XCEL Chapter 4 Part 1: Type of Insurance Policies (Exam I)
In a modified endowment contract, the penalty tax imposed on premature withdrawals is A) 10% B) 20% C) 30% D) 40%
A) 10%
A Modified Endowment Contract (MEC) is best described as A) A life insurance contract which accumulates cash values higher than the IRS will allow B) An annuity contract which was converted from a life insurance contract C) A modified life contract which enjoys all the tax advantages of whole life insurance D) A life insurance contract where all withdrawals prior to age 65 are subject to a 10% penalty
A) A life insurance contract which accumulates cash values higher than the IRS will allow
Jonas is a whole life insurance policyowner and would like to add coverage for his two children. Which of the following products would allow him to accomplish this? A) Child term rider B) Payor rider C) Family maintenance rider D) Family income rider
A) Child term rider
A business will typically use which type of life insurance to cover their employees? A) Group policy B) Adjustable life policy C) Whole life policy D) Endowment policy
A) Group policy
Tom is shopping for a policy that covers two people and would pay the face amount ONLY when the first person dies. The type of life policy he is looking for is called a A) Joint life policy B) Family income policy C) Survivorship life policy D) Modified endowment contract
A) Joint life policy
Which type of life insurance is normally associated with a Payor Benefit rider? A) Juvenile insurance B) Family income insurance C) Spouse insurance D) Term rider
A) Juvenile insurance
What is a corridor in relation to a Universal Life insurance policy? A) The gap between the total death benefit and the policy's cash value B) The gap between when a claim is filed and when the death benefit is received C) The amount of interest that has accumulated in the policy's cash value D) The point in time when the policy's cash value reaches $0
A) The gap between the total death benefit and the policy's cash value
What types of life insurance are normally used for key employee indemnification? A) term, whole, and universal life insurance B) increasing term insurance C) joint, credit, and group life insurance D) adjustable, permanent, and limited-pay life insurance
A) term, whole, and universal life insurance
Shawn, Mike, and Dave are brothers who have a $100,000 "first to die" joint life policy covering all three of their lives. If Mike dies first, the policy proceeds A) will no longer provide insurance protection B) will go to Mike's estate C) will be divided by probate D) will not be paid until the last brother dies
A) will no longer provide insurance protection
A permanent life insurance policy where the policyowner pays premiums for a specified number of years is called a(n) A) adjustable policy B) limited pay policy C) level term policy D) variable universal policy
B) limited pay policy
Scott has just purchased a new house. He is now shopping for a life insurance policy that provides a death benefit that matches the projected outstanding debt of his mortgage. Which life policy would best suit his needs? A) Variable B) Universal C) Adjustable D) Mortgage redemption
D) Mortgage redemption
A policyowner may change two policy features on what type of life insurance? A) Modified Whole Life B) Decreasing Term Life C) Adjustable Life D) Whole Life
C) Adjustable Life
Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive? A) Policy loans are disallowed B) The premium payments will be tax deductible C) Pre-death distributions are typically taxable D) Withdrawals will be prohibited
C) Pre-death distributions are typically taxable
Pre-death distributions from a modified endowment contract (MEC) receive different tax treatment than other life insurance policies because A) the MEC has tax deductible premiums B) the MEC is considered an illegal product C) the MEC tends to be an investment vehicle D) the MEC does not accumulate cash value
C) the MEC tends to be an investment vehicle
Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider? A) Can be converted to permanent coverage without evidence of insurability B) Coverage can be different for each child C) Premiums on this rider are not required until the limited age is reached D) Increases the policy's overall cash value
A) Can be converted to permanent coverage without evidence of insurability
Which of the following is a life insurance policy that does NOT require a physical exam? A) Non-medical B) Graded C) Substandard D) Noncancelable
A) Non-medical
Shirley has a $500,000 10-year non-renewable level term life policy. If she dies 15 years after the policy's inception date, how much will her beneficiary receive? A) Nothing B) $100,000 C) $250,000 D) $500,000
A) Nothing
An interest-sensitive life insurance policyowner may be able to withdraw the policy's cash value interest free. The provision that allows this is called A) Partial Surrender B) Subrogation C) Automatic Premium Loan D) Accelerated Death Benefit
A) Partial Surrender
Which of the following policies does NOT build cash value? A) Term B) Straight Life C) Endowment D) Variable Life
A) Term
A single premium cash value policy can be described as A) a policy that is paid up after only one payment B) a policy that only requires an annual payment C) a policy that is guaranteed issue D) a policy that covers two or more lives
