Chapter 5 Test

What percent of personal life insurance premiums is usually deductible for federal income tax purposes?

0% In general, personal life insurance premiums are NOT deductible for federal income tax purposes.

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

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

Annual If the policyowner chooses to pay the premium more than once per year (example monthly, quarterly, semi-annually) there normally will be an additional charge because the company will have additional charges in billing and collecting the premium payments.

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 With a common disaster provision, a policyowner can be sure that if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary.

Which of these statements is incorrect regarding 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

If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the Uniform Simultaneous Death Act?

Insured's contingent beneficiary

Which type of life insurance beneficiary requires his/her consent when a change of beneficiary is attempted by the policyowner?

Irrevocable beneficiary

Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?

Life Income

A whole life insurance policy owner does not wish to continue making premium payments. Which was the following enable the policy owner to sell the policy for more than its cash value?

Life settlement contract

A policy owner is allowed to pay premiums more than once a year under which provision?

Mode of Premium

Which statement is true regarding a minor beneficiary?

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

P and Q are married and have three children. P is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the contingent beneficiary. P, Q, and R are involved in a car accident and Q and R are killed instantly. The Accidental Death benefits will be paid to

P only In this situation, benefits will be paid to P because P survived the accident and is the primary beneficiary.

Which of the following best describes a contingent beneficiary?

Person designated by the insured to receive policy proceeds in the event that the primary beneficiary dies before the insured

On a life insurance policy, who is qualified to change the beneficiary designation?

Policyowner

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

Premium Mode

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 paid to K's estate if P dies within a specified time

A primary beneficiary has died before the insured in a life insurance policy. A contingent beneficiary is also named in the policy. Which of the following will occur when the insured dies?

Proceeds will go to the contingent beneficiary

T is covered by an Accidental Death and Dismemberment (AD&D) policy that has an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?

Request of the change will be refused

J would like to maintain the right to change beneficiaries. Which beneficiary designation should be used?

Revocable

M purchased an Accidental Death and Dismemberment (AD&D) policy and named his son as beneficiary. M has the right to change the beneficiary designation at anytime. What type of beneficiary is his son?

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 In this situation, the cost of insurance is most important when an insured owner is trying to decide whether to convert term insurance at the insured's original age or the insured's attained age.

What is the underlying concept regarding level premiums?

The early years are charged more than what is needed

J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct?

The gross premium is higher on a monthly payment mode as compared to being paid annually

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?

The mother receives $0 because T is still alive and the sole primary beneficiary, while the mother is still the contingent beneficiary.

Which statement regarding the change of beneficiary provision is true?

The policyowner can change the beneficiary

The common disaster clause provides that if both the insured and the sole name 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

When can a policyowner change a revocable beneficiary?

anytime

Quarterly premium payments increase the annual cost of insurance because

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

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

A policy owner's rights are limited under which beneficiary designation?

irrevocable

A level premium indicates

the premium is fixed for the entire duration of the contract