Series 65: Unit 24 Exam

When discussing the purchase of a scheduled premium variable life insurance policy with a client, it would be correct to state that A. if a policy loan exceeds the policy cash value, the deficiency must be remedied within 10 business days to keep the policy from lapsing. B. you will receive a statement of your death benefit no less frequently than semiannually. C. premiums will vary based on performance of the separate account. D. by surrendering the policy, its cash value may be obtained.

By surrendering the policy, its cash value may be obtained

A client purchased an index annuity from you three years ago and made an initial deposit of $100,000. The contract calls for a 90% participation rate with a 15% cap. The index had a return of +20% in the first year, -5% the second year, and +10% the third year. The investor's current value is approximately A. $126,500. B. $128,620. C. $125,350. D. $117,829.

$125,350

In the past 20 years, 55-year-old James has put $27,000 into accumulation units in his nonqualified variable annuity. The current value of his units is $36,000. He wishes to withdraw $16,000 to assist with his grandchild's college education. If he is in the 28% tax bracket, what is his tax consequence on the withdrawal? A. $2,520 B. $3,420 C. $0 D. $4,480

$3,420

Alexander Wimpton purchased a variable life insurance policy 10 years ago. The policy has a $500,000 face amount that has grown to $525,000 due to the performance of the selected separate account subaccounts. Three years ago, Wimpton borrowed $50,000 against the policy that has never been repaid. The effect of this is that Wimpton's total death benefit today is A. $500,000. B. $525,000. C. $450,000. D. $475,000.

$475k

An agent presenting a variable life insurance (VLI) policy proposal to a prospect must disclose which of the following about the insured's rights of exchange of the VLI policy? A. The insurance company will allow the insured to exchange the VLI policy for a permanent form of life insurance policy within 45 days from the date of the application or 10 days from policy delivery, whichever is longer. B. The insured may request that the insurance company exchange the VLI policy for a permanent form of life insurance policy, issued by the same company, within two years. The insurance company retains the right to have medical examinations for underwriting purposes. C. Within the first 18 months, the insured may exchange the VLI policy for either a permanent form of life insurance or a universal variable policy, issued by the same company, with no additional evidence of insurability. D. Federal law requires the insurance company to allow the insured to exchange the VLI policy for a permanent form of life insurance policy, issued by the same company, for two years with no additional evidence of insurability.

Federal law requires the insurance company to allow the insured to exchange the VLI policy for a permanent form of life insurance policy, issued by the same company, for two years with no additional evidence of insurability

All of the following terms are found in a typical equity index contract except A. inflation rate. B. cap rate. C. participation rate. D. settlement options

Inflation rate

A client purchases a fixed annuity that will immediately begin paying $2,000 a month for life. What is the annuitant's greatest risk? A. Market risk B. Capital risk C. Inflation risk D. Interest rate risk

Inflation risk

Variable annuities A. may have 20 or more subaccount investment options. B. generally provide more security of principal than fixed annuities. C. provide a guaranteed minimum annuity payout. D. may invest only in money market mutual funds.

May have 20 or more subaccount investment options

A customer has a nonqualified variable annuity. Once the contract is annuitized, monthly payments to the customer are A. 100% taxable. B. 100% tax-deferred. C. partially a tax-free return of capital and partially taxable. D. 100% tax free.

Partially a tax-free return of capital and partially taxable

Larry purchased a deferred annuity and, on his 65th birthday, annuitized the product under a life with 15-year certain option. His spouse, Linda, is the beneficiary. Which of the following statements is correct? A. Payments will be made to Larry until his death and then to Linda for another 15 years. B. Payments will be made to Larry until he is 80 and then cease. C. Payments will be made to Larry as long as he lives, but should he die prior to reaching age 80, Linda will receive payments until Larry's 80th birthday. D. Payments will be made to Larry until he is 80 and then to Linda for the remainder of her life.

Payments will be made to Larry as long as he lives, but should he die prior to reaching age 80, Linda will receive payments until Larry's 80th birthday

Which of the following is not considered to be an annuity purchase option? A. Single-premium immediate annuity B. Periodic payment deferred annuity C. Single-premium deferred annuity D. Periodic payment immediate annuity

Periodic payment immediate annuity

Which of the following is a possible advantage of scheduled premium variable life insurance over whole life insurance? A. Flexibility of premium payments B. Less risk in the underlying investment instruments C. Greater guaranteed cash value D. Possible inflation protection for the death benefit

Possible inflation protection for the death benefit

Among the reasons why deferred variable annuities might not be a suitable investment for seniors are all of the following except A. potential inflation protection. B. surrender charges. C. improper subaccount selection. D. potential capital fluctuation.

Potential inflation protection

Which of the following is true with an annuity? 1. Taxes on earned dividends, interest, and capital gains are paid annually until the owner withdraws money from the contract. 2. Tandom withdrawals are taxed on a LIFO basis. 3. Money invested in a nonqualified annuity represents the investor's cost basis. 4. Upon withdrawal, the amount exceeding the investor's cost basis is taxed as ordinary income.

Tandom withdrawals are taxed on a LIFO basis, money invested in a nonqualified annuity represents the investor's cost basis, and upon withdrawal, the amount exceeding the investor's cost basis is taxed as ordinary income

When a client purchases an annuity with a 5% bonus, it means A. the bonus is included every payment period. B. the bonus is added to the initial payment. C. the bonus is added at the last payment. D. the bonus is added to the death benefit.

The bonus is added to the initial payment

Which of the following would most likely put a limit on the amount of interest to be credited to an index annuity? A. The cap rate B. The participation rate C. The CDSC D. The annuity reset rate

The cap rate

In a scheduled premium variable life contract, which of the following has a guaranteed minimum? A. The expense ratio B. The death benefit C. The cash value D. The maturity value

The death benefit

A client of an investment adviser representative (IAR) mentions that he has received a prospectus for a variable annuity but does not really understand the product. It would be reasonable for the IAR to explain that a variable annuity offers an investor A. the insurance company's backing of the annuity' performance. B. a product very similar to a mutual fund but with lower costs and expenses. C. the opportunity to invest in equity securities on a tax-deferred basis. D. lifetime income guaranteed never to drop below the initial rate.

The opportunity to invest in equity securities on a tax-deferred basis

All of the following are advantages of universal life insurance except A. the policy is guaranteed never to lapse. B. the ability to adjust the amount of premium payments. C. when the cash value is sufficient, no premium payment is required. D. the ability to change the death benefit amount.

The policy is guaranteed never to lapse

A 57-year-old client has $100,000 in a nonqualified variable annuity and $100,000 in a mutual fund with a dividend reinvestment plan. Coincidently, each was purchased 10 years ago with a deposit of $50,000. If the client needs $50,000 to use as a down payment for a vacation home, which would have the most severe tax consequences? A. Not enough information to tell B. The mutual fund C. The same tax consequences for both D. The variable annuity

The variable annuity

An investor in a variable annuity will be purchasing A. accumulation units. B. shares of the underlying subaccount. C. annuity units. D. participation units.

Accumulation units