A) a policy that is paid up after only one payment
A Renewable Term Life insurance policy can be renewed A) at a predetermined date or age; regardless of the insured's health B) only if the insured provides evidence of insurability C) anytime at the policyowner's request D) typically with no change in premium
A) at a predetermined date or age; regardless of the insured's health
Level premium permanent insurance accumulates a reserve that will eventually A) equal the face amount of the policy B) pay a dividend to the policyowner C) require the policyowner to make periodic withdrawals D) become larger than the face amount
A) equal the face amount of the policy
Index whole life insurance contains a securities component that acts as a(n) A) hedge against inflation B) premium stabilizer C) means to lowering taxes on earnings D) incentive to purchase more coverage
A) hedge against inflation
What is the automatic continuance of insurance coverage referred to as? A) renewal B) reinstatement C) resumption D) renovaton
A) renewal
In a renewable term life insurance policy, the contract will usually A) require a higher premium payable at each renewal B) require a lower premium payable at each renewal C) keep the same premium level at each renewal D) stipulate a higher cash value at each renewal
A) require a higher premium payable at each renewal
A life insurance policy's limit of liability would be A) determined by the Department of Insurance B) the policy's face amount C) the total premiums paid D) determined by insurance company's reinsurer
B) the policy's face amount
A life insurance policy where the insured can choose where the cash value can be invested is called A) whole life B) variable life C) modified life D) universal life
B) variable life
All of these are valid options for an Adjustable Life Policy EXCEPT A) The policy's premium can be increased or decreased B) The policy's death benefit can be increased or decreased C) A nonforfeiture option can be sed to increase the death benefit D) The policy's protection period can be modified
C) A nonforfeiture option can be sed to increase the death benefit
Which of the following is NOT a true description of non-medical life insurance? A) Quicker processing of life insurance application B) Less cost involved with underwriting the application C) Applicants are not required to answer medical questions on the application D) Demand on the medical profession reduced
C) Applicants are not required to answer medical questions on the application
Which of the following is NOT true regarding a family policy that covers children? A) Additional children can be added at no cost B) Adopted children can be covered C) Conversion of child's coverage to permanent insurance requires evidence of insurability D) Term insurance is used for the children's rider
C) Conversion of child's coverage to permanent insurance requires evidence of insurability
Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive? A) Adjustable life policy B) Modified life policy C) Endowment life policy D) Universal life policy
C) Endowment life policy
A life insurance policy written on one contract for two people in which it is payable upon the first death is called A) Split B) Shared C) Joint D) Survivorship
C) Joint
What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death? A) Dual Life insurance B) Joint Life insurance C) Last Survivor Life insurance D) Shared Life insurance
C) Last Survivor Life insurance
Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test? A) Policy loans are disallowed B) The premium payments will be tax deductible C) Pre-death distributions are typically taxable D) Withdraws will be prohibited
C) Pre-death distributions are typically taxable
Under a Modified Endowment Contract, what are the likely tax consequences? A) Interest on policy loans is tax deductible B) Premium payments are tax deductible C) Pre-death distributions will become taxable D) Cash value cannot be surrendered early
C) Pre-death distributions will become taxable
Lynn owns a life policy that guarantees the right to renew the policy each year, regardless of health, but at an increased premium. What kind of policy is this? A) Universal life B) Renewable whole C) Renewable term D) Endowment
C) Renewable term
John and Mary have a handicapped child that is financially dependent upon them. The death of one of the parents would not be financially disastrous, however the death of both likely would be. Which policy would be best suited for them? A) Payor protection policy B) Family income policy C) Second-to-die policy D) First-to-die policy
C) Second-to-die policy
The statement which best describes the relationship between the premiums of a whole life policy and the premium payment period is A) The shorter the payment period, the lower the premium B) The longer the payment period, the higher the premium C) The shorter the payment period, the higher the premium D) The payment period has no affect on the premium payment
C) The shorter the payment period, the higher the premium
Which of the following types of life insurance combines a savings element along with a flexible premium option? A) Joint life B) Whole life C) Universal life D) Endowment
C) Universal life
