Chapter 4 Mod 4 Quiz: Flexible Policies

Which of the following best describes option 1 under a universal life policy?

With option 1, the policy will pay the policy face amount, or the policy cash value, but not both. The correct answer is: The death benefit is the policy face amount or policy cash value, but not both.

Some universal policies permit a cash withdrawal. All of the following are true statements about universal life, EXCEPT:

A cash withdrawal from a universal life policy is NOT treated as a loan. The correct answer is: It is treated as a loan.

Which of the following best describes a circumstance in which the insurer would increase the death benefit of a universal life insurance policy?

Life insurance policies must comply with the seven-pay test in order to keep their tax-exempt status. If the cash value is growing too quickly, the insurer will increase the policy's death benefit so the policy does not become a MEC. The correct answer is: To prevent the cash value from growing too quickly

Compared to ordinary whole life policies, universal life interest rates are:

Universal life policies tend to have higher interest yield compared to whole life. Interest rates range from 8 to 12%, whereas ordinary whole life is 3 to 6%. Universal life policies have a guaranteed minimum rate, usually 5%. This represents the guaranteed minimum growth rate. However, universal policies have a current interest rate that is comprised of the minimum rate and the excess interest experience by the insurer. The correct answer is: Higher

What policy provides flexible premiums, cash values, face amounts, premium-paying period and length of coverage?

Adjustable life insurance policies allow policyowner's to raise or lower the premium and face amount, and change the coverage period and premium-paying period. The correct answer is: Adjustable life

What policy can be described as annual renewable term with a cash value account?

The cash value in a universal life policy must continually cover the cost of death protection (cannot reach zero); otherwise, the policy will expire after its grace period lapses. In this way, universal life policies are simply annual renewable term with a cash value account. The correct answer is: Universal life

What happens when the cash value in a universal life insurance policy reaches zero and the grace period has lapsed?

The cash value in the policy must continually cover the cost of death protection (cannot reach zero); otherwise, the policy will expire after its grace period lapses. The correct answer is: The policy expires.

In a universal life insurance policy, the two most common adjustments made during a month are:

Each month, the cost of the death protection is deducted from the cash value, and the current interest rate is credited. The correct answer is: Cost of death protection deducted and current interest rate credited

Which of the following best describes option B/option 2 under a universal life policy?

Option B pays the death benefit and cash value by charging a higher premium to account for the additional cash value that is paid on top of the policy face amount. The correct answer is: The death benefit is the policy face amount and the cash value.

What happens when a universal life policyholder pays the minimum premium?

Paying the minimum premium will keep the policy in force by paying the cost of death protection, and the policy will resemble term life insurance. The correct answer is: The policy will resemble term life insurance.

Which of the following best describes how the cash value in a universal life policy grows?

The interest rate of universal life policies is a guaranteed minimum, but may earn a higher "current" rate. The correct answer is: At a guaranteed minimum rate, but may earn a higher current rate

All of the following are true regarding adjustable life policies, EXCEPT:

When the premium is decreased or the face amount increased, the insured is typically required to provide evidence of insurability. The correct answer is: When the premium is decreased, the insured is not required to provide evidence of insurability.

The primary difference between universal life and adjustable life is:

The primary difference between adjustable life and universal life is that the policyowner can skip premium payments as long as there is enough cash value in the policy to cover the cost of death protection. The correct answer is: Premium payments can be skipped.

A person who has a universal life policy and needs cash from the policy, but does not want to have an outstanding policy loan should:

Partial surrenders from a universal life insurance policy are not subject to interest, and unlike a policy loan, the partial surrender does not need to be repaid. The correct answer is: Take a partial surrender of the policy's cash value

Sandra wants to have flexibility with her life insurance policy to accommodate changes in her situation. She should consider:

The adjustable life policy offers flexibility on a variety of characteristics of the policy. The correct answer is: Adjustable life

All of the following statements are correct regarding adjustable life policies, EXCEPT:

Cash value in an adjustable life policy only accrues when the amount of the premium paid is greater than the cost of coverage. The correct answer is: Cash value always accrues in the policy.

An adjustable life policy allows the policyowner to make all of the following changes, EXCEPT:

Only variable life policies allow policyowner's to invest premiums in the insurer's separate account. The correct answer is: Invest premiums in a separate account

All of the following are ways that an adjustable life insurance policy can be altered when an extra premium payment is made, EXCEPT:

An extra premium paid into an adjustable life insurance policy does not affect it by decreasing the nonforfeiture options. The correct answer is: Decrease the policy's nonforfeiture values

Marci's universal life policy is currently crediting its cash value with 5% interest. The interest rate on policy loans is currently 6%. Based on these figures, at what interest rate is Marci's cash value accumulating?

Based on the figures presented, 5% of the entire cash value is correct. Policy loans are a lien against the policy and do not have a direct impact on the cash value. The correct answer is: 5% on the entire cash value

If Sandra chooses an adjustable life policy, all of the following are flexible, EXCEPT:

If a change is made to increase the death benefit, the insurance company may require evidence of insurability. The correct answer is: No requirement for proof of insurability

Mr. Barnes purchased a universal life policy with a death benefit of $200,000 several years ago. With a current cash value of $50,000, he selected benefit option B. What is his current death benefit?

If the policyholder chooses option B, the result is an increase in the death benefit equal to the cash value plus the face value. The correct answer is: $250,000

For what reason would the insurance company raise the death benefit of a universal life policy?

Life insurance policies must comply with the seven-pay test in order to keep their tax-exempt status. If the cash value is growing too quickly, the insurer will increase the policy's death benefit so the policy does not become a MEC. The correct answer is: Prevent the cash value from growing too quickly

What are the two premiums in a universal life insurance policy?

Two premiums are quoted to the policyowner: the target premium and the minimum premium. Paying the target premium will build cash value in the policy, and the policy will resemble whole life. Paying the minimum premium will keep the policy in force by paying the cost of death protection, and the policy will resemble term life. The correct answer is: Target premium; minimum premium

What happens when a universal life policyholder pays the target premium?

Paying the target premium will build cash value in the policy, and the policy will resemble whole life insurance. The correct answer is: The policy will resemble whole life insurance.

Whole life and universal life policies have some similarities and differences. Which of the following is NOT a characteristic of a universal life policy?

The cash value of a universal life policy is tied to current interest rates and can vary, but it has a guaranteed minimum rate. The correct answer is: Interest earned by the cash account cannot vary

Which of the following permanent life insurance policies is interest-sensitive?

Universal life insurance is an interest-sensitive permanent life insurance policy. The correct answer is: Universal life insurance

All of the following statements are false regarding universal life insurance, EXCEPT:

In universal life policies, premiums may be increased or decreased, premium payments may be skipped, and the face amount may be increased or decreased. Proof of insurability is required to increase the death benefit (face amount). The correct answer is: Proof of insurability is required to increase the policy face amount.

Which policy works the same way as universal life, but has an interest rate that is tied to the stock market index?

Equity indexed universal life works the same way as universal life insurance except the interest rate is tied to the stock market index which has the potential to offer greater cash value growth than universal life insurance. The correct answer is: Equity indexed universal life

If Jaime has an adjustable life policy, he can:

The conversions can all be accomplished with an adjustable life policy. Converting term to equal the whole life would probably result in a premium increase. The correct answer is: All of the above

Which of the following changes may the policyowner of an adjustable life policy NOT make?

Only variable life policies allow policyowner's to invest premiums in the insurer's separate account. The correct answer is: Invest premiums in the insurer's separate account