Chapter 4 - Life insurance premiums, proceeds, and beneficiaries

A policy owner is allowed to pay premiums more than once a year under which provision? insuring consideration payor made of premium

mode of premium

A policy owner's rights are limited under which beneficiary designation? revocable tertiary contingent irrevocable

Irrevocable

On a life insurance policy, who is qualified to change the beneficiary designation? payer primary beneficiary policy owner insurer

policy owner

Which of the following statements is CORRECT regarding the tax treatment of a lump sum payment paid to a life insurance policy's primary beneficiary? - the proceeds which exceed the amount paid in premiums are taxable - the proceeds are taxable only if the beneficiary's tax bracket has changed from the payout - all proceeds are considered taxable income in the year received - all proceeds are income tax free the year they are received

- all proceeds are income tax free the year they are received

P and Q are married and have three children. P is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the contingent beneficiary. P, Q, and R are involved in a car accident and Q and R are killed instantly. The Accidental Death benefits will be paid to: R estate Q estate P and Q estate P only

P only

Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary? interest only fixed period fixed amount life income

life income

Which of these statements is INCORRECT regarding the federal income tax treatment of life insurance? - premiums are normally not tax deductible - cash dividends are normally not taxed - entire cash surrender value is taxable - proceeds are received tax free if there is a named beneficiary

- entire cash surrender value is taxable

J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct? - gross premium is higher on a monthly payment mode as compared to being paid annually - gross premium is lower on a monthly payment mode as compared to being paid annually - cash value from a life policy paid on a monthly basis builds quicker than one paid on an annual basis - face amount of a life policy paid on a monthly basis is higher than one paid on an annual basis

- gross premium is higher on a monthly payment mode as compared to being paid annually

Quarterly premium payments increase the annual cost of insurance because: - insurer risk exposure is greater - interest to the insurer is increased while administrative costs are decreased - mortality costs are greater - interest to the insurer is decreased while the administrative costs are increased

- interest to the insurer is decreased while the administrative costs are increased higher frequency of payments.= higher premiums

What is the underlying concept regarding level premiums? - level premiums build cash value quicker in early years - the early years are charged more than what is needed - the early years are charged less than what is needed - level premiums can only be paid annually

- the early years are charged more than what is needed

J would like to maintain the right to change beneficiaries. Which beneficiary designation should be used? irrevocable contingent primary revocable

revocable

A level premium indicates - the premium is fixed for the entire duration of the contract - the premium is fixed for a period stated in the contract, then becomes variable - the premium can only be changed with the consent of insurer - premium stays level until policy renewal date

the premium is fixed for the entire duration of the contract

How would a contingent beneficiary receive the policy proceeds in an Accidental Death and Dismemberment (AD&D) policy? - if primary beneficiary is a minor at time of insured's death - if primary beneficiary dies before insured - if the insured died of accidental causes - if insured died of natural causes

- if primary beneficiary dies before insured

When can a policyowner change a revocable beneficiary? anytime after consent of current beneficiary never only if primary beneficiary dies

anytime

A policy owner is able to choose the frequency of premium payments through what policy feature? consideration payor benefit premium mode assignment provision

premium mode

Which statement is true regarding a minor beneficiary? - normally, the death proceeds are required to be held in a trust until after the beneficiary reaches 21 - normally, a guardian is required to be appointed in the beneficiary clause of contract - the minor must pay the debts of the insured's estate before receiving any proceeds - the minor is entitled to receive death proceeds immediately

- normally, a guardian is required to be appointed in the beneficiary clause of contract

Common Disaster Clause which provides that if both the insured and sole beneficiary were to die in a common accident, which is true? - payment of proceeds to the insured's estate - payment of proceeds to the beneficiary's estate - estate taxes in the insured's estate may be reduced estate taxes in the beneficiary's estate may be reduced

- payment of proceeds to the insured's estate

If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the Uniform Simultaneous Death Act? - primary beneficiary's estate - primary beneficiary's next of kin - insured's estate - insured's contingent beneficiary

- insured's contingent beneficiary

Which premium schedule results in the lowest cost to the policyowner? semi annual monthly quarterly annual

annual (low billing and collecting charges)