Chapter 2: Types of Life Policies
Which of the following types of policies allow the policy owner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount
Universal Life
Annually renewable term policies provide a level death benefit for a premium that
Increases annually
A straight life policy has what type of premium?
A level annual premium for the life of the insured. Straight life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit.
Which of the following policies would have an IRS required Corredor or a gap between the cash value and the death
Universal Life - Option A. If the corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance
During partial withdrawal from a universal life policy, which portion will be taxed?
Interest. During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.
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. UL policies allow for policyholders to withdraw a limited portion of the policies cash value. Each withdrawal is usually charged, and the amount and frequency of withdrawals are usually limited
What characteristic makes whole life permanent protection?
Coverage until death or age 100
All of the following are true of an annuity owner except A) The owner must be the party to receive benefits B) The owner pays the premiums on the annuity C) The owner has the right to name the beneficiary D) The owner is the party who may surrender the annuity
A. The owner must be the party to receive benefits
An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it?
Limited-Pay Life In limited pay policies, the premiums for coverage will be completely paid up well before age 100, usually after a specified number of years
The insured is also the policy owner of a whole life policy. What age must the insured attain an order to see the policies face amount?
Age 100 Whole life insurance policies mature when the insured reaches the age of 100. The cash value at that time is scheduled to equal the face amount. Therefore, when the insurance company pays the amount, it also, in effect, pays the cash value.
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid
For 20 years or until death, whichever occurs first.
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?
Joint Life Joint life policy covering two lives would be the least expensive because the premiums are based on average age, and it would pay a death benefit only at the first death
What license or licenses are required to sell variable annuities?
Both Life insurance and securities licenses.
An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renew ability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?
It will increase because the insured will be 5 years older than when the policy was originally purchased
Which option for universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?
Option B; under option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases.
