Chapter 4 Quiz

Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? A. Joint Life B. Ordinary Life C. Whole Life D. Decreasing Term

A. Joint life (A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.)

What do Modified Life and Straight Life policies have in common?

Accumulation of cash value (Modified Life and Graded-Premium Life policies are useful as a compromise between straight life and convertible term insurance since the premium is less than straight life in the early years, but some cash value is being accumulated.)

A Universal Life Insurance policy is best described as a/an

Annually renewable term policy with a cash value amount (A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.)

Which of the following policies is characterized by a provision where the premiums are lower in the early years of the policy and increase over time to a point where they become level for the remainder of the policy? A. Enhanced whole life B. Graded premium whole life C. Indeterminate premium whole life D. Minimum deposit whole life

B. Graded premium whole life (Premiums charged for a graded premium whole life policy are lower during the preliminary period and then increase each year until leveling off after the preliminary period. The premium rates are actually equivalent to a standard whole life policy.)

Which statement is NOT true regarding a Straight Life policy? A. The face value of the policy is paid to the insured at age 100. B. Its premium steadily decreases over time, in response to its growing cash value. C. It has the lowest annual premium of the three types of Whole Life policies. D. It usually develops cash value by the end of the third policy year.

B. Its premium steadily decreases over time, in response to its growing cash value. (Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.)

Concerning Juvenile Life insurance, which of the following statements is INCORRECT? A. It can be a limited premium payment policy. B. Juvenile Life is classified as any life insurance purchased by a minor. C. Juvenile Life is classified as any life insurance written on the life of a minor. D. Usually a parent or guardian is the applicant for insurance on the life of a minor.

B. Juvenile Life is classified as any life insurance purchased by a minor. (Juvenile Life insures the life of a minor. It does not need to be purchased by a minor.)

If the owner of a whole life policy who is also the insured dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary? A. A death benefit equal to the cash value of the policy B. A full death benefit C. 50% of the death benefit D. The face amount minus the premiums that would have been collected until the insured reached the age of 100

B. The full death benefit (Whole life insurance policies guarantee the death benefit. If the insured lives to the age of 100, the insurance company pay the owner the face amount (equal the cash value). However, if the insured dies prior to the policy maturity date, the death benefit is paid to the beneficiary.)

During partial withdrawal from a universal life policy, which portion will be taxed? A. Cash value B. Interest C. Loan D. Principal

B. interest (During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.)

An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an A. Adjustable Life. B. Interest-sensitive Whole Life. C. Credit Life. D. Annual Renewable Term.

B. interest-sensitive whole life (Because the cash values are generated by investments, interest rates will affect the amount of the cash value.)

In increasing and decreasing term policies, which policy component fluctuates during the policy term? A. Premium B. Nonforfeiture values C. Death benefit D. Cash value

C. Death benefit (There are three basic types of term policies: level, increasing and decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may change.)

Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? A. Variable option B. Option A C. Option B D. Corridor option

C. Option B (Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.)

Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? A. Adjustable life B. Variable life C. Universal life D. Flexible life

C. Universal Life (With universal life policies, the policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium, and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.)

What characteristic makes whole life permanent protection? A. Living benefits B. Guaranteed death benefit C. Coverage until death or age 100 D. Guaranteed level premium

Coverage until death or age 100 (Whole Life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured or till the insured's age 100.)

The type of insurance sold to a debtor and designed to pay the amount due on a loan if the debtor dies before the loan is repaid is called

Credit life. (Credit life is most often sold by lenders and is term insurance written with a face amount and term that is matched to the amount and length of the loan period. Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor.)

Which of the following is NOT allowed in credit life insurance?

Creditor requiring that a debtor buys insurance from a certain insurer (In credit life insurance, a creditor may require that the debtor have life insurance, but may not require the debtor to purchase insurance from a specific insurer.)

What is another name for interest-sensitive whole life insurance?

Current assumption life (Interest-sensitive whole life, also referred to as current assumption life, is a whole life policy that provides a guaranteed death benefit to age 100.)

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? A. The death benefit can be increased only by exchanging the existing policy for a new one. B. The death benefit can be increased only when the policy has developed a cash value. C. The death benefit cannot be increased. D. The death benefit can be increased by providing evidence of insurability.

D. The death benefit can be increased by providing evidence of insurability. (The policyowner (insured) would need to prove insurability for the amount of the increase.)

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing term (A decreasing term policy's face amount decreases as the amount of debt is reduced.)

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Family term rider A single rider that provides coverage on every family member is called a "family rider".

What type of premium do both Universal Life and Variable Universal Life policies have?

Flexible (Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, as long as there is enough value in the policy to fund the death benefit.)

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?

If the father is disabled for more than 6 months (Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months.)

The type of term insurance that provides increasing death benefits as the insured ages is called

Increasing Term (Increasing term insurance provides an increase in the death benefit each year. The coverage is usually structured to provide a death benefit equal to the amount of premium paid on a permanent life insurance policy, or to provide a death benefit equal to the cash value accumulation in a permanent policy; however, it can be written as a stand-alone policy for the individual that has a need for increasing amounts of insurance.)

Which of the following is correct regarding credit life insurance?

It insures the life of a debtor (Credit life insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor.)

Which of the following is NOT a type of whole life insurance?

Level term (There are several types of whole life policies. The first three, Straight Life, Limited Payment, and Single Premium, are the basic forms of whole life. Level term is a type of term insurance.)

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Limited pay whole life (Premium payments will cease at her age 65, but coverage will continue to her death or age 100.)

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy

Required a premium increase each renewal. (Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.)

To sell variable life insurance policies, an agent must receive all of the following EXCEPT

SEC registration (Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.)

Which type of life insurance policy generates immediate cash value?

Single Premium (Like other types of whole life policies, Single Premium Whole Life (SPWL) endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing feature of a SPWL is the fact that it generates immediate cash value, due to the lump-sum payment made to the insurer.)

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called

Single premium whole life (Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception.)

Which of the following policies would be classified as a traditional level premium contract?

Straight life (Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.)

Which of the following statements is correct regarding a whole life policy?

The policyowner is entitled to policy loans (Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans.)

What is the purpose of establishing the target premium for a universal life policy?

To keep the policy in force (The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.)

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?

Universal Life - Option A (Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.)

All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT

Upon conversion, the death benefit of the permanent policy will be reduced by 50% (Convertible term insurance is convertible without proof of insurability up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured's attained age.)

An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have?

Variable (Variable life policies vary in value, as the name suggests, because the value is based on the stocks that support the policy. If a policyholder wants a more stable, reliable value, he/she should invest in a fixed policy.)

For variable products, underlying assets must be kept in

separate account (Under a variable life insurance policy, assets must be placed in a separate fund, used primarily for the investment of stocks, bonds, and other security investment options.)