Chapter 4

(which act)? applicants must receive a prospectus, and defines a security product

Securities Act of 1933:

(which act)? requirement for sales representatives to have a Series 6 license and regulates the duties of sales representatives

Securities Act of 1934

What are the two major types of life insurance? Select one: a. Term and whole b. Permanent and whole c. Temporary and term d. None of the above

a. Term and whole

Which of the following laws requires sales representatives selling variable products to have a Series 6 license? Select one: a. Securities Act of 1933 b. Securities Act of 1934 c. Investment Company Act of 1940 d. None of the above

b. Securities Act of 1934

A policy with flexible premiums based on a changing current interest rate is: Select one: a. Modified endowment contract b. Straight whole life c. Current assumption whole life d. Joint life

c. Current assumption whole life

___________ policies have premiums that fluctuate between the current rate and maximum rate, as stated in the policy. Select one: a. Increasing b. Interim c. Indeterminate premium d. Decreasing

c. Indeterminate premium

Charlotte takes out a $14,000 loan. How much credit life insurance can the creditor take out on Charlotte? Select one: a. $767,011 b. $14,000 plus interest c. $7,000 d. $28,000

b. $14,000 plus interest

All of the following are guaranteed features in a variable life insurance policy, EXCEPT: Select one: a. Death benefit b. Cash value c. Premium rate d. Period of death protection

b. Cash value

Which of the following is not a way that an endowment policy can mature? Select one: a. Surrender of cash value b. When the cash value equals the face amount, at the end of the policy period c. When the policy period ends, even if the insured is alive d. Upon the death of the insured

a. Surrender of cash value

Term life insurance provides ________________. Whole life insurance provides _______________. Select one: a. pure death protection only; pure death protection only. b. pure death protection; death benefit and living benefits. c. death benefit and living benefits; pure death protection only. d. death benefit and living benefits; death benefit and living benefits.

b. pure death protection; death benefit and living benefits.

Which of the following policies allows the policyowner to buy term and direct the investments made in the cash value account? Select one: a. Variable b. Universal c. Variable universal life d. Equity indexed universal life

c. Variable universal life

All of the following term life insurance policies have level premiums, EXCEPT: Select one: a. Level b. Decreasing c. Increasing d. Annual renewable term

d. Annual renewable term

A limited payment life insurance policy is best suited for: Select one: a. Josh, a 25-year old successful entrepreneur with extra funds, who doesn't want to pay life insurance premiums when he retires. b. Kelly, a 40-year single waitress who wants the most insurance protection for the least amount of money. c. Megan and Tom, newlyweds who need a life insurance policy to cover the mortgage on their house. d. Berry, an 18-year old student with limited funds.

a. Josh, a 25-year old successful entrepreneur with extra funds, who doesn't want to pay life insurance premiums when he retires.

Which of the following policies has a level face amount with level premiums? Select one: a. Level premium term b. Convertible term c. Decreasing term d. Annual renewable term

a. Level premium term

Which of the following laws defined a security product? Select one: a. Securities Act of 1933 b. Securities Act of 1934 c. Investment Company Act of 1940 d. None of the above

a. Securities Act of 1933

Upon the death of the last person insured, the _________ policy pays a death benefit. Select one: a. Survivorship life policy b. First-to-die c. Joint life d. Juvenile policy

a. Survivorship life policy

Which policy will pay benefits on the death of the second insured? Select one: a. Survivorship life policy b. First-to-die c. Modified whole life d. Current assumption whole life

a. Survivorship life policy

Of the following policies, which has a guaranteed minimum death benefit, fixed premiums and nonguaranteed cash values? Select one: a. Variable life b. Universal life c. Variable universal life d. Whole life

a. Variable life

Which type of life insurance provides living benefits? Select one: a. Whole b. Term c. Conventional d. No life insurance policy provides living benefits.

a. Whole

Which of the following is true with regards to a Variable Universal life policy? Select one: a. The policyowner has no say in the investment choices, but can choose the premium payment b. The policyowner controls the investment choices and the premium amounts c. The insurer controls the investment choices in their general account d. The death benefit fluctuates, but only the insurer has a say in premium choices

b. The policyowner controls the investment choices and the premium amounts

Which of the following is not a characteristic of decreasing term life insurance? Select one: a. The policy face decreases to zero by the end of the policy period. b. The premium decreases to zero by the end of the policy period. c. The face amount equals zero on the day of policy expiration. d. Decreasing term insurance is often used to insure a mortgage.

b. The premium decreases to zero by the end of the policy period.

