A.D. Banker Ch. 3

If an insured uses a life insurance policy's accelerated benefits, what does the beneficiary receive at time of claim?

Face amount less accelerated benefits less insurer's interest charges

Permanent insurance is designed to provide coverage ___________.

For an entire lifetime

A _________ policy is one that is written on the life of a minor.

Juvenile

What is the maximum amount of credit life insurance that can be written on an insured?

No more than the outstanding debt

Variable Whole Life has all of the following features, except:

Partial surrender are allowed

In the event a parent becomes disabled or dies while paying premiums on a life insurance policy for a minor child, which provision would allow the policy to continue in force until the child reaches a predetermined age?

Payor Benefit (Waiver of Payor Premium)

Which of these best describes a disability income rider?

Pays a percentage of the death benefit as monthly income to the insured when totally disabled

A _______________ policy has a death benefit that can increase or decrease over time based on stock market performance, has a guaranteed minimum death benefit, a choice of sub-accounts in which cash value may be allocated, and a fixed premium.

Variable Life

With a Variable Life Policy, which of the following is guaranteed?

Death benefit

Which of the following are characteristics of universal life insurance policies?

Death benefit options, death benefit and premiums may be changed

As the cash value increases in a traditional whole life policy, the net amount at risk ____________, but the face amount of the policy would remain the same.

Decreases

Credit life insurance is a special form of what type of term life insurance?

Decreasing

A homeowner with a 20-year mortgage needs to cover the mortgage amount with term insurance. Which of the following would she choose?

Decreasing Term

If the cash value of a permanent life policy equals the face amount, what is that referred to?

The policy's endowment

If a client owns an equity-indexed product, what happens if the market falls in value by a large amount?

The policy's values can never be impaired due to negative index performance

All of the following are characteristics of Universal Life Insurance, except

The policyowner can choose which investment(s) to place the cash values into from those available

Fixed Premium

The premium amount is determined by the insurance company. Fixed premiums do not have to be level, but cannot be changed by the policyowner.

Adjustable Premium

The premium can be increased or decreased by the policyowner on an annual basis. Premiums must be paid and adjusting the premium will affect other features of the policy

Flexible Premium

The premium can fluctuate at the policyowner's discretion. It can be increased, decreased, or even skipped at any premium due date. Universal and Variable Universal have flexible premium

If Alvin purchases a Variable Universal Life Policy with a face amount of $250,000, and chooses death benefit Option B, upon his death the amount of the benefit payable to the beneficiary would be _________ if the policy had $25,000 in cash values.

$275,000

Variable Life Characteristics

- Sold by individuals with a life license and securities (FINRA) registration - No guaranteed minimum return on cash value - Cash value in separate account fluctuates based on market conditions - Policyowner bears all investment risk - Fixed premium - Death benefit varies along with performance in separate account

A convertible term life insurance policy may be converted _____ time(s) for a permanent life policy based on the original or attained age.

1

A Long-Term Care Rider provides up to what percentage of the policy's death benefits if the insured qualifies for long-term care benefits based on being chronically ill as defined in the rider?

100

Jacob owns a policy that pays a death benefit only if he dies within the 20-year policy period. If Jacob dies anytime that the policy is in force, his beneficiary will receive $100,000. The premium that Jacob pays for this policy will be the same throughout the 20-year policy period. Jacob owns:

A Level Term policy

Life Settlement Contract

A financial transaction in which the owner of a life insurance policy sells an unneeded policy to a third party for more than the cash surrender value and less than the face value. A written agreement is entered between a life settlement provider and the owner of the policy. The contract establishes that compensation is paid in return for the owner's assignment of an insurance policy.

Which type of rider pays out a capital sum in case an insured loses a limb or their eyesight?

Accidental Death and Dismemberment

Q has an ordinary straight whole life insurance policy for $100,000. Due to a change in circumstances, Q finds that there is now a need for more coverage, but the budget is not sufficient for another similar policy. What can Q do to satisfy the need for additional coverage at a low price?

Add a term rider

If the premium payable can be increased or decreased by the policyowner on an annual basis, affecting other features and benefits of the policy, what premium paying method was used?

Adjustable

Which of the following situations will require proof of insurability?

