L/H Chapter 3
A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct? Straight life accumulates faster than Limited-pay Life 20-Pay Life accumulates cash value faster than Straight Life Cash value accumulation of both 20-Pay Life and Straight life depend on the insurer's financial rating 20-Pay Life and Straight Life accumulate cash value at the same rate
20-Pay Life accumulates cash value faster than Straight Life
J is 35-years old and looking to purchase a whole life insurance policy. Which of the following types of policies will provide the most rapid growth of cash value? Life Paid-up at Age 70 20-pay Life Increasing Term to age 65 Straight Life
20-pay Life
What type of policy would offer a 40-year old the quickest accumulation of cash value? Paid-up at 65 20-pay life 30-pay life Straight whole life
20-pay life
N is a 40-year old applicant who would like to retire at age 70. He is looking to buy a life insurance policy with level premiums, permanent protection, and be paid-up at retirement. Which of these should N purchase? 30 pay life Term to Age 70 Universal Life Adjustable Life
30 Pay life
Which of the following types of policies pays a benefit if the insured goes blind? Universal Life AD&D Endowment Adjustable Life
AD&D
What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time? Modified whole life 20-year paid up policy Endowment Decreasing term
Decreasing term
F needs life insurance that provides coverage for only a limited amount of time with a death benefit that changes regularly according to a schedule. What kind of policy is needed? Level term policy whole life policy Limited-pay policy Decreasing term policy
Decreasing term policy
P owns a $25,000 Life Policy that pays the face amount to him if he lives to age 70, or to his beneficiary if he dies before age 70. What kind of policy does P own? Straight Life Modified Life Whole Life Paid-Up at Age 70 Endowment at Age 70
Endowment at Age 70
S is close to retiring and would like to purchase a policy that will yield greater gains than bonds, but will still protect the principal with a minimum level or risk. Which product would S be advised to purchase? Equity Index insurance Endowment Graded whole life policy Return of premium policy
Equity Index Insurance
Which of these statements describe a Modified Endowment Contract (MEC)? Falls below the minimum amount of premium that can be paid into a policy and still have it recognized as life insurance contract Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as life insurance contract The 7-pay test is used to determine the minimum death benefit of the policy The 7-pay test is used to determine the maximum death benefit of the policy
Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as life insurance contract
Term insurance has which of the following characteristics? Expires at the end of the policy period Builds cash value Has nonforfeiture options Endows at the end of the policy period
Expires at the end of the policy period
Which statement is correct regarding the premium payment schedule for whole life policies? Premiums are payable throughout the insured's lifetime/coverage lasts until death of the insured Premiums are payable for a set period/coverage expires at that point Premiums are payable until age 65/coverage lasts a lifetime A single premium is paid at time of application/coverage lasts until retirement
Premiums are payable throughout the insured's lifetime/coverage lasts until death of the insured
What type of life insurance incorporates flexible premiums and an adjustable death benefit? Endowment Policy Modified Whole Life Decreasing Term Universal Life
Universal Life
Which of the following Life insurance policies combine term insurance with an investment element? Increasing Term Life Decreasing Term Life Universal Life Graded Life
Universal Life
A life policy with a death benefit that can fluctuate according to the performance of its underlying investment portfolio is referred to as: Adjustable Life Graded-Premium Life Variable Life Modified Whole Life
Variable Life
Under an Interest Sensitive Whole Life policy, premiums are determined by the policyowner no cash value ever accrues the policy normally renews every 10 years cash values are determined by interest rates
cash values are determined by interest rates
All of these are characteristics of an Adjustable Life policy EXCEPT: adjustable premiums adjustable premium payment period combination of term and whole life insurance face amount can be adjusted using policy dividends
face amount can be adjusted using policy dividends
Which of the following actions require a policyowner to provide proof of insurability in an Adjustable Life policy? increase face amount decrease face amount increase premium-paying period decrease premium payment
increase face amount
Which of these needs is satisfied by Adjustable Life Insurance? insured's need for level premiums insured's need for flexible premiums insured's need for flexible non forfeiture options insured's need for level death benefits
insured's need for flexible premiums
