upon reaching age of majority for the child covered under a child rider).

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

C The policy's values can never be impaired due to negative index performance When the market declines, the policy is credited with the minimum guaranteed interest rate or zero interest. The policy's values can never be impaired due to negative index performance.

C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. What is the maximum loan C can obtain from the insurer using the policy as collateral for the loan? A $130,000 B $70,000 C $30,000 D $100,000

C $30,000 The policy can be used as collateral for a loan from the insurance company, but the loan amount is limited to the amount of cash value in the policy.

The applicant/insured wants a term life insurance policy that will last for 20 years and has a premium that will not increase prior to the end of the term, so the producer should show him/her a(n): A 20 year indeterminate premium term life insurance policy B 20 year non-guaranteed level premium term life insurance policy C 20 year guaranteed level premium term life insurance policy D 20 year adjustable premium term life insurance policy

C 20 year guaranteed level premium term life insurance policy Guaranteed level premium term life insurance is a policy whose premium is guaranteed to remain level throughout the term of the policy.

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

C Cost of Living The Cost of Living Rider allows for the policy's death benefit to keep up with inflation without having to prove insurability but with an increase in premium to reflect the added risk to the insurer.

Which of the following is TRUE of a term rider when attached to a permanent life policy? A It only pays out a death benefit in cases of accidental death B It always is in the amount of the base policy C It can provide additional temporary coverage on the insured or on other members of the family D It allows the policy to achieve paid up status at the end of the term

C It can provide additional temporary coverage on the insured or on other members of the family A term rider provides additional death benefit on the primary insured or other named insureds. At some point, the coverage becomes unaffordable, can be converted, or it expires.

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

C It is similar to the re-entry provision found in some term policies The renewable feature is a benefit that will renew the contract on the renewal date without evidence of insurability, with premiums increasing at the beginning of each renewal period based upon attained age. The renewal option is offered for an additional premium.

Individual Term policies are generally stand-alone policies, but may be written with other types of policies as a(n): A Bonus B Endorsement C Rider D Dividend

C Rider Through a rider, term coverage may be added to a Permanent Policy. Generally, a Term Rider cannot be added to a Term Policy, but some companies allow it to be added as a child rider, spouse rider, or other insured rider.

All of the following are reasons why a new policy issued through a term conversion costs more, except: A The new policy has cash values B The new policy was issued at the attained age C The insured's health has changed for the worse D The new policy is permanent

C The insured's health has changed for the worse Conversion is done without proof of insurability.

Universal Life and Variable Universal Life share all of the following characteristics, except: A Policy loans, surrenders, and partial withdrawals are permitted B Flexible premiums C The investment risk D Adjustable death benefit options

C The investment risk But like Variable life, a VUL has a separate account that is maintained and the investment return fluctuates based on the performance of the separate account. Since there is no guaranteed return on the separate account, the owner bears all investment risk.

Who has a right to rescind a life settlement contract? A The life settlement provider B The insurer C The owner of the life insurance policy D The life settlement broker

C The owner of the life insurance policy The owner has a right to rescind a life settlement contract within 30 days of the date it is executed by all parties and the owner has received all required disclosures, or 15 days from receipt by the owner of the proceeds of the settlement, whichever is sooner.

The applicant/insured wants a term life insurance policy that will last for 20 years and understands that the premium can be increased to a new premium level prior to the end of the term, so the producer should show him/her a(n): A 20 year adjustable premium term life insurance policy B 20 year indeterminate premium term life insurance policy C 20 year increasing premium term life insurance policy D 20 year non-guaranteed level premium term life insurance policy

D 20 year non-guaranteed level premium term life insurance policy Non-guaranteed level premium has premiums that can be increased to a new premium level for the remainder of the term.

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 Accumulation Account C Allocation Account D Separate Account

D Separate Account Owners of Variable insurance products may allocate their cash value into the insurer's separate account, with subaccounts that work like mutual funds, or into a guaranteed interest fund, which is held in the insurer's general account.

All of the following are characteristics of Universal Life Insurance, except: A The policyowner may determine the amount and mode of premium payments B The policyowner has the option to adjust the death benefit up or down C Each month a mortality charge is deducted from the policy's cash value for the cost of the insurance protection and expenses D The policyowner can choose which investment(s) to place the cash values into from those available

D The policyowner can choose which investment(s) to place the cash values into from those available The policyowner can pay any amount of premium at any time subject to policy limitations and can request an increase (if proof of insurability is provided) or decrease in the face amount. Costs for coverage are deducted monthly from the cash values.

Universal Life is similar to Whole Life in all of the following ways, except: A Any internal cash value growth is tax-deferred B Cash values accumulate based on premium deposits and interest C It provides a death benefit D The timing and amount of premium is flexible

D The timing and amount of premium is flexible Like ordinary Whole Life (WL), Universal Life (UL) Insurance features insurance protection and a savings element that grows on a tax-deferred basis. However, UL offers flexible premiums whereas WL does not.

Which rider allows a disabled insured policy owner to forgo future premiums on his or her whole life insurance policy while continuing to enjoy full policy benefits? A Waiver of Cost of Insurance B Living Needs C Cost of Living Benefit D Waiver of Premium

D Waiver of Premium If the insured policy owner were to become totally disabled, the Waiver of Premium Rider would waive future premiums for the duration of the disability and still allow the cash value and dividends to continue as though the premiums were being paid.

A Child Rider that is added to an insured's permanent policy includes which of the following features? A The covered child becomes the premium payor B If the child rider death benefit is paid, it reduces the face amount of coverage C All children (beyond 14 or 15 days of age) are covered, and the rider may be converted to permanent coverage at a specified age without evidence of insurability D Coverage is for the same amount as the primary insured

C All children (beyond 14 or 15 days of age) are covered, and the rider may be converted to permanent coverage at a specified age without evidence of insurability The benefit of a Child Rider is twofold. It provides basic coverage, and is convertible to a permanent policy without proof of insurability, when the child reaches the maximum age.

