Chapter 3 ~ Types of Policies and Riders

All of the following about Universal Life are true, except: A The fixed expense charges from the policy are deducted monthly from the cash values B The mortality charge is determined annually, based on age C The premium paid can be increased, decreased, or even skipped d). Increases in face amount do not require proof of insurability if under $100,000

d). Increases in face amount do not require proof of insurability if under $100,000 The insured can increase or decrease the face amount. Any increase in the face amount will require evidence of insurability.

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 policy automatically converts to an annual renewable term life insurance policy b). The policy owner/insured can be charged back premium plus interest as a penalty for breach of contract c). The policy automatically lapses d). The no-lapse guarantee is removed from the policy

d). The no-lapse guarantee is removed from the policy With a Guaranteed Universal Life policy, if the owner uses the cash value to cover the premium, or misses a premium payment, the 'no-lapse guarantee' is removed from the policy.

A married couple purchases a $250,000 Joint Life Policy. When the older of the two dies, what is the amount payable to the survivor? a). $500,000 B Zero C $250,000 D $125,000

A Joint Life Policy insures two lives. It is the order of death that is significant in a Joint Life Policy. The entire death benefit is paid at the death of the first insured, regardless of age.

Q has an ordinary straight whole life insurance policy for $100,000. Due to a change in circumstances, Q finds that there is now a need for more coverage, but the budget is not sufficient for another similar policy. What can Q do to satisfy the need for additional coverage at a low price? A Add a term rider B Add an accidental death rider C Ask for an increase in the existing policy's face amount D Use the cash values of the policy to cover the difference

a). Add a term rider Adding a term life insurance rider will allow for the additional coverage to be put into place at an affordable price, without having to acquire another policy. Ordinary straight whole life does not allow for an increase in face amount, as it is a fixed benefit policy.

All of the following are true about riders, except: A All riders are available free of charge and can be added at any time without proof of insurability B Once a rider drops from the policy, the additional premium will also drop C Riders added after the policy has been issued usually require evidence of insurability D Most riders are added at the time of policy issue

a). All riders are available free of charge and can be added at any time without proof of insurability Most riders have a charge associated with them and can require providing proof of insurability after the policy has been issued.

lWhich of the following listed policies has the least likelihood of keeping pace with inflation? A Straight Life B Variable Universal Life C Variable Whole Life D Whole Life with an increasing term rider

a). Straight life Since Straight Life is a fixed benefit policy, its values over time are most likely to lose purchasing power.

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

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

If the entire cost of the policy is paid in a lump sum at the time of purchase, what premium paying method was used? A Graded B Modified C Fixed D Single

d). single With a Single Premium life insurance policy the entire cost of the policy is paid in a lump sum at the time of purchase.

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

b). 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.

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). 10 years of coverage is less costly than longer terms of coverage.

When credit life insurance is used to protect against the unpaid balance of a mortgage, it is commonly referred to as: a). Mortgage redemption insurance B Debtor estate protection insurance C Decreasing term life insurance D Creditor protection insurance

a). Mortgage redemption insurance When credit life insurance is used to protect against the unpaid balance of a mortgage, it is commonly referred to as Mortgage Protection or Mortgage Redemption Insurance, as such, the amount of protection decreases along with the outstanding balance of the mortgage.

Sara applies for a $100,000 30 year level term life insurance policy. The producer quoted her a price of $750 annually if issued as applied for. She wants to make sure that the policy premiums are taken care of just in case she has a total disability. The policy is issued but the premium is now $825. What is the most likely reason why the overall premium increased? a). Sara now has added a waiver of premium rider, which requires an additional premium payment b). The policy was not issued at the underwriting class quoted c). Sara just increased the face amount of the policy and the premiums reflect that d). Sara was most likely issued a policy type other than applied for

a). Sara now has added a waiver of premium rider, which requires an additional premium payment A waiver of premium rider has a premium associated with it. The combination of the base policy and the rider is what Sara must now pay if she wants both benefits in the policy.

In all cases upon the insured's death, the beneficiary receives which of the following? A The face amount of the policy B The policy's cash values C The policy's rider values D A refund of premiums

a). The face amount of the policy The face amount of the policy is paid out to the beneficiary. The endowment value is paid out to the policyowner.

Variable Whole Life and Variable Universal Life are similar, except for: a). The guaranteed death benefit b). The offering document required to presented to the client prior to purchase c). The licensing and registration required in order to sell it d). The investment risk borne by the policy owner

a). The guaranteed death benefit Since all premiums are credited to a separate account, there is no guaranteed minimum death benefit in a Variable Universal Life policy.