Credit Life Insurance is: issued in any amount at the discretion of the applicant used in the event of loss of income issued in an amount not to exceed the amount of the loan coverage that waives the premiums on a loan payment in the event of total disability
issued in an amount not to exceed the amount of the loan
Whole Life Insurance policies are contractually guaranteed to provide each of the following, EXCEPT: cash value that will ultimately replace the death benefit nonforfeiture benefit options premiums that remain fixed for the life of the policy partial withdrawal features beyond a surrender charge period
partial withdrawal features beyond a surrender charge period
A Limited-Pay Life policy has: graded death benefits no cash value premium payments limited to a specified number of years premium payments that are paid to age 100
premium payments limited to a specified number of years
The amount of coverage on a group credit life policy is limited to: half of the insured's total loan value the insured's total loan value 75% of the insured's total loan value $25,000
the insured's total loan value
Under a Graded Premium Whole Life policy, the premium increases each year during the early years of the contract and remains the same after that time the premium decreases each year during the early years of the contract and remains the same after that time the premium can be adjusted by the policyowner at anytime the premium always remains the same while the death benefit increases during the early years
the premium increases each year during the early years of the contract and remains the same after that time
Under a Renewable Term policy, the face amount is automatically adjusted at the time of renewal evidence of insurability must be provided at each renewal the renewal premium is calculated on the basis of the insured's attained age a new application must be completed at each renewal
the renewal premium is calculated on the basis of the insured's attained age
Stranger-Owned Life Insurance (STOLI) is when a person purchases life insurance only to sell to a(n): underwriter sole proprietor with insurable interest third-party with no insurable interest relative with insurable interest
third-party with no insurable interest
When is the face amount paid under a Joint Life and Survivor policy? when policy reaches maturation upon the death of the first insured upon the death of the last insured when one of the insureds becomes disabled and no longer able to make premium payments
upon the death of the last insured
A term life insurance policy matures: upon endowment of the contract upon death of the insured when the cash value equals the death benefit upon the insured's death during the term of the policy
upon the insured's death during the term of the policy
Term Life Policies that have the ability to be converted to permanent coverage may do so during a specific time period. This conversion period: may be altered by the policyowner is controlled by the NAIC is the same in all contracts varies according to the contract
varies according to the contract
Which of the following types of Term Life policies most likely contains a Renewability feature? Increasing Term 10 Year Convertible Term Decreasing Term Variable Term
10 Year Convertible Term
Which of these is an element of a Variable Life policy? A fixed, level premium Insurer assumes the investment risk No investment risk to the policyowner Rate of returns are guaranteed
A fixed, level premium
Which statement is TRUE regarding a Variable Whole Life policy? A minimum guaranteed Death benefit is provided It is a combination of an Endowment and a Increasing Term policy Its premiums and benefits are variable It has guaranteed dividends
A minimum guaranteed Death benefit is provided
Which statement about a whole life policy is true? Beneficiary may be charged only with the consent of the premium payor Death benefit can usually be adjusted Cash value may be borrowed against Premiums are flexible
Cash value may be borrowed against
A company that owns a life insurance policy on one of its key employees may do all of the following EXCEPT: Borrow against cash value Change beneficiary Cancel policy Change the policy's interest rate
Change the policy's interest rate
S is covered by a whole life policy. Which insurance product can cover his children? Assignment provision Payor benefit Accelerated benefit rider Child term rider
Child term rider
Which provision allows the policyowner to change a term life policy to a permanent one without providing proof of good health? Modification Conversion Exchange Adjustable
Conversion
When a policyowner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply? Extended term option Conversion provision 1035 Exchange Incontestable period
Conversion provision
The combination of Whole Life and _____________ Term insurance is referred to as a Family Income Policy. Decreasing Universal Variable Level
Decreasing
What does a Face Amount Plus Cash Value Policy pay upon the insured's death? Face amount plus the policy's cash value Face amount plus the policy's dividends The greater amount of the policy's death benefit or the cash value Face amount plus total premium paid throughout the life of the policy
Face amount plus the policy's cash value
