Chapter 3

Which of the following pays a current interest rate and also guarantees a minimum interest rate that will be credited to the cash values of the life insurance policy? A Universal Life B Variable Whole Life C Ordinary Whole Life D Variable Universal Life

A Universal Life Universal Life insurance has a current interest rate which is generally higher than the guaranteed minimum interest rate. It depends on the interest rates the insurer can earn on the assets in its general account.

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. A Varies B Decreases C Increases D Remains the same

B Decreases As the cash value increases, the net amount at risk decreases, but the face amount of the policy would remain the same.

The value within a permanent life insurance policy that the policyowner can access through a policy loan or policy surrender is known as the ___________. A Cash Value B Rider Value C Endowment Value D Annuity Value

A Cash Value The policyowner has the right to access the cash value through policy loans or policy surrender.

An insured owns a whole life policy that ends at age 100 and lives to be 100 years of age. Why does the insurer pay the face value to the insured? A Because the policy endows B Because risk exceeds reward to the insurer C Because the mortality costs exceed the premium D Because the cash values exceed the death benefit

A Because the policy endows Older Whole Life policies are structured to endow (i.e. mature) at age 100. At endowment, the cash value equals the death benefit. Policies written under the 2001 CSO Mortality tables endow at age 121.

When buying a $25,000 life insurance policy on his daughter, a father wanted to make sure the premium would be paid, even if he became disabled, so he also purchased a: A Payor Rider B Waiver of Cost of Insurance C Waiver of Premium D Long-term Care Rider

A Payor Rider The payor rider is a special rider that pay the premiums on a minor's policy if the adult who owns the policy dies or becomes disabled while the insured is still a minor. Do not confuse it with the Waiver of Premium, which pays if the insured becomes disabled.

Which of the following term policies costs the most, all other factors being equal? A Renewable and convertible B Nonrenewable and non-convertible C Renewable and non-convertible D Nonrenewable and convertible

A Renewable and convertible

Which of the following term life insurance policies would have the lowest 1st-year annual premium, all other factors being equal? A 5-year B 1-year C 15-year D 10-year

B 1-year The 1-year term life insurance policy would have the lowest first-year premium of the choices provided. In essence, one year of coverage is less risky to the insurer than being locked in to more years.

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? A Have one spouse buy a whole life policy and the other one a Universal Life policy B Buy a Joint Survivorship Life policy C Buy a Joint Life policy D Buy a Whole Life policy on each spouse

B Buy a Joint Survivorship Life policy Joint Survivorship Life pays upon the death of the last to die, and for this reason it is a popular policy with couples who want to defer estate taxes until both are deceased. It is also more economical to buy this one policy than to buy two separate policies.

A STOLI/IOLI transaction is best defined as which of the following? A Electing a settlement option for the beneficiaries at time of application B Inducing insureds who do not need and cannot afford life insurance to buy a policy and sell it for cash C Beneficiaries choosing one of the settlement options the policy provides D Beneficiaries selling the annuitized benefit they are receiving for immediate cash

B Inducing insureds who do not need and cannot afford life insurance to buy a policy and sell it for cash Investors, producers, or brokers with absolutely no personal or business connection with a person, who induce a purchase of a life insurance policy with the sole intent of selling that policy to institutional investors for an amount less than the death benefit, but greater than the policy's cash value is a STOLI/IOLI transaction.

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? A Surrender part of the policy and for the balance take a policy loan B Take a policy loan from the insurer C Surrender the policy back to the insurer D Reduce the policy's face amount which will reduce his premium payment

B Take a policy loan from the insurer A permanent life insurance policy cannot be partially surrendered or have its face amount reduced. To keep the coverage in force the only option feasible is to take a policy loan.

Angie 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? A Nothing since this is term insurance B The face amount of the policy C The policy's cash values D A refund of all premiums paid

B The face amount of the policy Since the policy was in force when Angie died, Richard will receive a claim payment equal to the face amount of the policy.

Of the following, which best describes a Straight Whole Life Policy? A Increasing cash value and decreasing premiums B Decreasing face amount and level premiums C Level guaranteed premium and face value for the life of the insured D Increasing premium and level death benefit for the life of the insured

C Level guaranteed premium and face value for the life of the insured A traditional Straight Whole Life Policy has as its primary characteristic, fixed (i.e. guaranteed) premiums and death benefit over the life of the policy. It has substantial guarantees, but virtually no flexibility.

A ___________ settlement is when a terminally ill insured sells his or her life insurance policy to a third party other than an insurance company, for an amount less than the policy's death benefit, but greater than its cash values. A Senior B Stranger originated C Viatical D Investor originated

C Viatical Viatical settlements are a way for a terminally ill insured to sell his or her policy for much needed cash when no other sources are readily available.

If a policyowner has a whole life insurance policy with a disability waiver of premium rider, when does the rider benefit start if a qualifying disability should occur? A One year after the claim forms are received by the insurer B After the doctor certifies the disability C Immediately D Typically 6 months after the disability occurs

D Typically 6 months after the disability occurs The disability waiver of premium typically has a 6 month waiting period prior to the insurer actually waiving the premiums when a qualifying disability occurs. During the 6 month time period premiums are expected to be paid in order to keep the policy in force.

When the death of an insured occurs within a specified period, causing the policy to pay double or triple benefits, this policy must have which of the following riders? A Accidental Death Rider B Accelerated Benefit Rider C Enhanced Settlement Rider D Increased Death Benefit Rider

A Accidental Death Rider Also known as the Double Indemnity Rider, the policy pays the stated multiple of the face amount should the insured die as the result of an accident.

