Chapter 4 (Part 1)
What is a juvenile life insurance policy?
A life policy that covers the life of a minor
A material change in a modified endowment contract (MEC) results in
the seven pay test, adjusted for cash value, applies again
How does a continuous premium whole life policy differ from a limited payment whole life policy?
the time period in which premiums will be paid
When would evidence of insurability be required for a person already covered with a variable universal life policy?
when the death benefit is increased
A nonparticipating whole life insurance policy was surrendered for its $20,000 cash value. The total premiums paid had totaled $16,000. What were the federal income tax consequences to the policy owner on receipt of the cash value?
$16,000 was received tax-free and $4,000 as ordinary income
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?
100%
A survivorship life insurance policy usually covers how many lives?
2 It is a variation of a joint life policy that also insures the lives of two people
A "premature" distribution from a modified endowment contract (MEC) incurs a penalty tax of
20%
Which type of life insurance policy is best suited for paying off the outstanding balance of a 30-year mortgage in the event of the insured's death?
30-year decreasing term
Which of these is NOT an advantage of term life insurance?
A cash benefit will be provided if the insured is alive at the end of the policy period
Which of the following combinations best describe a universal life insurance policy?
A flexible premium deposit fund and a monthly renewable term insurance policy
Which statement regarding a single premium life insurance policy is NOT correct?
Additional premiums may be required under certain conditions
Which is an accurate description of the premium in a graded premium life insurance policy?
Annual increases in premium for a stated number of years then remains level.
When does the insured stop making payments under a thirty-payment whole life policy?
At the time of death or 30 years after the policy's inception, whichever comes first
Which statement regarding the cash value of a whole life insurance policy is correct?
Available to the policyowner when policy has been surrendered
Who normally pays the premiums for group credit life insurance?
Borrower
Which statement regarding universal life insurance is correct?
Cash value accumulations have a guaranteed minimum interest rate
What kind of life policy typically offers mortgage protection?
Decreasing term
Which of these life insurance policies does NOT contain a cash value provision?
Decreasing term life
Which of these is NOT considered a type of limited payment whole life insurance?
Endowment age 70
Which statement concerning a decreasing term life policy is accurate?
Face amount decreases over the policy period
Which of these may NOT be deducted from premium payments or the cash value of a variable insurance policy?
Federal premium taxes
How long does one premium payment cover in a single premium whole life policy?
Full life of the policy
Which statement regarding whole life insurance is accurate?
Insurance coverage can continue for life
What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?
Joint life
What type of premiums are associated with individual mortgage protection life insurance policies?
Level premiums
Laura added a children's rider to her life insurance policy. What type of coverage was added?
Level term
A life policy that has premiums that are lower than normal during the early years is called
Modified life
Which of the following is a TRUE statement regarding universal life insurance?
Policy indicates how much of each premium is used toward company expenses
Which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)?
Policy loans
These are all accurate statements regarding universal life insurance EXCEPT
Policy loans are not permitted
Which statement regarding an adjustable life insurance policy is NOT true?
Policy loans are not permitted
Straight whole life insurance can be accurately described in all of these statements EXCEPT
Policy protection normally expires at age 65
What typically changes at the re-entry option date found in some term life policies?
Premium
Which of the following would NOT be a reason for purchasing life insurance on a child's life?
Provide benefits for the child if the parents die
Which of the following could be a future use of the cash value that builds in a recently-purchased whole life insurance policy?
Provide supplemental income in 35 years
Assets that back the non-guaranteed values of variable life insurance products are held in which account?
Separate account set up by the insurer
Which of these policies is considered a whole life policy?
Single premium life
How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies?
Survivorship life policy is lower
Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes?
The gain is treated as taxable income and a penalty tax is imposed on the gain
Taxable income may be result from all of these modified endowment contract (MEC) transactions EXCEPT for
The policy is surrendered for less than what was paid into it
Which of these must be disclosed in a universal life policy?
The policy's surrender charges
Which of these is NOT a reason to buy a term life policy?
To accumulate savings
What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued?
Under $50,000 initially, but increases over time
Which of the following statement about universal life insurance is NOT true?
Universal life insurance normally has a minimum guaranteed cash value for duration of the policy
How long does protection normally extend to under a limited pay whole life policy?
Until age 100
An insurance policy that can also be classified as a securities product is called
Variable life
Which type of life insurance policy allows a policyowner the choice of investments along with flexible premium payments?
Variable universal life
At what point are death proceeds paid in a joint life insurance policy?
When the first insured dies
An individual who purchases a modified life insurance policy expects
an improvement in future income
Which of the following is generally a form of group credit life insurance?
decreasing term insurance
Which statement concerning an adjustable life insurance policy is FALSE?
evidence of insurability is required when there is a change in premium
Rick owns a variable universal life policy and chooses a variable death benefit option. What will typically happen to the death benefit as a result of this selection?
fluctuate with changes in cash account
A policy owner has just borrowed from a life insurance policy's cash value. Which of these statements is true?
in the event of death, the loan amount is deducted from the policy proceeds
All of these are considered features of whole life insurance EXCEPT
initial premium is lower than for an equivalent amount of term insurance
The insurance coverage in a variable life insurance policy may vary based on the value of
is underlying investments
The death proceeds of a credit life insurance policy are typically paid to the
lender
What is the guaranteed cash value of a whole life insurance policy when the insured turns 65 years old?
less than the policy's face amount
Which of these statements accurately portrays an adjustable life insurance policy?
policy can alternate between form of term and whole life insurance
How are level term policies able to provide level premiums?
premium are average over the term of the policy
When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for
ten year term insurance for a person aged 55
Which statement concerning adjustable life insurance is accurate?
the face amount and premiums can be changed simultaneously by the policyowner
All of these statements concerning group credit life insurance are false EXCEPT
the face amount is based on the outstanding loan balance
What would be considered an advantage of purchasing term life insurance?
the initial premium is lower compared to an equivalent amount of whole life coverage
Under an adjustable life insurance policy, which of the following may NOT be changed without further underwriting?
the person injured
An advantage of owning a flexible premium life insurance policy would be
the policy owner can make policy changes without difficulty