Chapter Exam 1 - Type of Insurance Policies

a potential client, age 40, would like to purchase a Whole Life Policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct?

20- pay life accumulates faster. (usually the shortest time period of the answers)

which of the following life insurance policies combine term insurance with an investment element?

Universal Life

K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?

$20,000 death benefit

which of the following types of Term life Policies most likely contains a Renewability feature?

10 year Convertible Term

G purchased a Family Income policy at age 40, The policy has a 20-year rider period. If G were to die at age 50, how long would G's family receive an income?

10 years

A 15-year mortgage is best protected by what kind of life policy?

15 year decreasing term policy

What type of policy would offer a 40-year old the quickest accumulation of cash value?

20- pay life (in this situation)

J is 35-years old and looking to purchase a whole life insurance policy. Which of the following types of policies will provide the most rapid growth of cash value?

20-Pay life(the shortest usually)

The combination of Whole Life and --- Term insurance is referred to as a Family Income Policy

A family income policy is a combination of Whole Life and Decreasing Term insurance.

which of these is an element of a variable life policy

A fixed, level premium

which statement is true regarding a variable whole life policy?

A minimum guaranteed Death benefit is provided. A variable whole life policy provides a minimum guaranteed death benefit.

Which of the following life insurance policies combine term insurance with an investment element?

A universal Life Policy combines term life insurance with an investment element.

Which of the following types of policies pays a benefit if the insured goes blind?

AD&D An accidental Death & Dismemberment policy can provide financial benefits if an insured is killed, loses a limb, suffers blindness, or is paralyzed in a covered accident.

which statement about a whole life policy is true

Cash value may be borrowed against

S is covered by a whole life policy. Which insurance product can cover his children?

Child Term Rider

Which provision allows the policyowner to change a term life policy to a permanent one without providing proof of good health?

Conversion

When a policyowner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply?

Conversion provision

What kind of life insurance starts out as temporary coverage but can be later modified to permanent coverage without evidence of insurability?

Convertible term

a(n) ----term life policy is normally used when covering an insured's mortgage balance.

Decreasing term

Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?

Decreasing term (The automatic premium loan provision can be incorporated into all of these policies EXCEPT decreasing term

Additional coverage can be added to a Whole Life policy by adding a(n)

Decreasing term rider

A variable insurance policy

Does not guarantee a return on its investment accounts

P owns a $25,000 Life Policy that pays the face amount to him if he lives to age 70, or to his beneficiary if he dies before age 70. What kind of policy does P own?

Endowment at age 70- An endowment policy is characterized by cash values that grow at a rapid pace so that the policy matures or endows at a specified date(before age 100)

What does a Face Amount Plus Cash Value Policy supposed to pay at the insured's death?

Face amount plus the policy's Cash Value

What kind of life insurance policy pays a specified monthly income to a beneficiary for 30 years and then pays a lump sum benefit at the end of that 30 years?

Family Maintenance

What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies?

Family Maintenance Policy

P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20 year period. What type of policy should P purchase?

Family Maintenance policy

Which of the following actions require a policyowner to provide proof of insurability in an adjustable life policy?

Increase face amount

Who has the option to renew a renewable term policy?

Insured

Which of these needs is satisfied by Adjustable Life insurance?

Insured's need for flexible premiums

What type of life policy covers two lives and pays the face amount after the first one dies?

Joint Life Policy

K, age 45, and his wife, age 43, have three children. They purchase a Family Policy that covers K's wife to age 65. All of these situations will pay a death benefit EXCEPT

K's wife dies at age 66. k's wife has coverage only until age 65

An architecture firm would stand to lose a lot of money in the event of the death of its project manager. Which type of policy should the firm purchase on its project manager?

Key Person Insurance

K is looking to purchase Renewable Term insurance. Which of these types of Term insurance may be renewable?

Level-A level term policy pays the same benefit amount if death occurs at any point during the term. Level term policies may be renewable.

Life insurance that covers an insured's whole life with level premiums paid over a limited time is called?

Limited Pay Lift

Which type of policy considered to be overfunded as stated by IRS guidelines

Modified Endowment Contract

When a life insurance policy exceeds certain IRS table values, the result would create which of the following?

Modified Endowment Contract (MEC)

J is issued a Life Insurance policy with a death benefit of $100,000. She pays $600 per year in premium for the first 5 years. The premium then increases to $900 per year in the sixth year, and remains level thereafter. The policy's death benefit also remains at $100,000. Which type of Life Insurance policy is this?

