Insurance Test 3 Questions
Which of the following about the use of ordinary life insurance is true? I: Its use is appropriate if a person needs lifetime insurance protection II: It enables a person to purchase significantly more insurance than if the same premium were used to purchase term insurance a: I only b: II only c: both I and II d: neither I nor II
a: I only
Which of the following statements about endowment policies is true? I. The face amount is paid if the insured dies during the policy period or at the end of the period if the insured is still alive II. The use of endowment insurance has increased in recent years a: I only b: II only c: both I and II d: neither I nor II
a: I only
Which of the following statements is (are) true regarding taxation of life insurance? I. Life insurance proceeds paid in a lump-sum are received free of federal income taxes II. The policyowner must pay taxes annually on the amount by which the cash value of his or her life insurance policy has increased a: I only b: II only c: both I and II d: neither I nor II
a: I only
All of the following statements about long-term care insurance are true EXCEPT: a: Premiums can be reduced by electing shorter elimination periods b: a common benefits trigger is the inability to perform a certain number of activities of daily living c: protection against inflation is usually made available as an optional benefit d: policies currently sold are guaranteed renewable
a: Premiums can be reduced by electing shorter elimination periods
Which of the following statements about the assignment of a life insurance policy is true? a: The insurer must be notified of any assignment or the death proceeds will be paid to the named beneficiary b: Under the absolute assignment, the only right transferred to a new owner is the right to change the beneficiary designation c: As long as a collateral assignment exists, a creditor will receive the entire death benefit even if the loan has been paid off d: Assignment may be made only with the permission of the insurer and the beneficiary
a: The insurer must be notified of any assignment or the death proceeds will be paid to the named beneficiary
The length of time major medical benefits will be paid after a deductible is satisfied is called a a: benefit period b: deductible runoff c: coinsurance period d: stop limit
a: benefit period
Bruce lied about his health history when he purchased a life insurance policy. He died 3 years after the policy was issued. Which life insurance policy provision will require the life insurer to pay the beneficiary even though Bruce lied on the application? a: incontestable clause b: entire contract clause c: ownership clause d: change-of-plan provision
a: incontestable clause
How do premiums for yearly renewable term insurance change as an insured gets older? a: they increase at an increasing rate b: they increase at a decreasing rate c: they decrease at a constant rate d: they remain level
a: they increase at an increasing rate
Which of the following about a VUL insurance policy is (are) true? I. There is a minimum guaranteed interest rate on all sub-accounts II. The policyowner has a variety of options for investment of the cash value a: I only b: II only c: both I and II d: neither I nor II
b: II only
Which of the following statements about a life insurance policy is (are) true? I. It is a policy of indemnity II. The insured event is the uncertainty regarding the time of death a: I only b: II only c: both I and II d: neither I nor II
b: II only
Which of the following statements about a typical accidental death benefit rider is (are) true? I. Death must occur within 14 days of the covered accident II. The accidental death must occur prior to some specified age a: I only b: II only c: both I and II d: neither I nor II
b: II only
Which of the following statements about dividend options is (are) true? I. The interest on dividends left to accumulate with the insurer is not considered to be taxable income II. Paid-up additions are a form of whole life insurance a: I only b: II only c: both I and II d: neither I nor II
b: II only
Which of the following statements about the ownership of a life insurance policy is (are) true? I. Under the ownership clause, the policyowner and beneficiary equally share all contractual rights in the policy while the insured is living II. The policyowner can designate a new owner by filing an appropriate form with the insurance company a: I only b: II only c: both I and II d: neither I nor II
b: II only
Major medical insurance is characterized by which of the following? a: internal limits for all categories of expenses b: high maximum limits c: no exclusions d: no coinsurance
b: high maximum limits
The first step in "shopping for life insurance" is to a: estimate the amount of life insurance to purchase b: decide whether you want a policy which pays dividends c: determine if you need life insurance d: decide on the best type of life insurance for you
c: determine if you need life insurance
Which of the following statements about universal life insurance is true? I. The interest rate credited to the cash value at the time of issuance remains fixed over the life of the policy II. A monthly deduction is made from a policy's cash value for the cost of insurance protection a: I only b: II only c: both I and II d: neither I nor II
b: II only
Paul is shopping for life insurance. An agent asked Paul if he would like to purchase a participating policy. What is a "participating" policy? a: a policy which has a cash value b: a policy which pays dividends c: a policy which invests in stock d: a policy which provides for an increasing death benefit
b: a policy which pays dividends
James purchased yearly renewable term insurance. All of the following are common characteristics of this coverage EXCEPT: a: evidence of insurability is not required to renew the coverage b: cash value accumulation is slow to moderate c: the number of times the coverage can be renewed is limited d: premiums increase at an increasing rate upon renewal
b: cash value accumulation is slow to moderate
Which of the following about decreasing term insurance is true? a: face amount decreases during the policy period; premiums increase b: face amount decreases during the policy period, but premiums remain level c: premium decreases during the policy period, but the face amount remains level d: both the premium and face amount of the policy decrease during the policy period
b: face amount decreases during the policy period, but premiums remain level
