TYPES OF LIFE POLICIES

All of the following are FALSE about limited pay whole life policies EXCEPT a-Coverage continues after the policy is paid up. b-Premium payments are lower than continuous premium Whole Life. c-Premium payments increase as the insured ages. d-Coverage ends when the policy is paid up.

a-Coverage continues after the policy is paid up.

A variable contract is all of the following, except: a-It has a minimum guaranteed rate of return on cash values. b-A security product. c-A life insurance contract. d-Subject to dual regulations (SEC and Insurance Industry).

a-It has a minimum guaranteed rate of return on cash values.

The life insurance policy with the most flexibility is a __________. a-Bundled Whole Life b-Limited Pay Life c-Current Assumption Whole Life d-Universal Life

d-Universal Life

When you see the term 'unit', it means the product is a-equity index b-index c-fixed d-variable and the money is kept in a separate account

d-variable and the money is kept in a separate account Accumulation units are purchased and annuity units are paid out. Other terms that go with a variable product include a quarterly report, a prospectus, no guarantees, and the consumer bears the risk. All insurance products with cash value send out an annual report, variable investments require quarterly reporting.

According to the insurance industry, the answer to buying term life and investing the difference is __________. a-Endowment b-Universal Life c-Limited Pay Whole Life d-Whole Life

b-Universal Life With a universal life policy, the cost of insurance is based on term life protection and the balance of the premiums is kept in the tax-deferred cash account of the policy.

Which of the following $100,000 limited pay insurance policies will cost the insured the least amount of premium, total outlay out of their pocket, should the policy endow? a-20 pay b-Paid-up at 65 c-10 pay d-30 pay

c-10 pay The shorter the payment period, the greater the premiums per payment, but the less total outlay of premiums over the length of the policy, if it endows.

At age 35, Chris buys a $100,000 life insurance policy. He has to pay the premiums until he reaches age 55 but the insurance protection continues to build cash value until he is 100 years of age. Which type of policy does Chris have? a-Endowment at age 65 b-30 pay whole life c-Paid-up at 65 d-20 year limited pay whole life

d-20 year limited pay whole life Chris will pay premiums from age 35 through age 55, but has protection his whole life.

__________ is a permanent life policy where the cash value amounts may change based on the investment experience of the insurer. However, there is a minimum guaranteed cash value based on a guaranteed rate of return. a-Variable Life b-Variable Universal (UL II) c-Limited Pay d-Current Assumption Whole Life

d-Current Assumption Whole Life Interest sensitive products give a minimum guaranteed interest rate on the cash value, plus excess interest. Variables give no such guarantees. Limited pay is a bundled product.

All of the following are true statements about the amount of coverage in decreasing term life insurance, except: a-It decreases over the term period. b-It is commonly used to cover installment debt obligations. c-It is temporary in nature. d-It is renewable.

d-It is renewable. At the end of the time period, a decreasing term policy terminates. The other answers are correct statements.

Mr. Sawyer wants to get the most amount of life insurance but wants to pay the least amount of premium. You recommend a/an __________. a-annual renewable term b-one year convertible term c-one year renewable and convertible term d-one year term

d-one year term The other three policies have better features (benefits), which adds cost to the policy. A one-year term is an inferior policy with fewer features, and thus will cost the least.

The payor benefit typically waives premiums of a Juvenile Policy if the

Person who pays the premium dies or becomes disabled.

In a whole life policy, the death benefit is composed of which of the following?

The amount at risk (protection) plus the cash value. The amount at risk (protection) plus the cash value equals the face amount of the policy with a Whole Life contract.

If a universal life policy with Option B has an initial face amount of $100,000 and a cash value of $25,000, the actual death benefit would be __________. a-$125,000 b-$75,000 c-$100,000 d-$85,000

a-$125,000 Option B is an increasing death benefit, $100,000 plus the cash value of $25,000. Option A is a level death benefit, and the death benefit would be $100,000.

