Unit 24

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

A

Which of the following is not a type of life insurance policy? A) Variable annuity policy B) Endowment policy C) Term to 65 policy D) Universal life policy

A

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) 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. C) Within the first 18 months, the insured may exchange the VLI policy for either a permanent form of life insurance or universal variable policy, issued by the same company, with no additional evidence of insurability. D) The insured may request that the insurance company exchange the VLI policy for a

B

All of the following statements are features of a straight life, fixed, single-premium immediate annuity except A) the annuitant may die before a return of the principal is realized. B) payments stop when the annuitant dies. C) payments do not increase with inflation. D) the income level may drop if the underlying investments go down in value.

D

Which of the following would be a difference between a universal life insurance policy and a scheduled premium variable life insurance policy? A) The universal life policy will generally outperform the variable life policy during a period of falling interest rates and rising stock prices. B) There is a minimum guaranteed return on the variable life, while there is no guaranteed return on the universal. C) There is a greater choice of separate account subaccounts in the universal life policy. D) Premiums on a scheduled premium variable life policy are fixed, while those on a universal life policy are flexible.

D

The death benefit of a variable life policy must be calculated at least

annually

John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments?

partially taxable, partially tax-free

Which of the following types of life insurance has premiums that increase each time the policy is renewed, and no cash value buildup?

term

Which of the following would most likely put a limit on the amount of interest to be credited to an index annuity?

the cap rate

A 35-year-old client purchased a variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is

9% of premium per year, computed over a 20-year period

The value of a variable annuity during the accumulation period is determined by

number of accum units x value of each unit

An investor purchases a single premium deferred index annuity with an initial premium of $200,000. Soon after the purchase, the investor receives a statement from the insurance company showing an initial balance of $210,000. The most likely reason for the $10,000 increase is

this is a bonus annuity

A 57-year-old client has $100,000 in a non-qualified 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?

variable annuity

Which of the following statements concerning universal life insurance are correct? Universal life has flexible premiums. Universal life is based on the assumption that level annual premiums are to be paid throughout the insured's life. The death benefit can fluctuate, but never below the guaranteed minimum face amount. Cash values can fluctuate and may even fall to zero.

1 and 4

A 54-year-old individual invests $25,000 into a nonqualified single premium deferred variable annuity. Five years later, with an account value of $35,000, the investor engages in a Section 1035 exchange into a variable annuity issued by a different insurance company. Four years later, with an account value of $50,000, the investor withdraws $20,000. The tax consequence of the withdrawal is

20k of ordinary income

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?

3420

Your 55-year-old client owns a nonqualified variable annuity. He originally invested $50,000 4 years ago. The annuity has grown to a value of $60,000. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS?

4k

An individual purchasing a flexible premium variable life contract should know which of the following? Timing and amount of premiums generally are discretionary. The death benefit will generally be higher than that of a comparable whole life policy. The face amount is fixed at the beginning of the contract. The performance of the separate account directly affects the policy's cash value.

1 and 4

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

125,350 100k * 1.15 = 115,000 loses money, no loss in index annuity 115,000 * 1.09 = 125,350