Chapter 4: Life Premiums and Benefits

What percent of personal life insurance premiums is usually deductible for federal income tax purposes?A. 100%B. 75%C. 50%D. 0%

0%

K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?

Proceeds will be payable to K's estate if P dies within a specified time

What is the underlying concept regarding level premiums?

The early years are charged more than what is needed

a ____ beneficiary may be changed by the policy-owner WITHOUT the consent of the beneficiary

irrevocable

A policy owner is able to choose the frequency of premium payments through what policy feature?

Premium Mode

Which of the following statements is CORRECT regarding the tax treatment of a lump-sum payment paid to a life insurance policy's primary beneficiary?

All proceeds are income tax free in the year they are received

The Common Disaster clause provides that if both the insured and the sole named beneficiary were to die in a common accident, which of the following is true?

This clause provides the payment of proceeds to the insured's estate

T and S are named co-primary beneficiaries on a $500,000 Accidental Death and Dismemberment policy insuring their father. Their mother was named contingent beneficiary. Five years later, S dies of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit will the mother receive?

$0

A policy owner would like to change the beneficiary on a Life insurance policy and make the change permanent. Which type of designation would fulfill this need?

Irrevocable

Which of these statements is INCORRECT regarding the federal income tax treatment of life insurance?

Entire cash surrender value is taxable

How would a contingent beneficiary receive the policy proceeds in an Accidental Death and Dismemberment (AD&D) policy?

If the primary beneficiary dies before the insured

A policyowner's rights are limited under which beneficiary designation?

Irrevocable

Which statement is true regarding a minor beneficiary?

Normally, a guardian is required to be appointed in the Beneficiary clause of the contract

Which premium schedule results in the lowest cost to the policyowner?

annual

When can a policyowner change a revocable beneficiary?

anytime

K has a life insurance policy where her husband is beneficiary and her daughter is contingent beneficiary. Under the Common Disaster clause, if K and her husband are both killed in an automobile accident, where would the death proceeds be directed?

daughter

Quarterly premiums payment increase the annual cost of insurance because

interest to the insurer is decreases while the administrative costs are increased

A policyowner is able to choose the frequency of premium payments through what policy feature?

premium

a beneficiary may be changed by the policy-owner without the consent of the beneficiary?

revocable

C is trying to determine whether to convert her convertible term life policy to whole life insurance using her original age or attained age. What factor would affect her decision the most?

the cost