A client wants coverage for himself as well as coverage for his wife and children all under one policy at an affordable price. Which of the following would best meet the need? A Family Rider B Family Maintenance Rider C Multiple Protection Rider D Family Income Rider

A Family Rider The Family Rider covers all members of the family with Whole Life Coverage on the head (wage earner) of the family and Level Term Coverage in the form of a rider on the spouse and children.

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? A Take a policy loan from the insurer B Surrender part of the policy and for the balance take a policy loan C Surrender the policy back to the insurer D Reduce the policy's face amount which will reduce his premium payment

A Take a policy loan from the insurer A permanent life insurance policy cannot be partially surrendered or have its face amount reduced. To keep the coverage in force the only option feasible is to take a policy loan.

What is the net amount at risk in a Whole Life Insurance policy? A The face amount less the cash values B The face amount plus the cash values C The face amount of the policy D The face amount minus any dividends paid

A The face amount less the cash values The net amount at risk to the insurer is the difference between the face amount and the cash values.

How is Variable Whole Life different from Variable Universal Life? A The policy has a guaranteed minimum face amount B The policyowner takes on all of the investment risk C Cash values can be invested in a separate account D It is designed to provide a hedge against inflation

A The policy has a guaranteed minimum face amount Generally speaking, Variable Whole Life has a guaranteed minimum death benefit provided that all premiums are paid in full and on time as scheduled, whereas a Variable Universal Life policy has no guaranteed death benefit.

he maximum amount the accidental death and dismemberment rider will pay out before it expires is A The principal sum B The capital sum plus the principal sum C The capital sum D There is no stated maximum. It depends on how often the insured is insured.

A The principal sum

What happens to a spouse or child rider just prior to it expiring? A The spouse or child has a conversion option B They must prove insurability in order to continue on with the rider C The policyowner receives a premium refund D The spouse or child receives a premium refund

A The spouse or child has a conversion option Both spouse and child riders will also provide a conversion provision permitting the spouse or child to convert to permanent coverage without evidence of insurability prior to the termination of the rider or upon the death of the insured under the basic policy (or upon reaching age of majority for the child covered under a child rider).

Joe has a whole life policy with a guaranteed insurability rider. He was 21 at the time the policy was issued. If he exercises all of the options at the ages specified under the typical rider, how many policies will he end up with? A 3 B 7 C 6 D 2

B 7 Under the typical guaranteed insurability rider, Joe would have options to buy additional policies of the same type and face amount at ages 25, 28, 31, 34, 37, and 40, therefore he would buy 6 more to bring his total policies owned to 7.

What is the name of the rider (benefit) that, in the event of a claim, the policy normally pays double or triple the face amount if death was a result of an accident. A Occupational B Accidental Death C Auto Insurance D Additional Indemnity

B Accidental Death Accidental Death Benefit (Double or Triple Indemnity) is a benefit that is payable only if death occurs before a specific age and within 90 days of the accident. It does not add any additional values to the base policy.

What is a way to provide additional life insurance protection for a temporary period of time without having to acquire an additional life insurance policy? A Choose death benefit option B on a Variable Universal Life insurance policy B Add a term rider to a new or existing policy C Buy a Joint Life policy D Choose death benefit option B on a Universal Life insurance policy

B Add a term rider to a new or existing policy Term riders may be attached to virtually any permanent policy, interest sensitive, or term policy to provide an amount of temporary extra insurance protection for a fixed period of time. These riders are useful when an insured needs more insurance or a decreasing amount of coverage for a limited time.

This rider allows for the insured to obtain additional insurance in between the specified ages including marriage and the birth or adoption of a child, when the need for insurance coverage may increase without having to prove insurability. It is called the ________ rider: A Additional Insurance Protection B Guaranteed Insurability C Family D Waiver of Insurability

B Guaranteed Insurability The guaranteed insurability rider covers events that will allow for the insured to obtain additional insurance in between the specified ages include marriage and the birth or adoption of a child, when the need for insurance coverage may increase. It normally limits the insured to acquire additional amounts of the same type of coverage already in force.

C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. He applies for and receives a $10,000 policy loan from the insurer. All of the following about this transaction are true, except: A The loan carries a fixed or variable interest rate B If C were disabled, his beneficiaries would receive $70,000, less any outstanding interest charges C If the policy is surrendered, C would receive $20,000 less any outstanding interest charges D If C died, his beneficiaries would receive $90,000, less any outstanding interest charges

B If C were disabled, his beneficiaries would receive $70,000, less any outstanding interest charges Policy loans carry a fixed or variable loan interest rate. If the policy is surrendered or a death claim is paid, the proceeds are reduced by the outstanding policy loan and policy loan interest.

Generally, Universal Life has how many death benefit options to choose from? A 1 B 3 C 4 D 2

D 2 Universal Life allows you to choose from two death benefit options, Option A or Option B.

Which of the following best describes an Annual Renewable Term Policy? A A policy with an increased face value at each renewal B A policy with decreasing premium at each renewal C A policy with increasing cash value at each renewal D A policy with a level death benefit, but with increased premium at each renewal

D A policy with a level death benefit, but with increased premium at each renewal

Which of the following would have the lowest first-year annual premium for a 30-year-old, all other factors being equal? A Term to age 50 B Term to age 70 C Term to age 60 D Term to age 40

D Term to age 40 10 years of coverage is less costly than longer terms of coverage.

If the cash value of a permanent life policy equals the face amount, what is that referred to? A The premium refund provision B The policy's expiration date C The cash payout feature D The policy's endowment

D The policy's endowment When the cash values equal the face amount, the policy endows.