Gerald wants a life insurance policy in which he can choose the investment vehicle. Which policy would you recommend to him? Select one: a. Ordinary whole b. Variable life c. Universal life d. Adjustable life

b. Variable life

All of the following are drawbacks of term life insurance, EXCEPT: Select one: a. Term insurance can be increasingly expensive. b. Each time a term life insurance policy is renewed, the premium increases. c. Living benefits are available to the policyholder in the form of cash accrual. d. If term insurance must be discarded due to expense or the insured has surpassed the maximum age limit, then the insured may be left without any life insurance protection when it is needed most.

c. Living benefits are available to the policyholder in the form of cash accrual.

Term insurance is categorized by all of the following, EXCEPT: Select one: a. Temporary protection b. Premiums increase each time the policy is renewed c. Policy cash value grows tax-deferred d. Provides the largest amount of protection for the least amount of premium

c. Policy cash value grows tax-deferred

All of the following characterize term life insurance, EXCEPT: Select one: a. Term life insurance provides the largest amount of coverage for the lowest amount of premium. b. Term life insurance provides pure death protection. c. Term life insurance provides living benefits (cash accrual). d. Term life insurance usually cannot be renewed beyond a certain age, usually 75.

c. Term life insurance provides living benefits (cash accrual).

Which life insurance policy allows the policyowner to choose where they want their funds invested? Select one: a. Straight life b. Adjustable life c. Variable life d. Universal life

c. Variable life

In a universal life insurance policy, the two most common adjustments made during a month are: Select one: a. Decrease premium and increase death benefit b. Shorten premium-paying period and decrease premium c. Lengthen premium-paying period and increase death benefit d. Cost of death protection deducted and current interest rate credited

d. Cost of death protection deducted and current interest rate credited

What happens when a universal life policyholder pays the target premium? Select one: a. The face amount will automatically increase. b. The face amount will automatically decrease. c. The policy will resemble term life insurance. d. The policy will resemble whole life insurance.

d. The policy will resemble whole life insurance.

3 features of Variable life insurance (VUL)

1. flexible premiums 2. flexible death benefit 3. control of where cash value is going

No rate greater than 12% can be used in selling polocies

12% rule

(which act)? requirement for insurers to maintain a separate account for variable investments and establishes a cap for sales fees

Investment Company Act of 1940:

This life insurance policy provides death protection for the insured's entire life, but premiums are not paid for the insured's entire life. Select one: a. 20-pay life b. Economatic life c. Modified whole life d. Indeterminate premium

a. 20-pay life

Sheldon wants a life insurance policy with premiums that do not increase over time. Which of the following policies would you recommend to him? Select one: a. Increasing term b. Annual Renewable term c. Indeterminate Premium term d. Convertible term

a. Increasing term

An adjustable life policy allows the policyowner to make all of the following changes, EXCEPT: Select one: a. Invest premiums in a separate account b. Change the length of the coverage period c. Increase or decrease the premium d. Change the length of the premium-paying period

a. Invest premiums in a separate account

Pure death protection only is provided by which life insurance policy? Select one: a. Term life insurance b. Whole life insurance c. Annuities d. None of the above

a. Term life insurance

Which of the following is not true regarding the cash value in an ordinary whole life policy? Select one: a. It grows tax-deferred. b. It may be used as a policy loan without affecting the death benefit. c. It is a nonforfeiture value that is fully guaranteed to the policyowner. d. It can be used to pay policy premiums.

b. It may be used as a policy loan without affecting the death benefit.

Because variable contracts are equity products, they are subject to various regulations. Which of the following applies to variable contracts? Select one: a. NAIC regulations b. The 12% rule c. Flexible premium amounts d. Insurance regulations only

b. The 12% rule

Which of the following best describes option 1 under a universal life policy? Select one: a. The death benefit is the policy face amount or policy cash value, but not both. b. The death benefit is a designated amount specified by the policy owner. c. The death benefit is only the face amount. d. The death benefit is only the cash value.

b. The death benefit is a designated amount specified by the policy owner.

The beneficiary of a credit life insurance policy is the: Select one: a. Insurer b. Insured c. Creditor d. Debtor

c. Creditor

A policy known as interest-sensitive whole life is: Select one: a. Modified whole life b. Economatic whole life c. Current assumption whole life d. Graded premium whole life

c. Current assumption whole life

Agents selling variable products must have which of the following? Select one: a. FINRA representative license. b. Life Insurance license. c. FINRA representative license and Life license. d. Agents are required to be licensed to sell variable products.

c. FINRA representative license and Life license.