Modified Premium Life

All of these insurance products require an agent to have proper FINRA securities registration in order to sell them EXCEPT for

Modified Whole Life

K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this?

Modified Whole Life

Which of these life products is NOT considered interest-sensitive?

Modified Whole Life

Which of these statements describes a modified endowment contract (MEC)

Policies that do not meet the 7-pay test are consederd MEC's and will lose favorable tax treatment. the test is designed to discourage premium schedules that would result in a paid-up policy before the end of a seven year period

Which of the following information is NOT required to be included in a Whole Life Policy.

Policy's Guaranteed Dividend table

Which is true concerning a Variable Universal Life policy?

Policy-owner controls where the investment will go and selects the amount of the premium payment.

Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?

Policyowner

which statement is correct regarding the premium payment schedule for whole life policies?

Premiums are payable throughout the insured's lifetime coverage lasts until death of the insured

T has a term policy that allows him to continue the coverage after expiration of the initial policy period. What type of term coverage is this?

Renewable

Which of the following types of permanent life insurance policies offers the highest initial csh value?

Single Premium

K is shopping for a permanent life insurance policy that will offer her the MOST protection per dollar of annual premium. Which of these policies best fits her needs?

Straight life insurance policies provide an insured the greatest amount of permanent protection per dollar of annual premiums.

Which of these characteristics is consistent with a Straight Life policy?

Straight whole life provides permanent level protection with level premiums from the time the policy is issued until the insured's death or age 100

What type of life policy covers two people and pays upon the death of the last insured?

Survivorship

Q is looking to buy a life insurance policy that will provide the greatest amount of protection for a temporary time period. Which of these policies should Q purchase?

Term Life

What kind of life insurance product covers children under their parent's policy?

Term Rider

What types of life insurance gives the greatest amount of coverage for a limited period of time?

Term life

The investment gains from a Universal Life Policy usually go toward?

The cash value

Term Life Policies that have the ability to be converted to permanent coverage may do so during a specific time period. This conversion period

The conversion period varies according to the contract.

the most important factor to consider when determining weather to convert term insurance at the insured's attained age or the insured's original age is?

The cost

whole life insurance is sometimes referred to as "Straight. Life". what does the word "Straight" indicat when using this phrase?

The duration of premium payments

What advantages does the renewability feature give to a term policy?

The insured may extend the coverage period

The amount of coverage on a group credit life policy is limited to?

The insureds total loan value

Credit life insurance is typically issued with which of the following types of coverage?

The type of insurance used for credit lif is typically decreasing term, with the term matched to the length of the loan period

How does a typical Variable Life Policy investment account grow?

Through mutual funds, stocks, Bonds

which of the following is considered an element of a variable Life Policy?

Underlying equity investment

K purchased a Life insurance policy in 1986 which paid 10% interest in the early years of the policy. Twenty years after the purchase, she received a notice from the insurer stating that the policy will soon terminate unless a much-higher premium is paid because of falling interest rates. This type of policy is known as a(n) _________ life policy.

Universal

The cash value in a ---- life policy may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors.

Universal

Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?

Variable Life

Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling?

Variable Life

A(n) life policy combines investment choices with a form of term coverage

Variable Universal

S owns a life insurance policy with cash values that fluctuate according to the underlying investment performance of common stocks. Which of these policies does S own?

Variable Whole life

at what point does a whole life insurance policy endows?

When the Cash value equals the death benefit

A policy that becomes a Modified Endowment Contract (MEC)

Will lose many of its tax advantages

A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision?

a payor provision- provides that in the event of death or disability of the adult premium payor, the premiums on a juvenile policy will be waived until the insured child reaches a specified age or the maturity date of the contract.

A company that owns a life insurance policy on one of its key employees may do all of the following EXCEPT

a) Borrow against cash value b) Change beneficiary c)Cancel Policy d)change the policy's rate Answer is D

How long does the coverage normally remain on a limited-pay life policy?

age 100

Under a Graded Premium policy, the premiums

are lower during the policy's early years

Variable Whole Life Insurance can be described as

both an insurance and securities product

Under an interest sensitive whole life policy

cash values are determined by interest rates

What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time?

decreasing term

Variable Life products require a producer to

hold a Life Insurance license and a Securities license

Credit life insurance is

issued in an amount not to exceed the amount of the loan

Which of these would be considered a Limited-Pay Life policy?

life paid- up at age 70

N is a 40-year old applicant who would like to retire at age 70. He is looking to buy a life insurance policy with level premiums, permanent protection, and be paid-up at retirement. Which of these should N purchase?