Which of the following is false in regards to a variable whole life's death benefit? A While the separate account values may decrease, the policy will never pay less than the guaranteed death benefit in the general account B Policy loans are available from either the general account or the separate account and will reduce the overall payout until repaid C Death benefits are recalculated monthly D The death benefit is tied to and varies with the performance of the separate account

C Death benefits are recalculated monthly Death benefits are recalculated annually.

If an insured uses a life insurance policy's accelerated benefits, what does the beneficiary receive at time of claim? A Face amount less cash values B Face amount C Face amount less accelerated benefits D Face amount less accelerated benefits less insurer's interest charges

C Face amount less accelerated benefits After the accelerated benefits are paid and any lost interest to the insurer is deducted, the insurer must pay the balance of the face amount to the beneficiary.

If an insured is concerned about being unable to pay the premiums on his or her whole life policy in the event of a total disability, which of the following riders should be added to the policy? A Disability Income Benefit B Waiver of Cost of Insurance C Waiver of Premium D Payor Benefit

C Waiver of Premium The Waiver of Premium Rider would waive premiums for a disabled insured. If the insured also wanted to replace income due to disability, then he or she would purchase the Waiver of Premium/Disability Income Rider.

The net amount at risk in an Ordinary Whole Life Insurance Policy _________ over the life of the policy. A Decreases B Remains the same C Increases D Varies

A Decreases As the cash values build, the net amount at risk for the insurer declines since the face amount is the benefit paid out upon the death of the insured. It is a way to keep the premiums affordable as the insured ages and the risk of death increases.

A client wants coverage for himself as well as coverage for his wife and children all under one policy at an affordable price. Which of the following would best meet the need? A Family Rider B Multiple Protection Rider C Family Income Rider D Family Maintenance Rider

A Family Rider The Family Rider covers all members of the family with Whole Life Coverage on the head (wage earner) of the family and Level Term Coverage in the form of a rider on the spouse and children.

A Viatical Settlement is an agreement between a policyowner and a third-party buyer to purchase the life policy covering a person who is diagnosed as terminally ill with less than how many months remaining life expectancy? A 60 B 24 C 48 D 36

B 24 A Viatical Settlement is an agreement between a policyowner and a third-party buyer to purchase the life policy covering a person who is diagnosed as terminally ill with less than 24 months remaining life expectancy.

Which type of rider pays out a capital sum in case an insured loses a limb or their eyesight? A Disability Benefit B Accidental Death and Dismemberment C Accidental Death D Return of Premium

B Accidental Death and Dismemberment The Accidental Death portion of the rider pays out a principal sum. The dismemberment part pays out a capital sum. The capital sum is paid when there is a loss of limb, eyesight, fingers, or toes.

Which of the following is not a true characteristic of permanent protection Whole Life? A Premiums are payable to age 100 in older policies, and to age 121 in newer policies B Premiums are flexible C The insurer bears all risk D Death benefit typically remains level

B Premiums are flexible Flexible premiums are not a characteristic of a Whole Life Insurance Policy (UNIVERSAL YES!)

If an insured has a Life Paid-Up at 75 Policy (a limited-pay life paid-up at age 75), what would the beneficiary receive if the insured died at age 68? A The face amount minus the cash value B The face amount C The cash value D The face amount plus the cash value

B The face amount The full face amount (death benefit) is payable to the beneficiary any time death occurs while the policy is in force.

If the premium payable can be increased or decreased by the policyowner on an annual basis, affecting other features and benefits of the policy, what premium paying method was used? A Flexible B Modified C Adjustable D Fixed

C Adjustable With Adjustable Premium, the premium can be increased or decreased by the policyowner on an annual basis, and while premiums must be paid, the adjusting of the premium will affect other features and benefits of the policy.

This rider allows for the insured to obtain additional insurance in between the specified ages including marriage and the birth or adoption of a child, when the need for insurance coverage may increase without having to prove insurability. It is called the ________ rider: A Family B Waiver of Insurability C Additional Insurance Protection D Guaranteed Insurability

D Guaranteed Insurability The guaranteed insurability rider covers events that will allow for the insured to obtain additional insurance in between the specified ages include marriage and the birth or adoption of a child, when the need for insurance coverage may increase. It normally limits the insured to acquire additional amounts of the same type of coverage already in force.

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

A A third party buys a life insurance policy for less than its face amount A Life Settlement is similar to a viatical settlement in that it is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its death benefit (face amounts). There is no requirement for the insured to be terminally ill in order for a life settlement to occur. A policyowner may choose to sell their policy because the premiums are too high or they want to purchase a different policy. Note: If your state has particular Viatical or Life Settlement licensing and solicitation laws, they will be addressed in the state law chapter.

A viatical settlement is made between a purchaser of a person's life insurance policy and ___________. a. The terminally ill insured person's spouse and children who don't want to wait until the insured dies to collect the death benefit b. The terminally ill insured who must receive at least as much as would be available from the insurance company under any full cash surrender or living needs rider c. The agent representing the family of the terminally ill insured d. The lender who owns the mortgage on the terminally ill insured home or business property

B The terminally ill insured who must receive at least as much as would be available from the insurance company under any full cash surrender or living needs rider The viatical life settlement laws which have been adopted by the states are intended to protect a terminally ill person from exploitation. They must not obtain a lesser benefit than they could obtain on their own by taking a loan or cash surrender from their life insurance company or through a living needs provision or rider in their policy