An annuitant has a life with 30 period certain annuity. The daughter, age 25, is the beneficiary of the annuitant. The beneficiary would receive payment for how many years should the annuitant die 45 years after the annuity starts? a-0 years b-30 years c-25 years d-45 years

a-0 years The beneficiary will not receive any money because the annuitant lived longer than the 30 year minimum guarantee. The annuitant received money for 45 years because it is a life annuity.

Which of the following $100,000 limited pay life insurance policies will have the highest annual premium? a-10-pay b-20-pay c-Paid-up at 65 d-30-pay

a-10-pay

The owner of a life policy receives a check for $50,000 from the insurance company when he turned 100 years of age. Which policy did he have? a-Any of these three whole life policies policies. b-Whole Life c-Limited Pay d-Straight Life

a-Any of these three whole life policies policies. All three of these policies are whole life policies, so they all endow at age 100. When the policy endows the face amount of the policy is sent to the owner of the contract.

Which of the following is not temporary coverage, but coverage could increase every year? a-Universal Life b-Increasing Term c-Level Term d-Decreasing Term

a-Universal Life Universal Life insurance using Option B is a permanent life policy with an increasing death benefit.

The three common types of permanent life insurance are __________ a-Whole Life, Incidental Life, Term Life b-Group Life, Whole Life, Variable Life c-Variable Life, Whole Life, Universal Life

c-Variable Life, Whole Life, Universal Life Term life is not a permanent type of coverage. When the term is over, coverage ends. Group life is a type of term life, therefor any answer that includes term or group would be incorrect.

John is the insured in a $250,000, 20 year renewable term policy. Soon after the policy is issued, he develops a serious health condition and becomes uninsurable. Which statement is correct? a-John will be able to renew his policy, but must pay the proper premium. b-John will be able to renew his policy, but will pay a surcharged premium. c-John may renew as long as he qualifies health-wise. d-John will not be able to renew his policy.

a-John will be able to renew his policy, but must pay the proper premium. This term policy is renewable term, which means evidence of insurability is NOT required to renew the policy after 20 years. Attained age is used to determine the next premium. The other answers are incorrect statements.

Nanci has a $100,000, 10-year term life policy. The premium she pays for her policy would be: a-Less than a $100,000, 10-year renewable and convertible term policy. b-More than a $100,000 renewable term policy. c-Increased each year without having to qualify for coverage. d-More than a $100,000, 20-year convertible term policy.

a-Less than a $100,000, 10-year renewable and convertible term policy. The other answers are incorrect because renewable and convertible term policies cost more in premiums than a nonrenewable policy, and the premiums on a 10-year term policy will NOT increase during the policy period.

All of the following are Living Benefits of a permanent life insurance policy, except: a-Premature death protection. b-Using the policy as collateral. c-Accelerated death benefits. d-Loans.

a-Premature death protection. It is known as a death benefit, not a living benefit, which the other answers are.

Adjustable life policies are permanent life policies which have all of the following characteristics, except: a-The adjustments are based on the original age of the insured at the time of purchase. b-The policies have flexible premiums. c-The policy owner can increase or decrease the premiums. d-The policy owner can adjust the face value up or down.

a-The adjustments are based on the original age of the insured at the time of purchase. Any adjustments, such as changing the face amount of the policy, will be based on the attained age of the insured.

Katy, age 30, has a $100,000 whole life policy which currently has a cash value of $10,000. Which of the following is a correct statement? a-The death benefit is $100,000, and is income-tax free. b-The death benefit is $100,000, but is subject to income-tax. c-The death benefit at age 30 is $110,000, and is income-tax free. d-The death benefit at age 30 is $90,000, and is income-tax free.

a-The death benefit is $100,000, and is income-tax free. With a traditional whole-life policy, the death benefit is the sum of the cash value and protection element, which equals the Face Value of the policy, minus any outstanding debt. The other answers are incorrect statements. Death benefits are received by the beneficiary income-tax free.

All of the following statements regarding whole life insurance are correct, except: a-The face amount endows when the policy is paid-up. b-The face amount endows at 100. c-Protection lasts until age 100. d-It offers living benefits.

a-The face amount endows when the policy is paid-up. Paid-up means no more payments are due, but the policy will still endow at age 100.