limited pay whole life policies have level premiums that are limited to a certain period. 30 pay life

Under a Graded Premium Whole Life policy,

the premium increases each year during the early years of the contract and remains the same after that time

Under a Renewable Term policy,

the renewable premiium is calculated on the basis of the insured's attained age

Stranger-Owned Life Insurance (STOLI) is when a person purchases life insurance only to sell to a(n):

third party with no insurable interest

What kind of life insurance policy pays the face value upon the death of the insured or when the insured reaches age 100?

whole life

If a 10-Year Term Life policy contains a Renewability provision, the policy will renew

without evidence of insurability

S is close to retiring and would like to purchase a policy that will yield greater gains than bonds, but will still protect the principal with a minimum level or risk. Which product would S be advised to purchase?

Equidy index insurance yeilds greater gains than bonds but will still protect the principal with a minimum of risk.

Term insurance has which of the following characteristics?

Expires at the end of the policy period

What kind of premium does a Whole Life policy have?

Level

When is the face amount paid under a Joint Life and Survivor policy?

Upon death of the last insured

a term life insurance policy matures?

Upon the insured's death during the term of the policy

a life policy contains a monthly mortality charge as well as self-directed investment choices is called a

Variable Universal Life Policy

A limited- Pay life policy has?

premium payments limited to a specified number of years

A universal life policy is sometimes referred to as an unbundled life policy b/c the owner can see the interest earned, expense charges, and the ?

Cost of insurance

F needs life insurance that provides coverage for only a limited amount of time with a death benefit that changes regularly according to a schedule. What kind of policy is needed?

Decreasing term policy

D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed?

Level term

T would like to be assured $10,000 is available in 10 years to replace a roof on his house. What kind of $10,000 policy should T purchase?

Ten- Year Endowment

What type of life insurance are credit policies issued as?

Term- The type of insurance used is decreasing term, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance

S, age 40, is looking to buy a Life Insurance policy that will allow for increases or decreases in coverage as his needs change. The policy best suited for S would be

Universal (life insurance is characterized by flexible premiums and an adjustable death benefit)

What type of life insurance incorporates flexible premiums and an adjustable death benefit?

Universal Life

In order to sell a ——- life policy a producer is required to register with the financial industry regulatory authority (FINRA)

Variable

Which of the following features of a group term life policy enables an individual to leave the group and continue his or her insurance without providing evidence of insurability?

Conversion Privilege

universal life policy is sometimes referred to as an unbundled life policy because the owner can see the interest earned, Cost of insurance, and the?

Expense Charges.

A life policy with a death benefit that can fluctuate according to the performance of its underlying investment portfolio is referred to as

Variable life

Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit?

Variable life

a(n) ---- policy offers the owner investment in products such as money-market funds, long-term bonds and equities

Variable life

Which of the following policies is characterized by a flexible premium and death benefit and allows the policy owner control of the investment aspect of the plan ?

Variable universal life

When is the face amount of a Whole Life policy paid?

When the insured dies or at the policy maturity date, whichever happens first

What type of insurance offers permanent life coverage with premiums that are payable for life?

Whole Life

Y purchased $100,000 Worth of permanent on himself and $50,000 worth of 10-year term coverage for his wife on the same policy. Which of these policies did Y Purchase?

Whole Life policy with an other Insured Rider

a life insurance policy that provides a policy owner with cash value along with a level face amount is called?

Whole life

Whole Life insurance policies are contractually guaranteed to provide each of the following EXCEPT

a) Cash value that will ultimately replace the death benefit b)nonforfeiture benefit options c)premiums that remain fixed for the life of the policy d) partial withdrawal features beyond a surrender charge period

All of these statements about Equity Indexed Life Insurance are correct EXCEPT

a)Cash value has a minimum rate of accumulation b)if the gain on the index goes beyond the policy's minimum rate of return, the cash value will mirror that of the index c)the premiums can be lowered or raised, based on investment performance d)Tied to an equity index such as the S&P 500 Answer-C

All of these are characteristics of an Adjustable Life policy EXCEPT

a)adjustable Premiums b)adjustable premium payment period c) Combination of term and whole life insurance d) face amount can be adjusted using policy dividends Answer-D

which of the following actions is not possible with universal life policy?

a)policy's cash value may be used to pay premiums b)premiums payments may be made at unscheduled times c)Premiums may be applied as a credit against income tax d)Face amount may be adjusted Answer is c