A life insurance policy which contains cash values that vary according to its investment performance of stocks is called A) Increasing Term Life B) Modified Whole Life C) Variable Whole Life D) Adjustable Whole Life
C) Variable Whole Life
Which type of policy combines the flexibility of a universal life policy with investment choices? A) Adjustable universal life policy B) Flexible universal life policy C) Variable universal life policy D) Modified universal life policy
C) Variable universal life policy
Term insurance is appropriate for someone who A) seeks living benefits for themselves B) seeks a policy that builds cash value C) seeks temporary protection and lower premiums D) seeks permanent protection and higher premiums
C) seeks temporary protection and lower premiums
A securities license is required for a life insurance producer to sell A) modified life insurance B) Modified Endowment Contract (MEC) C) variable life insurance D) universal life insurance
C) variable life insurance
A renewable Term Life insurance policy allows the policyowner the right to renew the policy A) at anytime the policy chooses B) as many times as the policyowner chooses C) paying the same premium as before the renewal D) without producing proof of insurability
D) without producing proof of insurability
The type of multiple protection coverage that pays on the death of the last person is called a(n) A) joint life policy B) survivorship life policy C) annuity joint policy D) dual life policy
B) survivorship life policy
A life insurance policy that is subject to a contract interest rate is referred to as A) adjustable life B) group life C) term life D) universal life
D) universal life
Mark, age 45, has a Modified Endowment Contract (MEC). What is the tax penalty for taking a loan against this policy prior to age 59 1/2? A) 5% B) 10% C) 15% D) 25%
B) 10%
Which policy feature makes a universal life policy different from a whole life policy? A) A fixed cash value B) A flexible premium schedule C) A fixed death benefit D) The ability to take out a policy loan
B) A flexible premium schedule
Julie has a $100,000 30-year mortgage on her new home. What type of life insurance could she purchase that is designed to pay off the loan balance if she dies within the 30-year period? A) Adjustable life insurance B) Decreasing term insurance C) Increasing term insurance D) Modified life insurance
B) Decreasing term insurance
Which of these riders will pay a death benefit if the insured's spouse dies? A) Guaranteed insurability rider B) Family term insurance rider C) Family whole insurance rider D) Payor benefit rider
B) Family term insurance rider
All of these are characteristics of a universal life insurance policy EXCEPT A) Flexible death benefit B) Fixed surrender value C) Flexible premiums D) Builds cash value
B) Fixed surrender value
What is the proper order of initial life insurance premiums, from lowest to highest? A) Ordinary life, single premium, modified premium B) Modified premium, ordinary life, single premium C) Single premium, modified premium, ordinary life D) Ordinary life, modified premium, single premium
B) Modified premium, ordinary life, single premium
How are survivorship life insurance policies helpful in estate planning? A) Provide funds to help fund retirement B) Provide funds to help pay taxes C) Provide funds for funeral expenses D) Provide tax deductions for premium payments
B) Provide funds to help pay taxes
Which type of multiple protection policy pays on the death of the last person? A) Joint life policy B) Survivorship life policy C) Dual life policy D) Multiple life policy
B) Survivorship life policy
What does the word "level" in Level Term describe? A) The period of coverage B) The face amount C) The premium payments D) The cash value
B) The face amount
A partial surrender is allowed in which of the following life policies? A) Adjustable whole life B) Universal life C) Decreasing term life D) Limited whole life
B) Universal life
Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested? A) Adjustable life policy B) Variable universal policy C) Universal policy D) Modified whole life policy
B) Variable universal policy
All of these statements concerning whole life insurance are false EXCEPT A) Policyowner can take out a policy loan up to the face amount B) When a whole life policy is surrendered, income taxes may be owed C) Coverage is normally temporary D) The death benefit is not affected by outstanding loans
B) When a whole life policy is surrendered, income taxes may be owed
Which of these would be the best example of a limited pay life insurance policy? A) Whole life policy that pays out its cash value over a 20 year period B) Whole life policy with premiums paid up after 20 years C) Term life policy that returns cash value after 20 years D) Term life policy with premiums paid up after 20 years
B) Whole life policy with premiums paid up after 20 years
The least expensive option to pay off a 30-year mortgage balance would be A) convertible term life B) decreasing term life C) adjustable term life D) increasing term life
B) decreasing term life
A life insurance policy that pays the face amount if the insured survives to a specified period of time is called A) universal life B) endowment insurance C) modified life D) whole life
B) endowment insurance
