65 - Unit 15
According to federal law, an insurance company under the provisions of the Investment Company Act of 1940 must allow a variable life policyholder the option to convert the policy into a whole life contract for a period of
24 months
Which of the following insurance company products is likely to have the longest time for which a surrender charge will be levied?
Bonus annuity
Which of the following is considered an advantage of annuitization?
It guarantees income that will last for the client's lifetime.
In a scheduled premium variable life contract, which of the following has a guaranteed minimum?
The death benefit
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?
The variable annuity
The value of a variable annuity during the accumulation period is determined by
the number of accumulation units owned multiplied by the value of each unit
Variable annuities differ from fixed annuities because
the payments vary and are designed to offer the annuitant protection against inflation.
Flexible premium payments are a feature of
universal variable life
A customer purchased a variable annuity from an agent 5 years ago with an initial investment of $200,000. The annuity's surrender fee will expire in year 7, which coincides with the customer's anticipated need for the funds. In the 5th year of the contract, the value of the annuity increased from $300,000 to $375,000. The agent notices that the general market is on the decline and recommends she enter a 1035 exchange of the variable contract for another, thus increasing her death benefit and locking it in at a higher minimum. This recommendation is
unsuitable because of surrender fees
Unit holders of a variable annuity
vote on the basis of the number of units they own; holders of variable life insurance receive 1 vote for each $100 of cash value. With variable life insurance, AIR applies only to the death benefit, not to cash value.
The return that will be earned over the life of a fixed annuity
will always be at least equal to the guaranteed minimum specified in the contract
Which of the following is indicative of the primary difference between variable life insurance and straight whole life insurance?
Way in which the cash values are invested
A 35 year-old client indicates that he needs $500,000 of life insurance coverage for the next 20 years. The lowest out-of-pocket cost would be if he purchased
a 20-year level term policy
EIAs almost always come with
a cap rate,a ceiling beyond which earnings cannot be credited to the investor's account.
Annuities offer
a guarantee of income that will last for a client's lifetime.
An investor in a variable annuity will be purchasing
accumulation units
Nonqualified annuities, fixed or variable, are those where contributions are made with
after-tax dollars.
The death benefit must be calculated
annually
The value of a variable annuity during the pay-in period is
based on the value of the accumulation units multiplied by the number of units the investor owns.
An owner of an equity index annuity would be wise to use the high-water crediting method if the underlying index was expected to
be volatile.
When discussing the purchase of a scheduled premium variable life insurance policy with a client, it would be CORRECT to state that
by surrendering the policy, its cash value may be obtained
A variable annuity has
different investment options known as subaccounts
Variable annuities pay variable payments once annuitized
do not guarantee a rate of return, and are not considered liquid investments; they do offer multiple investment options through the subaccounts.
Unit values are computed
each day
The single most distinguishing characteristic of universal life is the fact that premiums are
flexible and not fixed.
Only universal and universal variable life policies have
flexible premium payments.
Variable life insurance allows the policyowner to decide
how the cash value is invested through a number of subaccounts.
The face value in an insurance policy
is the death benefit.
Policy cash values are a
monthly computation
A 68-year-old individual, who purchased a single premium immediate fixed annuity, elected monthly payments for life with a 10-year certain settlement option. If the individual lives to the age of 80,
monthly payments will continue until death.
The M&E charge is for
mortality and expenses
Life insurance policies are
nontransferrable
The difference between a fixed annuity and a variable annuity is that the variable annuity
offers a payment that may vary in amount attempts to offer protection to the annuitant from inflation
A customer has a nonqualified variable annuity. Once the contract is annuitized, monthly payments to the customer are
partially a tax-free return of capital and partially taxable
One way in which universal life and variable life are similar is that both
permit loans against the cash value
All variable products offer
tax deferral of earnings in the separate account
In almost all circumstances, certainly for short-to-immediate time periods
term life will be the least expensive form of insurance
One of the characteristics of bonus annuities is
that their surrender charges tend to be higher for a longer time than other insurance company products.
Once an annuity contract, fixed or variable, is annuitized,
the M&E charge no longer applies to the account
When choosing the settlement option, life with 10 years certain,
the annuitant will receive payments until the later of death or 10 years.
In a variable life policy
the face value will fluctuate with the separate account's performance, but it will never decrease below the original minimum face value.
An advantage of the high-water crediting method is that
the interest is calculated using the highest value of the index during the term. Therefore, in a volatile market, where prices are going up and down, it picks up the highest price.
A client of an 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
the opportunity to invest in equity securities on a tax-deferred basis
Marianne has a fixed-premium variable life policy in which the separate account has been performing extremely well, and the face value has been increasing as a result of the investment performance. However, recently the separate account performance has been negative. If this continues, the face value could decrease
to the original face value