Chapter 4: Type of Insurance Policies
level term for a stated period of time
After the extended term life nonforfeiture option is chosen, the available insurance will be
Initial premium is lower than for an equivalent amount of term insurance
All of these are considered features of whole life insurance EXCEPT
At the time of death or 30 years after the policy's inception, whichever comes first
When does the insured stop making payments under a thirty-payment whole life policy?
reinstated
When a lapsed policy's premium has been paid current, it has the potential of being
Modified life
A life policy that has premiums that are lower than normal during the early years is called
Separate account set up by the insurer
Assets that back the non-guaranteed values of variable life insurance products are held in which account?
The time period in which premiums will be paid
How does a continuous premium whole life policy differ from a limited pay whole life policy?
Premium payments are waived in the event the premium payor dies or becomes disabled
How is the insured protected if a payor benefit rider is attached to the life insurance policy?
The cash value
What is payable to a policyowner if a whole life policy is surrendered prior to its maturity date?
Policy loans are not permitted
These are all accurate statements regarding universal life insurance EXCEPT
Insured expected to be confined to a nursing home for life
Which situation is an accelerated (living) benefit rider suited for?
Premiums are averaged over the term of the policy
How are level term policies able to provide level premiums?
6 months
How long can an insurer legally defer paying the cash value of a surrendered life insurance policy?
The gain is treated as taxable income and a penalty tax is imposed on the gain
Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes?
The policy is surrendered for less than what was paid into it
Taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for
Less than the face amount
A policyowner has a life insurance policy where she had listed her age on the application as 5 years younger than her actual age. If she dies and the insurer discovers the misstatement of age, how much will the insurance company pay?
When the policy has a cash value
A policyowner is permitted to take out a policy loan on a whole life policy at what point?
Cash surrender value will be reduced if policy is forfeited
What could be the potential result of taking out a cash value loan on a life insurance policy?
Policy will no longer be in force
What happens to a life insurance policy when the policy loan balance exceeds the cash value?
Reduced
What happens to the death benefit of a life insurance policy if the insured elects a partial payment from the accelerated (living) benefit provision?
The death benefit is increased
When would evidence of insurability be required for a person already covered with a variable universal life policy?
Free-look period
Which life insurance policy provision allows a policyowner to cancel the policy within a limited time period and be given a full refund?
Surrender the policy's cash value
Which of the following is NOT a dividend option for a life insurance policy?
The premium to purchase the coverage comes from the policy's cash value
Which of these statements regarding the extended term insurance nonforfeiture option is accurate?
Automatic premium loan
In the event of premium default, which life insurance provision will use the cash value to keep the policy in force?
Provide benefits for the child if the parents die
Which of the following would NOT be a reason for purchasing life insurance on a child's life?
Civil insurrections apply
Which of the these is NOT a true statement of the war exclusion?
accelerated (living) benefit
A life insurance policy provision that has the potential to reduce the death benefit is called the
As an optional policy rider
How may an insurance company classify an accidental death benefit on a life policy?
Decreasing term insurance
Which of the following is generally a form of group credit life insurance?
Universal life insurance normally has a minimum guaranteed cash value for duration of the policy
Which of the following statements about universal life insurance is NOT true?
Loan amount is increased to reflect the amount of interest due
Joe is a life insurance policyowner who has failed to pay interest on his policy loan. What will result from this nonpayment?
100%
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?
The person insured
Under an adjustable life insurance policy, which of the following may NOT be changed without further underwriting?
Total premiums paid plus the policy face amount
A life insurance policy that includes a return of premium rider will pay the beneficiary how much upon the insured's death?
relieve the insured of premium payments following an initial waiting period after the insured becomes totally disabled
A life insurance policy's waiver of premium rider has the ability to
Policy indicates how much of the premium is used toward company expenses
All of these statements concerning universal life insurance are false EXCEPT
The policyowner can make policy changes without difficulty
An advantage of owning a flexible premium life insurance policy would be
variable life
An insurance policy that can also be classified as a securities product is called
periodically purchase additional insurance
An insured that has a guaranteed insurability rider attached to his life insurance policy has the right, without proving insurability, to
When the first insured dies
At what point are death proceeds paid in a joint life insurance policy?
Decreases the death benefit
In what way is a life insurance policy affected by an accelerated benefit payment?
the assignee receives all incidents of ownership
The absolute assignment of a life insurance policy results in
Ten year term insurance for a person aged 55
When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for
policy loans
Which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)?
Annual increases in premium for a stated number of years then levels off for the remainder of the contract
Which is an accurate description of the premium in a graded premium life insurance policy?
Incontestable clause
Which life insurance clause prohibits an insurance company from questioning the validity of the contract after a stated period of time has passed?
Cash value accumulations have a guaranteed minimum interest rate
Which statement regarding universal life insurance is correct?
Allows a policyowner to take out a policy loan to cover premium payments in the event of total disability
Which of these would NOT be a valid reason to add the waiver of premium rider to a life insurance policy?
Evidence of insurability is required when there is a change in premium
Which statement concerning an adjustable life insurance policy is FALSE?
Premium remains the same no matter how many children
Which statement regarding the life insurance premium for a children's term rider is true?
Insurance coverage can continue for life
Which statement regarding whole life insurance is accurate?