What part of a mortgage reduction policy decreases over time? Select one: a. Policy premiums b. Cash value c. Face amount d. Policy term

c. Face amount

Which of the following characteristics does not describe convertible term life insurance policies? Select one: a. No matter which age is used, premiums will be higher when the policy is converted. b. Most converted term policies use the insured's attained age to determine the new premium. c. The attained age is the insured's age upon purchase of the term life insurance policy. d. The terms of the conversion option are clearly stated in the policy.

c. The attained age is the insured's age upon purchase of the term life insurance policy.

What happens when the cash value of a life insurance policy equals the face value? Select one: a. Taxes must be paid on the interest accumulation. b. Premiums must be increased so the policy does not become a MEC. c. The policy endows. d. The policy is void.

c. The policy endows.

All of the following are true regarding credit life insurance, EXCEPT: Select one: a. At any time, the face amount of the policy cannot be greater than the amount of the debt. b. Straight life or economatic life insurance may be used to cover a debt. c. Credit life policies are typically issued for a period of 10 years or less. d. Credit life insurance is only sold through a group policy.

d. Credit life insurance is only sold through a group policy.

What are the benefits of a convertible and renewable term life insurance policy? Select one: a. Lower premiums for higher face amounts b. Increasing face amount with a level premium c. Decreasing face amount with a level premium d. Proof of insurability is not required to convert or renew coverage.

d. Proof of insurability is not required to convert or renew coverage.

All of the following statements regarding renewable term life insurance policies are false, EXCEPT: Select one: a. Renewable term life insurance policies can only be renewed by the insurance company, and the insured must provide evidence of insurability. b. Renewable term life insurance policies are always convertible. c. Renewable term life insurance policies may be renewed by the insured as long as evidence of insurability is provided. d. Renewable term life insurance policies are renewable at the insured's option.

d. Renewable term life insurance policies are renewable at the insured's option.

What is the primary purpose of the Investment Company Act of 1940? Select one: a. Defines a securities product b. Regulates sales representatives' duties c. Requires insurer to maintain a separate account for variable investments d. Requires sales representatives to have a Series 6 license

c. Requires insurer to maintain a separate account for variable investments

Which term policy has level premiums and a level face amount? Select one: a. Annual renewable term b. Decreasing term c. Increasing term d. Level premium term

d. Level premium term

All of the following are characteristics of whole life insurance, EXCEPT: Select one: a. Whole life insurance is permanent protection providing death protection for the insured's entire life. b. Whole life insurance provides living benefits in addition to permanent life insurance. c. Whole life insurance policies use the insured's age at issue to establish policy premiums. d. The cash value in a permanent life insurance policy is not a nonforfeiture benefit.

d. The cash value in a permanent life insurance policy is not a nonforfeiture benefit.

Donna is getting ready to look at variable life insurance as an option for her insurance. Which of the following statements is TRUE about variable life insurance? Select one: a. The benefits of variable life insurance vary according to the premiums paid b. The insurance company assumes the investment risk of a variable policy c. Cash values are guaranteed d. To sell a variable life insurance policy, the proposal must be accompanied by a prospectus

d. To sell a variable life insurance policy, the proposal must be accompanied by a prospectus

What policy provides flexible premiums, cash values, face amounts, premium-paying period and length of coverage? Select one: a. Adjustable life b. Whole life c. Equity indexed universal life d. Term life

a. Adjustable life

Which life insurance policy has annual increasing premiums and does not build cash value? Select one: a. Annual renewable term b. Level premium term c. Decreasing term d. Increasing term

a. Annual renewable term

What is the primary purpose of the Securities Act of 1933? Select one: a. Defines a securities product b. Regulates sales representatives' duties c. Requires insurer to maintain a separate account for variable investments d. Sets a cap for sales fees

a. Defines a securities product

All of the following policy elements are not guaranteed in a variable whole life policy, EXCEPT: Select one: a. Value in separate account b. Accumulation units c. Death benefit d. Cash value

c. Death benefit

Variable products have ___ accounts

separate

VUL policies have the flexible features of _____ life and the investment choices of _____ life.

universal, variable

Which policy works the same way as universal life, but has an interest rate that is tied to the stock market index? Select one: a. Equity indexed universal life b. Adjustable life c. Flexible premium adjustable life insurance d. Universal life

a. Equity indexed universal life

Some universal policies permit a cash withdrawal. All of the following are true statements about universal life, EXCEPT: Select one: a. It is treated as a loan. b. It will reduce the cash value. c. It is not subject to interest. d. Repayment is treated like a premium payment.

a. It is treated as a loan.

