life insurance policy options quiz

Most participating whole life insurance policies allow all of the following uses of standard life insurance dividends EXCEPT A)to increase the policy's face amount B)to purchase 1-year term insurance C)to reduce future premium payments D)to purchase additional units of paid-up life insurance

A)to increase the policy's face amount

Hector's spouse was the primary beneficiary of his $250,000 life insurance policy. She received payments of approximately $700 a month as long as she lived and, at her death, their 2 children received lump-sum payments of $125,000 each. What settlement option was in effect on Hector's policy? A)Life income option B)Installment refund option C)Period certain option D)Interest-only option

D)Interest-only option

Under an installment refund settlement option, if the primary beneficiary dies, the secondary beneficiary will receive A)the same income payments until the total amount paid out to both beneficiaries equals the original amount of proceeds B)the same income payments for a fixed number of years C)half of the remaining proceeds D)a lump-sum payment

A)the same income payments until the total amount paid out to both beneficiaries equals the original amount of proceeds

Lynn elects to surrender her whole life policy for a reduced paid-up policy. The cash value of her new policy will A)decrease gradually B)continue to increase C)reduce immediately to $0 D)remain the same as in the old policy

B)continue to increase

Suppose Max wants to arrange the distribution of his life insurance proceeds so that his spouse, as beneficiary, will receive monthly payments for as long as she lives. Which of the following settlement options will meet this need? A)Life income option B)Fixed-period option C)Interest-only option D)Fixed-amount option

A)Life income option

Which of the following statements best describes the nature of a cash value loan? A)It is a financial transaction in which the cash value is unaffected but the face amount is reduced by the amount of the loan plus interest. B)It is a financial transaction in which the cash value is reduced by the amount of the loan. C)It is a financial transaction in which future growth of the cash value is suspended until the loan amount plus interest is recovered. D)It is a financial transaction in which the insurer loans the money and attaches a comparable portion of the cash value as collateral.

D)It is a financial transaction in which the insurer loans the money and attaches a comparable portion of the cash value as collateral.

A policyowner stops paying premiums on a whole life policy with an accidental death benefit and exchanges the policy for extended term insurance. Which of the following statements pertaining to this situation is NOT correct? A)The term policy has no cash value. B)There will be no accidental death benefit with the new policy. C)The policyowner will have continued protection for a limited period of time. D)The term policy will have a reduced face value.

D)The term policy will have a reduced face value.

Which of the following statements regarding the paid-up additions life insurance policy dividend option is NOT correct? A)The paid-up additions dividend option is only available to insureds that remain insurable. B)Paid-up additions consist of permanent life insurance of the same type as the base policy. C)A paid-up addition increases the policy's total cash value as well as its death benefit. D)The amount of paid-up coverage acquired is based on the insured's attained age at the time the dividend is declared.

A)The paid-up additions dividend option is only available to insureds that remain insurable.

What is the default nonforfeiture option? A)Interest only B)Extended term C)Surrender value D)Reduced paid-up

B)Extended term

Which of the following factors is NOT used to calculate each payment with the fixed period option? A)A guaranteed interest rate B)The chosen payment amount C)The amount of the death benefit D)The length of the chosen period

B)The chosen payment amount

Norris is the primary beneficiary of a life insurance policy. He dies after receiving $275 per month for 6 years, under a 10-year period certain income option. His son, Neil, is the secondary beneficiary. Which of the following statements pertaining to this situation is CORRECT? A)Neil will receive income checks in the same amount as his father for 4 years. B)Neil will receive nothing, since Norris did not survive the 10-year period certain. C)Neil will receive a lump-sum payment of $13,200. D)Neil will receive $275 per month for as long as he lives.

A)Neil will receive income checks in the same amount as his father for 4 years.

Paul, age 62, is applying for a universal life insurance policy and wants to arrange the beneficiary designation in such a way as to use the proceeds to provide lifetime income to his spouse, Marsha. Which of the following settlement options is best suited for this purpose? A)The insurer can distribute the proceeds in a lump-sum payment, deposit the money in a bank account, and then set up a periodic distribution plan for Marsha. B)Paul, as the owner, can pick life income as the settlement option his spouse must take when he dies. This option will give Marsha a monthly income she cannot outlive. C)Paul can leave the proceeds with the insurance company to accumulate interest and distribute the interest to Marsha. D)Paul can select the fixed-period option and base the distribution period on Marsha's life expectancy at the time of Paul's death.

B)Paul, as the owner, can pick life income as the settlement option his spouse must take when he dies. This option will give Marsha a monthly income she cannot outlive.

All the following are standard life insurance dividend options EXCEPT A)leaving the dividends with the insurer to accumulate at interest in a cash account B)using the dividend to increase the base whole life policy's face amount C)using the dividend to purchase a unit of paid-up whole life insurance D)taking the dividend as an income tax-free cash distribution from the insurer

B)using the dividend to increase the base whole life policy's face amount

Heather wants her $85,000 life insurance policy arranged to pay her spouse a monthly income if she dies first, but most or all of the proceeds to go to their 2 children after her spouse's death. Which of the following settlement options could Heather select to provide income for her spouse and conserve the proceeds for the children? A)Fixed-amount option B)Fixed-period option C)Interest-only option D)Life income option

C)Interest-only option

Doris and Arnold receive $450 per month under a joint and one-half survivor life insurance option. What would happen if Arnold were to die first after the payments have started? A)The remaining proceeds would be paid to Doris in a lump sum. B)Doris would have to select another settlement option. C)Monthly payments of $225 would be made to Doris as long as she lived. D)Doris would receive $450 per month as long as she lived.

C)Monthly payments of $225 would be made to Doris as long as she lived.

Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will A)decrease gradually B)remain the same as in the old policy C)continue to increase D)decrease by 50% immediately

C)continue to increase

Tammy owns a participating whole life insurance policy for which she has elected the paid-up additions option. If the insurer declares a dividend of $500 in the current year, how will this amount be used with this dividend option? A)The insurer adds a paid-up unit of whole life insurance with a $500 face amount to Tammy's base policy. B)The insurer adds $500 to the face amount of Tammy's base policy. C)The insurer adds a paid-up unit of whole life insurance with a cash value that is equal to $500. D)The insured uses the $500 as if it were a single premium to purchase a unit of paid-up whole life insurance based on Tammy's attained age.

D)The insured uses the $500 as if it were a single premium to purchase a unit of paid-up whole life insurance based on Tammy's attained age.