chapter 2
For how long is an insurance company allowed to defer policy loan requests?
6 months
What are the two components of a universal policy?
Insurance and cash account
According to the Entire Contract provision, a policy must contain
a copy of the original application for insurance
Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?
a minor son of the insured
The death protection component of Universal Life Insurance is always
annually renewable term
A Universal Life Insurance policy is best described as a/an
annually renewable term policy with a cash value account.
Which of the following is a feature of a variable annuity?
benefit payment amounts are not guaranteed.
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
cash option
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?
cash surrender
Which of the following features of the Indexed Whole Life policy is NOT fixed?
cash value growth
What happens when a policy is surrendered for its cash value?
coverage ends and the policy cannot be reinstated.
Which of the following is NOT typically excluded from life policies?
death due to plane crash for a fare-paying passenger
The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the
entire contract
Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?
family term rider
Which is TRUE about the cash surrender nonforfeiture option?
funds exceeding the premium paid are taxable as ordinary income.
The death benefit under the Universal Life Option B
gradually increases each year by the amount that the cash value increases
An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?
guaranteed insurability option
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?
immediate annuity
The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?
interest only option
What is the purpose of a free-look period in insurance policies?
it allows the insured to reject the policy with a full refund.
Which of the following is another term for the accumulation period of an annuity?
pay-in period
Which nonforfeiture option provides coverage for the longest period of time?
reduced paid-up
An insured committed suicide one year after his life insurance policy was issued. The insurer will
refund the premiums paid.
Which two terms are associated directly with the way an annuity is funded?
single payment or periodic payments
Which of the following riders is often used in business life insurance policies when the policyowner needs to change the insured under the policy?
substitute insured rider
Which of the following statements about a suicide clause in a life insurance policy is TRUE?
suicide is excluded for a specific period of years and covered thereafter
Which of the following would help prevent a universal life policy from lapsing?
target premium
Children's riders attached to whole life policies are usually issued as what type of insurance?
term
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?
universal life
A Return of Premium term life policy is written as what type of term coverage?
increasing
Which of the following policy components contains the company's promise to pay?
insuring clause
Which of the following is true about the mandatory free look in a Life Insurance policy?
it commences only when the policy is delivered.
What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy?
it determines who receives policy benefits if the primary beneficiary is deceased.
Which of the following is TRUE regarding the accumulation period of an annuity?
it is a period during which the payments into the annuity period grow tax deferred.
Which of the following statements is TRUE about a policy assignment?
it transfers rights of ownership from the owner to another person
The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called
joint and survivor
Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?
life income with period certain
Which of the following riders added to a life insurance policy can pay part of the death benefit to the insured to cover expenses incurred in a nursing or convalescent home?
long-term care
Which Universal Life option has a gradually increasing cash value and a level death benefit?
option A
Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?
term rider
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?
the beneficiary will only receive payments of the interest earned on the death benefit.
Who bears all of the investment risk in a fixed annuity?
the insurance company
A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?
the insureds premiums will be waived until she is 21.
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT
the interest is not taxable since it remains inside the insurance policy.
All of the following are true regarding a decreasing term policy EXCEPT
the payable premium amount steadily declines throughout the duration of the contract.
Which of the following best describes what the annuity period is?
the period of time during which accumulated money is converted into income payments.
The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as
the policy contains sufficient cash value to cover the cost of insurance.
If an insured continually uses the automatic premium loan option to pay the policy premium,
the policy will terminate when the cash value is reduced to nothing.
Which of the following is TRUE about nonforfeiture values?
they are required by state law to be included in the policy.
Which of the following is TRUE for both equity indexed annuities and fixed annuities?
they have a guaranteed minimum interest rate.
What kind of policy allows withdrawals or partial surrenders?
universal life
Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount?
universal life
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium?
universal life
All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT
upon conversion, the death benefit of the permanent policy will be reduced by up to 50%
Which of the following products requires a securities license?
variable annuity
Annually renewable term policies provide a level death benefit for a premium that
increase annually
Nonforfeiture values guarantee which of the following for the policyowner?
that the cash value will not be lost
Which of the following is TRUE regarding variable annuities?
the annuitant assumes the risks on investment
All of the following statements about equity index annuities are correct EXCEPT
the annuitant receives a fixed amount of return.
Under an extended term nonforfeiture option, the policy cash value is converted to
the asme face amount as in the whole life policy