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 premiums on the son's policy would be waived until the son reaches a specified age B The amount of coverage is reduced as the policy is paid up C The premiums would be suspended and later paid back by the son D The policy would pay out a modest lump sum to the beneficiary

a). 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 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 Ordinary Whole Life C Variable Whole Life D Variable Universal 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.

Sean has a home with a mortgage. He needs life insurance to protect his family but also wants to leave them without a mortgage payment if he dies. Ideally which of the following riders should he acquire? A Increasing Term Rider B Decreasing Term Rider C Level Term Rider D Family Rider

b). Decreasing Term Rider Decreasing Term Riders are ideally suited to cover the balance of an outstanding mortgage.

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 birth B At 1 year of age C At 14 or 15 weeks of age D At 14 or 15 days of age

d). 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.

Sara applies for a $100,000 30 year level term life insurance policy. The producer quoted her a price of $750 annually if issued as applied for. She wants to make sure that the policy premiums are taken care of just in case she has a total disability. The policy is issued but the premium is now $825. What is the most likely reason why the overall premium increased? A Sara was most likely issued a policy type other than applied for B Sara now has added a waiver of premium rider, which requires an additional premium payment C The policy was not issued at the underwriting class quoted D Sara just increased the face amount of the policy and the premiums reflect that

b). Sara now has added a waiver of premium rider, which requires an additional premium payment A waiver of premium rider has a premium associated with it. The combination of the base policy and the rider is what Sara must now pay if she wants both benefits in the policy.

An insured owns a $50,000 permanent life policy that she purchased 4 years ago that has a disability waiver of premium. The insured becomes disabled and pays premiums during the waiting period until the waiver begins. Once the waiver begins, what happens to the premiums she paid during the waiting period? A It is kept by the insurer as part of the cost of providing the benefit B The insurer refunds it C It is held in escrow until the disability is over then refunded D It is added to the policy's cash values

b). The insurer refunds it Once the waiver of premium takes effect, it is retroactive to the date of the disability. The insurer refunds the premiums paid during the waiting period essentially recognizing the fact that the disability was covered from the first day.

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). 36 c). 24 d). 48

c). 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.

Term Life insurance is designed to provide coverage for ___________. A For one year B An entire lifetime C A specified period of time D To age 65

c). A specified period of time Term Life Insurance is designed to provide coverage for a temporary period of time. The amount of time is specified in the policy acquired, for example, 10 year, 20 year, or 30 year term.

Term life insurance will not pay out a death claim in which of the following situations? A Death as a result of accident B Death as a result of sickness C Death after the term expires D Death while at work

c). Death after the term expires Term life insurance will pay out a death claim if the insured dies while the policy is in force from whatever cause, except for any exclusions specifically written into the policy.

If an insured uses a life insurance policy's accelerated benefits, what does the beneficiary receive at time of claim? a). Face amount b). Face amount less cash values c). Face amount less accelerated benefits less insurer's interest charges d). Face amount less accelerated benefits

c). Face amount less accelerated benefits less insurer's interest charges 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.

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). Waiver of Premium Rider b). Child Rider c). Guaranteed Insurability Rider d). Cost of Living Rider

c). 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.

A Return of Premium Term policy provides for a full refund of premiums under what situations and circumstances? A If the insurer does not deviate from the current illustrated rates at the time the policy was issued B If the insured is not completely satisfied at any time C If the insured is still living at the end of the term D If the insured's health has not changed and the beneficiaries sign-off on the appropriate document

c). If the insured is still living at the end of the term A Return of Premium Term policy provides for a full refund of premiums if the insured is still living at the end of the term.

Who can change the premium on a fixed premium policy? a). The agency the agent who sold the policy works for b). The policyowner of the policy c). The insurer who issued the policy d). The agent who sold the policy

c). 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 policyowner.

Which of the following statements about Equity Indexed Life insurance is TRUE? A To sell Equity Indexed Life, a producer only needs a securities license B The insured/owner bears all risk regarding cash surrender value, as negative stock market performance can cause the cash values to decrease C The interest credited to the policy is based off of the performance of a stock market index like the S&P 500 D The policyowner can decide which separate accounts to invest the policy's cash values into

c). The interest credited to the policy is based off of the performance of a stock market index like the S&P 500 The attraction of this policy is that potentially the interest credit can be higher than what a typically insurer's general account can pay by tying the potential interest credit to a stock market index. Based on the design of the policy, if the index falls in value there is no negative impact to existing cash values.

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

c). Waiver of Premium If the insured policyowner 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.

All of the following are true in general about riders, except: A Riders typically are available for an additional premium B A rider can modify conditions of the policy by expanding or decreasing its benefits C Riders are optional D All riders are provided for as long as the policy is in effect

d). All riders are provided for as long as the policy is in effect Riders are provided for a specified period of time as stated in the policy. It is typical for a rider to end at a specified age (such as the insured's age of 65).