__________ is an interest sensitive, permanent life insurance product. It has flexible premiums, adjustable benefits, and accumulates cash value with a minimum guaranteed interest rate. a-Universal Life b-Ordinary Life c-20 year Limited Pay Life d-Variable Universal Life

a-Universal Life The statement above is the definition of a Universal Life policy. Variable Life does not guarantee increases in the cash value. Ordinary and Limited Pay Life are Whole Life polices, NOT Universal contracts.

Withdrawals and loans are permitted in Universal Life Products. All of the following are correct, except: a-Withdrawals do not affect the policy as they do not have to be repaid. b-Withdrawals and loans affect the cash surrender value. c-Withdrawals do not have to be repaid and therefore accrue no interest. d-Loans have to be repaid and interest is charged by the insurance company.

a-Withdrawals do not affect the policy as they do not have to be repaid. Withdrawals lower the death benefit by the amount of the withdrawals. The other answers are correct statements.

Current Assumption whole life policies are sensitive to which of the following? a-interest rates b-guaranteed cash values c-health of the insured d-age of the insured

a-interest rates

What kind of insurance should a company buy if it wants to insure the life of its CEO? a-key person insurance b-CEO insurance c-group life d-cross purchase plan

a-key person insurance

The policy owner pays a level and fixed premium until he dies or reaches age 100. The policy lasts for the entire lifetime of the insured. The cash value accrues tax deferred until surrender, and the death benefits are received by the beneficiary, income-tax free. This is a __________. a-straight (whole) life b-20 pay c-paid-up at 65 d-five-year limited pay whole-life

a-straight (whole) life

Which type of policy is backed by equity investments and allows the policy owner to adjust the death benefit? a-variable universal life b-variable life c-whole life d-term life

a-variable universal life

When you look at a Whole Life insurance policy, what an insured really has is a __________. a-type of investment. b-death benefit protection and separate account. c-flexible type of investment. d-death benefit protection and forced savings account contract.

d-death benefit protection and forced savings account contract. Remember, LIFE insurance is designed for PROTECTION, not as an investment.

Seffie, a home builder, has $250,000 of her family assets tied up in a project for five years. Which type of insurance would you recommend to protect the family from the loss of these assets if she dies prematurely, without paying large premiums? a-5-Pay Whole Life b-5-Year Level Term c-Return of Premium Whole Life d-5-Year Endowment

b-5-Year Level Term Single need, low premiums and protection only, with no mention of cash value build-up term, is recommended.

Mr. Marsh just bought a joint policy from insurance producer, Eric Cartman. Eric explains that all of the following are advantages, except: a-Most joint policies allow the surviving insured to purchase permanent coverage without qualifying. b-A joint policy will usually cost more than writing two separate policies. c-A joint policy is less expensive for covering two individuals than purchasing two separate policies. d-A joint policy covers two or more insureds with one policy, with benefits being paid upon the first-to-die.

b-A joint policy will usually cost more than writing two separate policies. People will usually purchase a joint policy because the premiums are less expensive. The other answers are correct statements.

Increasing term life policies commonly feature which of the following? a-It begins with little or no insurance protection. b-All of these answers are correct. c-The premium remains the same. d-It is often used as a rider for return of premium or the cost of living.

b-All of these answers are correct.

Renee bought a $100,000, 20 year renewable and convertible term policy when she was 20. At age 30, she decided to convert her term policy to a permanent insurance policy. All of the following statements are correct, except: a-The new policy will build cash value. b-Conversion will be based on age, gender and evidence of insurability. c-Renee will pay a higher premium for her new policy. d-Conversion is usually based on attained age.

b-Conversion will be based on age, gender and evidence of insurability. Evidence of insurability is NOT required (non-med).