What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies? Family Maintenance Policy Family Income Policy Survivor Policy Family Survivor Policy
Family Maintenance Policy
What kind of life insurance policy pays a specified monthly income to a beneficiary for 30 years and then pays a lump sum benefit at the end of that 30 years? Family Lump Sum policy Family Maintenance Policy Family Survivor Policy Family Income Policy
Family Maintenance Policy
Who has the option to renew a Renewable Term policy? Agency Agent Insured Beneficiary
Insured
Which of the following combination plans is designed to protect an insured from an unpaid mortgage balance upon premature death? Survivorship Life Family Plan Joint Life Whole Life and Level Term Rider
Joint Life
What type of life policy covers 2 lives and pays the face amount after the first one dies? Group Life Joint Life Policy Family Income Policy Last Survivor
Joint Life Policy
K, age 45, and his wife, age 43, have three children. They purchase a Family Policy that covers K's wife to age 65. All of these situations will pay a death benefit EXCEPT: K's wife dies at age 60 K's wife dies at age 66 A child dies at age 15 A child dies at age 18
K's wife dies at age 66
An architecture firm would stand to lose a lot of money in the event of the death of its project manager. Which type of policy should the firm purchase on its project manager? Universal life insurance Key Person insurance Graded insurance Executive insurance
Key Person insurance
K is looking to purchase Renewable Term insurance. Which of these types of Term insurance may be renewable? Increasing Decreasing Adjustable Level
Level
Life insurance that covers an insured's whole life with level premiums paid over a limited time is called: Adjustable Life Renewable Term Limited Pay Life Joint Life
Limited Pay Life
Which type of policy is considered to be overfunded, as stated by IRS guidelines? Modified Whole Life Modified Endowment Contract Variable Universal Life Interest-Sensitive Whole Life
Modified Endowment Contract
When a life insurance policy exceeds certain IRS table values, the result would create which of the following? 1035 Exchange An Investment Modified Endowment Contract (MEC) Endowment
Modified Endowment Contract (MEC)
J is issued a Life insurance policy with a death benefit of $100,000. She pays $600 per year in premium for the first 5 years. The premium then increases to $900 per year in the sixth year, and remains level thereafter. The policy's death benefit also remains at $100,000. Which type of Life insurance policy is this? Endowment Graded Premium Life Straight Life Modified Premium Life
Modified Premium Life
A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision? Payor provision Accelerated Benefits provision Assignment provision Waiver of Premium provision
Payor provision
Which is true concerning a Variable Universal Life policy? Policyowner controls where the investment will go and selects the amount of the premium payment Policyowner has no say where the investment will go but can choose the premium mode The investment vehicle for this type of policy is held in the insurer's general portfolio The death benefit can vary but the policyowner has no say in the premium amount paid
Policyowner controls where the investment will go and selects the amount of the premium payment
Which of the following actions is NOT possible with a Universal Life policy? Policy's cash value may be used to pay premiums Premium payments may be made at unscheduled times Premiums may be applied as a credit against income tax Face amount may be adjusted
Premiums may be applied as a credit against income tax
T has a term policy that allows him to continue the coverage after expiration of the initial policy period. What type of term coverage is this? Renewable Increasing Level Decreasing
Renewable
Which of the following types of permanent life insurance policies offers the highest initial cash value? Single premium Limited pay Straight whole Interest-sensitive
Single premium
K is shopping for a permanent life insurance policy that will offer her the MOST protection per dollar of annual premium. Which of these policies best fits her needs? Endowment Straight Life 10-Year Renewable Term Joint Life
Straight Life
T would like to be assured $10,000 is available in 10 years to replace a roof on his house. What kind of $10,000 policy should T purchase? Interest-Sensitive Whole Life Ten-Year Endowment Variable Universal Life Ten-Year Renewable Term
Ten-Year Endowment
What type of life insurance are credit policies issued as? Whole Variable Term Universal
Term
What type of life insurance gives the greatest amount of coverage for a limited period of time? Term Life Graded Premium Whole Life Whole Life Endowment Policy
Term Life
What kind of life insurance product covers children under their parent's policy? Family Maintenance rider Term rider Family Income rider Payor benefit
Term rider
K purchased a Life insurance policy in 1986 which paid 10% interest in the early years of the policy. Twenty years after the purchase, she received a notice from the insurer stating that the policy will soon terminate unless a much-higher premium is paid because of falling interest rates. This type of policy is known as a(n) __________ policy. Whole Universal Graded Increasing