Sandra wants to have flexibility with her life insurance policy to accommodate changes in her situation. She should consider: Select one: a. Convertible term b. Adjustable life c. Limited payment d. Economatic

b. Adjustable life

In which fund are premiums for a variable whole life insurance policy invested? Select one: a. The insurer's general account b. The insurer's separate account c. The state guaranty fund d. The insurer's reserves

b. The insurer's separate account

Mortgage protection insurance uses what type of life insurance coverage? Select one: a. Level premium term b. Convertible term c. Decreasing term d. Annual renewable term

c. Decreasing term

Wesley purchases an increasing term life insurance policy. Which of the following elements must increase in Wesley's policy? Select one: a. The premium b. The interest rate c. The death benefit d. The dividend options

c. The death benefit

All of the following are advantages of whole life insurance, EXCEPT: Select one: a. Life insurance protection is provided for the insured's entire life. b. Premiums are level. c. The policy has living benefits _ grows cash value. d. The premium-paying period may extend beyond the income-earning years.

d. The premium-paying period may extend beyond the income-earning years.

Gina and Jerry are purchasing life insurance. They decided on policies that would be paid up in 20 years. What type of policies did they purchase? Select one: a. Limited payment policies b. Continuous payment policies c. Economatic policies d. Single premium policies

a. Limited payment policies

For what reason would the insurance company raise the death benefit of a universal life policy? Select one: a. Prevent the cash value from growing too quickly b. Require the policyowner to pay higher premiums c. To accommodate lower cash value growth d. To allow the policy to become a MEC

a. Prevent the cash value from growing too quickly

Why are whole life policies more expensive than some other insurance options? Select one: a. They must cover cash values, net insurance and mortality costs, as well as expenses. b. They last a really long time. c. The policyholders are high risk. d. Whole life is generally not more expensive.

a. They must cover cash values, net insurance and mortality costs, as well as expenses.

What policy can be described as annual renewable term with a cash value account? Select one: a. Universal life b. Adjustable life c. Decreasing term d. Modified whole life

a. Universal life

Joanna has selected a variable universal life policy because it meets her needs. Which of the following is not a characteristic of a variable universal policy? Select one: a. It is backed by equity investments. b. It allows the policyholder to adjust the premium. c. It has no cash value. d. It allows the policyholder to adjust the death benefit.

c. It has no cash value.

After looking at his options, Randy decided on a single premium whole life policy. What is an advantage of this type of policy? Select one: a. The cost of protection is low if Randy dies soon after paying the premium. b. Administrative costs are higher on this policy. c. The total premium is lower. d. All of the above

c. The total premium is lower.

Which life policy offers the owner the opportunity to invest in products such as money -market funds, long -term bonds and the stock market? Select one: a. Adjustable Life b. Term Life c. Variable Life d. Universal Life

c. Variable Life

Insurance agent Sam would need a securities license to sell this policy: Select one: a. Joint life b. Adjustable life c. Variable life d. Universal life

c. Variable life

Which policy has fixed premiums, a guaranteed minimum death benefit and nonguaranteed cash values? Select one: a. Whole life b. Universal life c. Variable whole life d. Variable universal life

c. Variable whole life

Blake just bought a home and needs insurance to cover his mortgage. He does not have a lot of money to spend on this coverage. What policy would you recommend to Blake? Select one: a. Variable life b. Increasing term c. Ordinary whole life d. Decreasing term

d. Decreasing term

An endowment life insurance policy is characterized by all of the following, EXCEPT: Select one: a. The death benefit is paid upon the death of the insured. b. The policy's face amount is paid out if the insured is alive at the contract maturity date. c. Policy cash value must equal the face amount by the end of the policy period. d. Endowment contracts endow only upon the insured's death.

d. Endowment contracts endow only upon the insured's death.

All of the following statements are correct regarding variable universal life contract charges and fees, EXCEPT: Select one: a. Sales and loading charges are deducted from the policy's cash value. b. The full cost of death protection is deducted from the policy's cash value. c. Insurers must provide policyowner's with an annual statement of charges and interest earned. d. Interest earned is credited to the death benefit.

d. Interest earned is credited to the death benefit.

Varibale whole life has fixed level premiums, guaranteed minimum death benefit, but differs how?

it offers higher interest rates to defend the policyowner against the effects on inflation