Adjusting the face amount up on a Universal Life insurance policy with Option A death benefit selected

All of the following are true about riders, except:

All riders are available free of charge and can be added at any time without proof of insurability

Viatical Settlement

An agreement between a policyowner and a third-party buyer to purchase the life policy covering a person who is diagnosed as terminally ill with less than 24 months remaining life expectancy. California Insurance Laws for viatical settlements are referenced under the life settlement laws.

Credit life insurance typically covers all of the following types of debts, except:

Business loans

A married couple wants to have funds available so that the heirs to their estate have the funds necessary to pay the estate taxes. Which of the following would be the most economical and effective way to accomplish this?

Buy a Joint Survivorship Life policy

What is the fastest way to pay up a traditional whole life policy?

Buy a single premium policy

A producer is explaining the concept of limited-pay life insurance to her client. Which of these statements is incorrect?

By paying over a shorter period of time, each of the payments will be lower

What happens to the cash values in a whole life policy if an insured is on claim with a waiver of premium rider?

Cash value and dividends continue as if normal premium payments have been made

Waiver of Premium

If the insured becomes totally disabled, the insurer will waive premiums for the duration of the disability or the end of the policy, whichever occurs first. To qualify for the waiver, the insured must be disabled for a waiting period of 3-6 months. The policyowner must continue to pay premiums during the waiting period, but once eligible, the waiver is retroactive to the start of the disability and the premiums will be refunded. During the disability, the insurer will credit the premiums to the policy and all benefits, such as cash value accumulation and dividend payments, will continue. Unless the insured is disabled, the Waiver of Premium rider drops at age 65

Disability Income Benefit

In the event of total disability and after an initial waiting period (such as 6 months), premiums are waived and the insured is paid a monthly income. The monthly disability income benefit is typically limited to a percentage of the face value (for example, $10 per month for each $1,000 of face amount). The benefit paid from the rider does not reduce the death benefits paid out upon death.

Which of the following types of term life insurance can be written as a rider to provide cost of living or return of premium benefits?

Increasing term

All of the following regarding term life insurance renewability is correct, except:

It is similar to the re-entry provision found in some term policies

A Life Settlement Broker, for a fee or commission, offers to negotiate life settlement contracts between the owner of a life insurance policy and:

Life settlement providers

If the premium payable for the first few years of the policy (e.g. 3-5) are lower than an ordinary whole life policy in order to make it more affordable, what premium paying method was used?

Modified

All of the following are riders that can provide for additional temporary coverage on a new or existing policy, except:

Neighbor

Which of the following term life insurance policies would be the most expensive, everything else being equal at the time of issuance?

Renewable and Convertible

Which of the following term policies costs the most, all other factors being equal?

Renewable and convertible

An insured dies within the time limit of an Increasing Term Rider and the beneficiary receives the face amount plus the value of all paid premiums. Which rider is attached to the policy?

Return of Premium

The owner of a Variable Life Policy may allocate the premium into a sub-account which is owned by the insurer, this sub-account is a part of what is also known as the:

Separate Account

Which Whole Life policy is designed to provide a substantial immediate cash value?

Single Premium Whole Life Policy

Bert is the owner and insured of a permanent life insurance policy he purchased 20 years ago. He has never missed a premium payment. He would like to buy a new car but his bank account is running low. How can he obtain the necessary funds while still maintaining coverage?

Take a policy loan from the insurer

How is a Variable Universal Life Insurance policy different from a Universal Life Insurance policy?

The ability to invest the cash values in various separate accounts

Single Premium

The entire cost of the policy is paid in a lump sum at the time of purchase.

What "jumps" in a jumping juvenile policy?

The face amount jumps one time, usually to five times the amount of insurance, at age 21 or 25

A is the insured under a $100,000 10 year term life insurance policy with her spouse named as her beneficiary. If she dies in year 9, what will her spouse receive?

The face amount of the policy

Initial and Guaranteed Maximum Premium

The initial premium will be guaranteed but only for the first year, then the premium may increases due to the mortality costs. A guaranteed maximum premium table must be included in the policy showing projections of future maximum premiums.

A viatical settlement is made between a purchaser of a person's life insurance policy and ____________________.

The terminally ill insured who must receive at least as much as would be available from the insurance company under any full cash surrender or living needs rider

A life insurance premium is paid each month. The insurer then subtracts a mortality and expense charge from the policy's cash value. This best describes which of the following life insurance policies?