When a decreasing term policy is purchased, it contains a decreasing death benefit and A) increasing premiums B) level premiums C) decreasing premiums D) variable premiums
B) level premiums
A limited payment whole life policy provides A) protection for 20 years B) lifetime protection C) protection for more than one person D) discounted premiums
B) lifetime protection
The premium for a Modified whole life policy is A) higher than the typical whole life policy during the first few years and then lower than typical for the remainder B) lower than the typical whole life policy during the first few years and then higher than typical for the remainder C) normally graded over a period of 20 years D) level for the first 5 years then decreases for the remainder of the policy
B) lower than the typical whole life policy during the first few years and then higher than typical for the remainder
Decreasing term life insurance is often used to A) provide retirement funds B) provide coverage for a home mortgage C) accumulate cash value D) provide coverage for estate taxes
B) provide coverage for a home mortgage
The type of policy which pays on the death of the last person is called A) joint life B) survivorship life C) dual life D) shared life
B) survivorship life
Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be A) $250,000 B) $750,000 C) $375,000 D) $500,000
D) $500,000
What happens to the coverage under a children's term rider when that child reaches a certain specified age? A) Coverage decreases automatically B) Coverage increases automatically C) Coverage remains as long as proof of insurability is provided D) Coverage is eliminated
D) Coverage is eliminated
Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)? A) Loan against the cash value B) Policy withdrawal C) policy dividend D) Death benefit
D) Death benefit
Which of the following types of life insurance is normally associated with a mortgage loan? A) Adjustable term B) Level term C) Increasing term D) Decreasing term
D) Decreasing term
Peter has a policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index. What kind of policy is this? A) Modified Endowment Contract B) Current assumptive whole life C) Credit life insurance D) Equity index whole life
D) Equity index whole life
A spouse and child can be added to the primary insured's coverage as what kind of rider? A) Dependent term B) Guaranteed insurability C) Primary term D) Family term
D) Family term
Which of the following statements do NOT apply to child coverage in a family policy? A) Child coverage is convertible to permanent insurance B) Child coverage comes in the form of term insurance C) Children are covered up to an age stated in the policy D) Only children born prior to policy's issue date may be included
D) Only children born prior to policy's issue date may be included
Variable life insurance and Universal life insurance are very similar. Which of these features are held exclusively by variable universal life insurance? A) Policy may increase or decrease the premium payments B) Policy may increase or decrease the face amount C) Policyowner can contribute large sums of money D) Policy has the right to select the investment which will provide the greatest return
D) Policy has the right to select the investment which will provide the greatest return
Which of the following are the premium payments for a Universal life policy NOT used for? A) Death benefits B) Cash value C) Loading costs D) Separate account investments
D) Separate account investments
Krissa purchases a 10-year level term life insurance policy that has a death benefit of $200,000. Which of these statements is true? A) The policy automatically converts to whole life after the 10-year period B) The face amount will remain constant and the premium will increase over the 10-year period C) The premium will remain constant and the face amount will increase over the 10-year period D) The face amount and premium will remain constant over the 10-year period
D) The face amount and premium will remain constant over the 10-year period
Joe has a life insurance policy that has a face amount of $300,000. After a number of years, the policy's cash value accumulates to $50,000 and the face amount becomes $350,000. What kind of policy is this? A) Increasing Term Life policy B) Nonparticipating policy C) Modified Whole Life policy D) Universal Life policy
D) Universal Life policy
Reggie purchased a life insurance policy with a face amount of $500,000. After 15 years, the cash value has accumulated to $100,000 and the policy's face amount has become $600,000. Which type of life insurance policy is this? A) Adjustable life B) Credit life C) Modified life D) Universal life
D) Universal life
An insurance policy written after 1988 that fails to pass the seven-pay test is known as A) an endowment policy B) a modified life policy C) a single premium contract D) a modified endowment contract
D) a modified endowment contract
A life insurance policy that has premiums fully paid up within a stated time period is called A) stated payment insurance B) limited universal insurance C) stated modified insurance D) limited payment insurance
D) limited payment insurance
A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called A) whole life B) group life C) credit life D) universal life
D) universal life