The type of term insurance that can be changed from temporary protection to some manner of permanent protection without evidence of insurability is __________. a-Level b-Convertible c-Reentry d-Decreasing

b-Convertible

A renewability provision is desirable for which of the following reasons? a-The owner is guaranteed the right to increase the face amount of coverage. b-Coverage would terminate at the end of the term period in the absence of a renewability provision. c-The premium rate is adjusted (increased) to an amount payable for the attained age of the insured. d-The owner must apply for a new policy.

b-Coverage would terminate at the end of the term period in the absence of a renewability provision.

Which of the following is constant in a level term life policy? a-Maximum age of the insured b-Death benefit c-Beneficiary d-Premium

b-Death benefit The premium always remains the constant. Level refers to the amount of coverage. There is also decreasing term, where the face value decreases, and increasing term, where the face value increases.

All of the following statements regarding a Traditional Whole Life Policy are correct, EXCEPT a-Premiums are fixed during the life of the contract. b-It is basically a mutual fund term type policy. c-The cash value will build on a tax deferred basis. d-Cash values build until the insured reaches age 100.

b-It is basically a mutual fund term type policy. A mutual fund is a security not a type of insurance policy.

The following are true about Variable Life insurance, except: a-It is considered a Security (equity) product. b-It offers a minimum cash value return while at the same time the chance for large gains. c-To sell a variable life product, a security license and life license both are required. d-It uses a separate account for accruing cash value.

b-It offers a minimum cash value return while at the same time the chance for large gains. There is no cash value on variable products. The other answers are correct statements.

Choose the situation below that most likely calls for the purchase of term insurance. a-Tammy plans to retire before age 60 with enough income to travel abroad. b-Paul has two years of medical school to complete. He and his wife have two young children. c-John is 42 years old and owns a thriving business. He is married with two young children. d-Mary, 51 years of age and widowed, has one married son, age 30.

b-Paul has two years of medical school to complete. He and his wife have two young children. Term insurance seems to be the best for Paul. He needs a lot of life insurance, having a wife and two young children. He is also in medical school, so we can assume he has limited funds. Tammy needs money, so whole life seems the best answer for her. John owns a thriving business and can afford permanent coverage. Mary may not even need insurance protection, seeing that she is 51 and has no dependents.

Which of the following statements regarding Universal Life insurance is correct? a-All Universals involve a cash account and increasing term coverage. b-Premiums may be increased or decreased at the option of the policy owner. c-A high rate of interest is guaranteed. d-It is nearly identical to an Endowment policy.

b-Premiums may be increased or decreased at the option of the policy owner. A Universal Life has flexible premiums which allows the owner to increase or decrease the premiums. The other answers are incorrect statements because the policy owner has the option to choose increasing or level coverage. The guaranteed rate of interest is usually low and even though a Universal Life policy is similar to an Endowment, in some respects, there are just as many differences.

Decreasing term insurance would be used for providing all of the following protection needs, except: a-To protect a family during the child-rearing years. b-To pay off the mortgage. c-To pay for funeral and other debts. d-To help build a retirement fund.

d-To help build a retirement fund. Term insurance builds no cash value. The other answers are single needs, with decreasing term being used for protection.

Which of the following is descriptive of the limitation in limited payment life policies? a-These policies limit to whom the insurer can pay death claims. b-Premiums paid are only for a specified period of time stated in the policy. c-These policies are limited in their ability to meet needs. d-The benefit is provided to a specified period of time stated in the policy.

b-Premiums paid are only for a specified period of time stated in the policy. For example, with a 20-limited pay whole life, the premiums are required to be paid for only 20 years. After 20 years, the policy is paid-up, meaning no more premiums are due even though the policy is still in effect.

Megan is considering purchasing a Universal Life (UL) insurance policy. You explain to her that if she buys the UL: a-She will be allowed to take a policy loan without having to pay any interest on the loan. b-She may increase the death benefit of the policy as her needs dictate, such as having children, a salary increase at work or getting married. c-She will have the option to increase or decrease the current interest rate to meet her changing needs. d-She will have a fixed premium that needs to be paid.

b-She may increase the death benefit of the policy as her needs dictate, such as having children, a salary increase at work or getting married. A UL offers a flexible premium, adjustable death benefit and a current assumption interest paid on cash values. Loans must be re-paid and they accumulate interest.

