Life Insurance - Review Overall Test Prep Questions Missed

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

It is reduced to the amount of what the cash value would buy as a single premium. (In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.)

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this?

Reinstatement provision. (A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.)

The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT ____.

The insured's age at death. (The insured's age at death will not be considered, but the longer the life expectancy of the recipient, the lower the payments will be.)

Which of the following statements is TRUE concerning the Accidental Death Rider?

It will pay double or triple the face amount. (The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.)

In order for a life insurance policy with graded death benefits to be issued to an individual over the age of 76, the first year death benefit must be at least what percentage of the total face amount on the policy?

50% (If the insured is age 76 or older, the graded death benefit policy cannot be issued unless the policy provides at least 50% of the face amount as a first-year death benefit.)

Which of the following premium payment modes will incur the lowest overall payment?

Annual. (Annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower.)

In an annuity, the accumulated money is converted into a stream of income during which time period?

Annuitization period. (The "annuitization period" (annuity period) is the time during which accumulated money is converted into an income stream.)

Which of the following types of insurance policies is most commonly used in credit life insurance?

Decreasing term. (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. It is usually written as decreasing term insurance.)

What does "level" refer to in level term insurance?

Face amount. (Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages.)

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?

Fixed period. (Under the fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period.)

What type of insurance would be used for a Return of Premium rider?

Increasing Term. (The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.)

The Medical Information Bureau (MIB) was created to protect ____.

Insurance companies from adverse selection by high risk persons. (The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.)

What is the main purpose of the Seven-pay Test?

It determines if the insurance policy is a MEC. (The Seven-pay Test determines whether an insurance policy is "over-funded" or if it's a Modified Endowment Contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.)

A 71 year old female recently purchased a life insurance policy with graded death benefits. If the policy has graded death benefits for three years, which of the following must be true?

The third year of the policy must have a death benefit equal to 65% of the total face amount. (If the insured is between the ages of 66 and 75, the policy cannot grade the death benefit in excess of 2 years unless the policy provides at least 50% of the face amount as a first-year death benefit. The 2-year period can be extended to 3 years if the death benefit during the third policy year equals or exceeds 65% of the ultimate death benefit.)

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?

Guaranteed renewable option. (The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.)

What is the benefit of choosing extended term as a nonforfeiture option?

It has the highest amount of insurance protection. (Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.)

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.)

Which of the following would help prevent a universal life policy from lapsing?

Target premium. (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.)

What is the purpose of the insurability provision in group life policies issued in this state?

To allow the insurer to require proof of insurability from individual insured. (Under the insurability provision in group life policies, the insurer has the right to require an individual applicant to provide evidence of insurability as a condition for coverage.)

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contract. (It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.)