Universal
The cash value in a(n) _______________ Life policy may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors. Universal Graded Term Endowment
Universal
S, age 40, is looking to buy a Life Insurance policy that will allow for increasing or decreases in coverage as his needs change. The policy best suited for S would be: Straight life Universal Life an Endowment Modified Whole Life
Universal Life
Q would like to purchase $100,000 of permanent protection on his wife and $50,000 of Term coverage on himself under the same policy. What kind of policy should Q purchase? Joint Policy Joint survivor policy Whole life policy with other insured rider Whole life policy with a Guaranteed Insurability option
Whole life policy with other insured rider
How long does the coverage normally remain on a limited-pay life policy? age 65 age 100 when premium payments stop at the discretion of the insurer
age 100
If a 10-Year Term Life policy contains a Renewability provision, the policy will renew: along with a decrease in premium at the option of the insurer only with evidence of insurability without evidence of insurability
without evidence of insurability
K pays on a $20,000 Year-Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary? Return of premiums paid Cash value plus interest $20,000 death benefit Face amount plus interest
$20,000 death benefit
G purchased a Family Income policy at age 40, The policy has a 20-year rider period. If G were to die at age 50, how long would G's family receive an income? 5 years 10 years 15 years 20 years
10 years
A 15-year mortgage is best protected by what kind of life policy? Modified whole life 15-year level term 15-year decreasing term Adjustable life
15-year decreasing term
Which of the following features of a group Term Life policy enables an individual to leave the group and continue his or her insurance without providing evidence of insurability? Owner's Rights clause Incontestable Period Insuring Agreement Conversion privilege
Conversion privilege
What kind of life insurance starts out as temporary coverage but can be later modified to permanent coverage without evidence of insurability? Endowment policy Limited-pay whole life Convertible term Decreasing term
Convertible term
Credit life insurance is typically issued with which of the following types of coverage? Annual Renewable Term Decreasing Term Individual Whole Life Group Term
Decreasing Term
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it? Modified Whole Life 20-Pay Life Decreasing Term Endowment
Decreasing Term
Additional coverage can be added to a Whole Life policy by adding a(n): payor rider accelerated benefit rider decreasing term rider automatic premium loan rider
Decreasing term rider
P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20 year period. What type of policy should P purchase? Family Benefit policy Family Maintenance policy Family Income policy Family Survivor policy
Family Maintenance policy
D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed? Limited-pay life Graded premium Level term Endowment
Level term
Which of these would be considered a Limited-Pay Life policy? 10-year Renewable and Convertible Term Life Paid-Up at Age 70 Straight Whole Life Renewable Term to Age 100
Life Paid-Up at Age 70
All of these insurance products require an agent to have proper FINRA securities registration in order to sell them EXCEPT for Variable Life Modified Whole Life Universal Variable Life Variable Annuity
Modified Whole Life
K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this? Variable life Adjustable life Graded Premium whole life Modified Whole life
Modified Whole Life
Which of these life products is NOT considered interest-sensitive? Modified Whole Life Variable Universal Life Interest Sensitive Whole Life Variable Life
Modified Whole Life
Which of these characteristics is consistent with a Straight Life policy? Owner can adjust both premium and death benefit Premiums are lower for the first five years, increase the sixth year, then levels off for the remaining length of the contract Owner has the option of converting to term insurance Premiums are payable for as long as there is insurance coverage in force
Premiums are payable for as long as there is insurance coverage in force
Whole Life insurance is sometimes referred to as "Straight Life". What does the word "Straight" indicate when using this phrase? The incontestable period The ability to borrow against the cash value The Grace Period The duration of premium payments
The duration of premium payments
All of these statements about Equity Indexed Life Insurance are correct, EXCEPT: Cash value has a minimum rate of accumulation If the gain on the index goes beyond the policy's minimum rate of return, the cash value will mirror that of the index The premiums can be lowered or raised, based on investment performance Tied to an equity index such as the S&P 500
The premiums can be lowered or raised, based on investment performance