Borrower
Who normally pays the premiums for group credit life insurance?
cash value
A source of additional income for a life insurance policyowner can be derived from the
Survivorship life policy is lower
How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies?
Transfers specific ownership rights to a creditor
How is a collateral assignment used in a life insurance contract?
Entire life of the policy
How long does one premium payment cover in a single premium whole life policy?
Until age 100
How long does protection normally extend to under a limited pay whole life policy?
Life income annuity
Which of these is NOT a common life insurance nonforfeiture option?
To accumulate savings
Which of these is NOT a reason to buy a term life policy?
A cash benefit will be provided if the insured is alive at the end of the policy period
Which of these is NOT an advantage of term life insurance?
Federal premium taxes
Which of these is NOT an allowable deduction made from premium payments of the cash value of a variable life insurance policy?
How the premium is calculated
Which of the following is NOT subject to the promise to pay in an insuring clause?
The insured must be disabled for a period of time
Which of the following is true regarding a person receiving a waiver of premium benefit?
Face amount decreases over the policy period
Which statement concerning a decreasing term life policy is accurate?
The face amount and premiums can be changed simultaneously by the policyowner
Which statement concerning adjustable life insurance is accurate?
Additional premiums may be required under certain conditions
Which statement regarding a single premium life insurance policy is NOT correct?
Policy protection normally expires at age 65
Straight whole life insurance can be accurately described in all of these statements EXCEPT
The death benefit would be reduced by the outstanding loan balance
What happens when a policyowner borrows against the cash value of his life insurance policy?
A life policy that covers the life of a minor
What is a juvenile life insurance policy?
The policy's cash value
What is considered the collateral on a life insurance policy loan?
Under $50,000 initially, but increases over time
What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued?
Less than the policy's face amount
What is the guaranteed cash value of a whole life insurance policy when the insured turns 65 years old?
Guaranteed insurability rider
What is the name of the rider that provides an additional purchase option in a life insurance policy?
Variable universal life
What kind of life insurance policy allows a policyowner the choice of investments along with flexible premium payments?
Decreasing term
What kind of life policy typically offers mortgage protection?
Joint life
What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?
Level premiums
What type of premiums are associated with individual mortgage protection life insurance policies?
The initial premium is lower compared to the same amount of whole life coverage
What would be considered an advantage of purchasing term life insurance?
Accelerated (living) benefit
Which benefit is normally payable to a life insurance policyowner when the insured's life expectancy has been severely limited?
Family term rider
Which benefit supplement added to a life insurance policy insures an entire family?
Policy loans are not permitted
Which statement regarding an adjustable life insurance policy is NOT true?
Available to the policyowner when policy has been surrendered
Which statement regarding the cash value of a whole life insurance policy is correct?
Cash payment is not directly provided to the policyowner
Which statement regarding the waiver of premium rider is accurate?
its underlying investments
The insurance coverage in a variable life insurance policy may vary based on the value of
Cause of death must be from a job-related injury
Which of the following is NOT a condition that must be met for an accidental death benefit to be paid?
Dividend scale
Which of the following is NOT guaranteed in a whole life policy?
the seven pay test, adjusted for cash value, being applied again
A material change in a modified endowment contract (MEC) results in
2
A survivorship life insurance policy usually covers how many lives?
The face amount is determined by the outstanding loan balance
All of these statements concerning group credit life insurance are false EXCEPT
an improvement in future income
An individual who purchases a modified life insurance policy expects
Level term
Laura added a children's rider to her life insurance policy. What type of coverage was added?
equal the net single premium for the same face amount at the insured's attained age
Scott has a life insurance policy in which the dividends are left with the insurance company. This particular policy may be paid up when the cash value plus accumulated dividends
provision that provides a policy loan to pay an overdue premium by the end of the grace period
The automatic premium loan provision can be accurately described as a
$16,000 was received tax-free and $4,000 as ordinary income
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 policyowner on receipt of the cash value?
In the event of death, the loan amount is deducted from the policy proceeds
A policyowner has just borrowed from a life insurance policy's cash value. Which of these statements is true?
$25,000
An insured has a $25,000 whole life insurance policy with $6,000 cash value available. Under the extended term nonforfeiture option, what is the amount of insurance available to the insured?
Policy's face amount minus any premiums due
If an insured dies during the grace period without having paid the premium, how much will the insurer pay?
Reduction of premium payment
A life insurance policyowner would like a dividend option that results in a limited current outlay of funds. Which dividend option would be chosen?
Fluctuate with changes in the cash account
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?
Extended term nonforfeiture option
Which life insurance policy option allows the policyowner to have coverage equal to the net death benefit of the lapsed policy?
Whole life
Which life insurance policy would be eligible to include an automatic premium loan provision?
A flexible premium deposit fund and a monthly renewable term insurance policy
Which of the following combinations best describe a universal life insurance policy?
Endowment at age 70
Which of these is NOT considered a type of limited payment whole life insurance?
Decreasing term life
Which of these life insurance policies do NOT contain cash value provisions?
The surrender charges
Which of these must be disclosed in a universal life policy?
Single premium life
Which of these policies is considered a whole life policy?
Policy can alternate between forms of term and whole life insurance
Which of these statements accurately portrays an adjustable life insurance policy?
Interest payments made by policyowner are deductible
Which of these statements is NOT true regarding a cash value loan against a life insurance policy?