The policy owner pays a level and fixed premium until he dies or reaches age 100. The policy lasts for the entire lifetime of the insured. The cash value accrues tax deferred until surrender, and the death benefits are received by the beneficiary, income-tax free. This is a __________. a-20 pay b-straight (whole) life c-five-year limited pay whole-life d-paid-up at 65

b-straight (whole) life

Which of the following statements regarding Single Premium Whole Life is incorrect? a-A single premium whole life is a form of limited-payment life insurance. b-A single premium whole life has cash and loan values immediately, and is fully paid up from the inception of the policy. c-A single premium whole life is used as a tax-deferred form of building money for retirement. d-A single premium whole life is considered over funded by the IRS and violates the Modified Endowment Rule (the 7-Pay Test).

c-A single premium whole life is used as a tax-deferred form of building money for retirement. LIFE insurance is used for PROTECTION. The cash build-up is a living benefit.

The most common premium type for a whole life policy is __________ a-limited payment. b-single premium. c-continuous premium. d-non participating.

c-continuous premium. Continuous premium has the lowest premium per payment, and is therefore the most affordable per payment. However, it is the largest overall investment due to the fact that you will continue to pay until death or the maximum age of the policy, generally age 100, whichever comes first.

Walter, father of Megan, age 2, purchases a juvenile policy (or adds a rider to his policy) on her. Which of the following statements is correct? a-Walter is the applicant, owner and probably the payor. b-Megan is the insured. c-At a stated age, Megan will have the guaranteed option to purchase five times the original face amount. d-All of these answers are correct.

d-All of these answers are correct.

Whole life policies are practical for all of the following situations, except: a-To provide coverage for the life of an individual. b-They can be purchased to cover children. c-To provide an inside build up of cash value free of current income tax liability. d-An insured just had his second set of twins and needs to purchase a lot of insurance protection, so he applies for whole life.

d-An insured just had his second set of twins and needs to purchase a lot of insurance protection, so he applies for whole life. Term life insurance is less expensive than whole life insurance, so the insured can purchase more protection by purchasing term life insurance versus purchasing whole life using the same premium. The other answers are correct statements.

All of the following are FALSE about limited pay whole life policies EXCEPT a-Premium payments increase as the insured ages. b-Coverage ends when the policy is paid up. c-Premium payments are lower than continuous premium Whole Life. d-Coverage continues after the policy is paid up.

d-Coverage continues after the policy is paid up.

All of the following are correct statements regarding a Variable Universal Life policy, except: a-It offers no guarantee for the cash value accumulation. b-It uses a separate account for accruing interest on cash value. c-To sell this type of insurance, a security license is required. d-It offers a guarantee for the cash value accumulation.

d-It offers a guarantee for the cash value accumulation. Variable Universal Life is a security life product. To sell this type of insurance, a security license is required. It uses a separate account for accruing interest on cash value and offers no guarantee for the cash value accumulation. It offers no guarantee for the cash value accumulation because the cash is invested in the stock market, which has no guarantee.

A universal life contract expires when: a-A regularly scheduled premium payment is missed. b-The cash value equals the death benefit. c-The outstanding loans equal the death benefit. d-The cash value account becomes too small to pay the cost of insurance.

d-The cash value account becomes too small to pay the cost of insurance. The other answers are incorrect because the insured can miss a payment (flexible premiums) with a UL. When the cash value equals the death benefit the policy will endow, not lapse. The loan will never equal the death benefit because the cash value is what you can borrow against, not the death benefit.

All of the following statements regarding a Variable Life product are correct, EXCEPT a-The benefits payable equal the guaranteed face amount plus the value of the separate account. b-The insured assumes the investment risk. c-There is no guarantee on the build-up of cash value. d-The death benefit is not guaranteed to the insured.

d-The death benefit is not guaranteed to the insured. The Variable Life contract DOES give the insured a minimum guaranteed death benefit, even though the cash value is not guaranteed. The other answers are all correct statements.