Universal Life

Annually renewable term life insurance's premiums increase every:

Year

Mortality charges

deducted monthly from the policy's cash value The mortality charge is the cost of pure insurance and although it is deducted month. The increase in the mortality charge is limited to a policy maximum. The insurance protection is considered annual renewable term.

Expense charges

to cover administrative costs are also deducted monthly from the cash value. This is the insurance company's cost of maintaining the policy and can be impacted by the overall increasing administrative costs associated with a plan. Like mortality charges, there is a maximum

Universal Life Characteristics

- Guaranteed minimum rate of return on cash value - Flexible premium - 2 death benefit options to choose from - Partial withdrawal or surrender available - Mortality charge for cost of pure insurance is deducted monthly - Adjustable face amount

Permanent Insurance Characteristics

- Premium builds a reserve known as cash value - Policy matures or endows when cash value equals the face amount - Policy loans available Issued with a level face amount - Designed to provide coverage for a lifetime - Premiums may be payable for life, a limited period, or as a lump sum

Term Insurance Characteristics

- Pure Insurance - Written for a specified time period or to a specified age - Death benefits may be level, decreasing, or increasing - Coverage may be convertible - Coverage may be renewable - Temporary protection

A Last-to-Die policy would be the most appropriate recommendation for which of the following?

A husband and wife concerned about paying estate taxes after they have died

Life Settlement Broker

A life settlement broker, for a fee or commission, offers to negotiate life settlement contracts between an owner and providers. A life settlement broker represents only the owner and owes a fiduciary duty to the owner to act in the best interest according to the owner's instructions, regardless of the manner in which the broker is compensated.

Waiver of Cost of Insurance

A rider that waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled, usually after 6 months of continuous disability. The disability must occur prior to 65, and if disabled, the rider typically terminates at age 65. While the rider is in effect, only the monthly deductions are covered and no additional amount is added to cash value other than monthly interest credits. When the rider terminates, premiums must once again be paid.

Payor Benefit (Waiver of Payor's Premium)

If the payor (policyowner) dies or becomes disabled and is unable to make the premium payments, the insurer will waive the premiums payments for a specified period of time. Because this rider is commonly added to a juvenile policy, the payor (usually a parent) typically must show evidence of insurability before the rider can be added to the policy.

Family Rider

Provides a combination of coverage on the spouse and children. Usually family riders are sold in units (packages) of protection, such as $5,000 on the main wage earner, $1,500 on the spouse and $1,000 on each child.

Adjustable Face Amount

The insured can increase or decrease the face amount of the policy. Any increase in the face amount will require evidence of insurability

All of the following statements are true of a juvenile policy, except:

The insured is the premium payor

Universal Life and Variable Universal Life share all of the following characteristics, except:

The investment risk

Limited Payment

The premium is payable for a specified time, such as 20-pay, 30-pay or to age 65.

Modified Premium

The premium is payable for the first few years of the policy (3-5) are lower than an ordinary whole life policy to make it more affordable.

Level (Guaranteed) Premium

The premium remains level for the duration of the contract.

Flexible Premium

A target premium is established by the insurer, which is the minimum amount that must be deducted from the cash value to maintain the policy to age 100, based on current interest rates, mortality and expense charges. Because mortality and expense charges are deducted from the cash value monthly, the policyowner has more flexibility with universal life premium payments. The premiums can be increased, decreased, or even skipped at the policyowner's discretion as long as there is sufficient cash value to cover these deductions. If the cash value becomes insufficient to pay the monthly deductions, however, the owner will be required to start paying premiums to keep the policy from lapsing

What does a long-term care rider do that a Living Needs (Terminal Illness) rider does not?

Provides an advance payment of the death benefit for the covered expenses of long term care a chronically ill person may incur

Additional Insured Rider

Provides coverage for another person, other than a spouse or child, such as a business partner. Insurable interest must exist at the time the rider is added.

Child Rider

Provides level term coverage on the life of all of the insured's children. This rider is usually offered at one premium rate and will cover newborns after 14 days of life and adopted children who can be added to the coverage without increasing the premium. The children have coverage to a specified age (21 to 25) and are usually given the option to convert to a permanent policy without evidence of insurability.

Spouse (Other Insured) Rider

Provides level term coverage on the life of the insured's spouse. This rider will also provide a conversion provision allowing the spouse to convert to permanent coverage without evidence of insurability prior to the termination of the rider or upon the death of the insured covered under the main policy.