How does a typical Variable Life Policy investment account grow? Tied to price of gold Through mutual funds, stocks, bonds Based on returns from insurer's general account Tied to Treasury Bills
Through mutual funds, stocks, bonds
A(n) __________ Life policy offers the owner investment in products such as money-market funds, long-term bonds and equities. Adjustable Term Universal Variable
Variable
In order to sell a(n) ______________ Life policy, a producer is required to register with the Financial Industry Regulatory Authority (FINRA). Variable Adjustable Straight Term
Variable
Which of the following is considered an element of a Variable Life Policy? Underlying equity investment Little or no risk to insured Guaranteed dividends Insurer assumes all the risk
Underlying equity investment
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options? Modified Whole Life Variable Life Universal Life Adjustable Life
Variable Life
Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling? Variable Life Credit Life Universal Life Interest-Sensitive Whole Life
Variable Life
A(n) ________________ _________________ Life policy combines investment choices with a form of Term coverage. Straight Whole Variable Universal Variable Term Adjustable Universal
Variable Universal
A life policy that contains a monthly mortality charge as well as self-directed investment choices is called a(n): Joint Life policy Endowment Variable Universal Life policy Universal Life Policy
Variable Universal Life policy
Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit? Universal Life Variable Life Fixed annuity Modified endowment contract
Variable life
Which of the following policies is characterized by a flexible premium and death benefit and allows the policyowners control of the investment aspect of the plan? Variable Life Universal Life Variable universal life Adjustable life
Variable universal life
At what point does a Whole Life Insurance policy endow? At age 65 When premium paid equals the death benefit When the cash value equals the death benefit In 30 years or age 65, whichever comes first
When the cash value equals the death benefit
When is the face amount of a Whole Life policy paid? At the policy's maturity date only When the insured dies or at the policy's maturity date, whichever happens first Only when the insured dies When the policy is surrendered
When the insured dies or at the policy's maturity date, whichever happens first
A life insurance policy that provides a policyowner with cash value along with a level face amount is called: Whole Life Level term Credit Life Ordinary Life
Whole Life
What kind of life policy either pays the face value upon the death of the insured or when the insured reaches age 100? Term Life Whole Life Credit Life Universal Life
Whole Life
What type of insurance offers permanent life coverage with premiums that are payable for life? Credit Life Renewable Term Life Whole Life Endowment
Whole Life
Y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10-year Term coverage for his wife on the same policy. Which of these policies did Y purchase? Endowment with Extended Term Endowment with a Payor Benefit Whole Life policy with an Other Insured Rider Family Income Policy
Whole Life policy with an Other Insured Rider
Under a Graded Premium policy, the premiums: are higher during the policy's early years are lower during the policy's early years are constant throughout the length of the policy can be adjusted by the insured
are lower during the policy's early years
Variable Whole Life Insurance can be described as: both an insurance and securities product an insurance product only a securities product only the insurance company assumes the investment risk
both an insurance and securities product
Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies? beneficiary insured policyowner insurer
policyowner
A(n) ___________ term life policy is normally used when covering an insured's mortgage balance. increasing decreasing level variable
decreasing
A variable insurance policy: guarantees a minimum rate of return does not allow the policyowner to assume the investment risk does not guarantee a return on its investment accounts does not guarantee an assignment provision
does not guarantee a return on its investment accounts
A Universal Life policy is sometimes referred to as an unbundled Life Policy because the owner can see the interest earned, cost of insurance, and the: inherent risk commission risk inflation factor expense charges
expense charges
What kind of premium does a Whole Life policy have? decreasing adjustable level deferred
level
The investment gains from Universal Life Policy usually go toward: the death benefit the dividends the cash value paying off a policy loan
the cash value
The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is: the cost the health of the insured the amount of coverage being converted who will be beneficiary
the cost
A policy that becomes a Modified Endowment Contract (MEC): will no longer allow for policy loans must be placed in an irrevocable trust can never be reinstated after a lapse will lose many of its tax advantages
will lose many of its tax advantages