Bert purchased a life insurance policy 4 years ago. He inadvertently stated that he was 3 years younger than his actual age. If Bert dies today, how much will the insurance company pay? a: nothing b: less than the policy face value c: the policy face value d: more than the policy face value
b: less than the policy face value
Rachel needs permanent life insurance. Which method makes the most sense for her to employ? a: capital retention approach b: level-premium method c: human life value method d: yearly renewable term
b: level-premium method
All of the following are common exclusions in a major medical insurance policy EXCEPT a: routine dental care b: surgeons' fees c: expenses covered by workers compensation laws d: eye examinations
b: surgeons' fees
All of the following statements about ordinary life insurance are true EXCEPT: a: premiums are level throughout the policy period b: the face amount of the policy is paid if the insured lives to age 65 c: there is a buildup of CV that can be borrowed by the policyowner d: it offers policyowners flexibility to meet a variety of financial goals
b: the face amount of the policy is paid if the insured lives to age 65
The Linton Yield is one method a: to determine the interest rate credited to a cash value account b: to determine the rate of return on the savings portion of a cash value policy c: to determine the mortality costs to be charged d: to determine the policy reserve
b: to determine the rate of return on the savings portion of a cash value policy
The practice of buying the life insurance policy of a terminally ill insured at a discount is referred to as a a: collateral assignment b: viatical settlement c: catastrophic illness conversion d: grace period transaction
b: viatical settlement
Which statement is true concerning premature death and life expectancy? I. Life expectancy has increased in the U.S. over the last century II. Surviving family members may experience a reduction in their standard of living if the family breadwinner died prematurely a: I only b: II only c: both I and II d: neither I nor II
c: Both I and II
Which of the following statements about the entire contract clause is true? a: It allows the insurer to void a policy if the insured made misrepresentations to the agent when the policy was purchased b: It specifies that all statements in the application are considered warranties c: It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties d: It prevents the insurance company from contesting a policy after it has been in force for 2 years during the lifetime of the insured
c: It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties
The human life value is defined as the: a: present value of a deceased b: future value of a deceased breadwinner's past earnings c: PV of the family's share of a deceased breadwinner's future earnings d: FV of the family's share of a deceased breadwinner's future earnings
c: PV of the family's share of a deceased breadwinner's future earnings
Which of the families below is likely to have the least need for a large life insurance policy? a: a blended family b: a traditional family c: a single person family d: a sandwiched family
c: a single person family
Problems with the current health care system in the United States include which of the following? I. A large number of people are without health care coverage II. The administrative costs of delivering health care are high a: I only b: II only c: both I and II d: neither I nor II
c: both I and II
Purposes of coinsurance provisions in major medical insurance policies include which of the following? I. to reduce premiums II. to prevent over utilization of policy benefits a: I only b: II only c: both I and II d: neither I nor II
c: both I and II
Reasons for NOT purchasing an accidental death benefit rider include which of the following? I. Most people die as a result of a disease rather than from an accident II. The economic value of a human life is not increased if death occurs because of an accident a: I only b: II only c: both I and II d: neither I nor II
c: both I and II
The basic benefits provided by individual hospital expense insurance coverage include which of the following? I. Daily hospital visits II. Miscellaneous hospital expenses, such as X-rays and lab tests a: I only b: II only c: both I and II d: neither I nor II
c: both I and II
Which of the following statements is (are) true regarding the calendar-year deductible used in most major medical policies? I. Once the deductible is satisfied, no additional deductible is payable during the calendar year II. A carryover provision helps to avoid paying two deductibles in a short period of time a: I only b: II only c: both I and II d: neither I nor II
c: both I and II
Tamara purchased a term insurance policy when she had high life insurance needs and limited income. Now Tamara can afford whole life insurance. What term life insurance provision will permit Tamara to switch her term insurance to whole life insurance without having to show that she is still insurable? a: renewal provision b: tax-free exchange provision c: conversion provision d: free look provision
c: conversion provision
The purpose of an estate clearance fund is to pay all of the following EXCEPT a: burial expenses b: estate administration expenses c: education costs d: installment debts
c: education costs
The NAAR for a life insurance policy is the difference between the a: present value of future benefits and the present value of future premiums b: face amount of the policy and the total premiums that have been paid c: face amount of the policy and the legal reserve d: annual premium and the annual policy dividend
c: face amount of the policy and the legal reserve
Consumer experts typically recommend all of the following rules when buying life insurance EXCEPT: a: consider the financial strength of the insurer b: deal with a competent agent c: ignore all factors other than cost d: shop around for a low-cost policy
c: ignore all factors other than cost
All of the following statements about universal life insurance are true EXCEPT a: interest is credited monthly to a policy's cash value b: any withdrawal of cash value reduces the death benefit c: interest credited to a policy's cash value is taxable to the policyowner in the year credited d: the policyowner can add to a policy's cash value at any time subject to policy guidelines
c: interest credited to a policy's cash value is taxable to the policyowner in the year credited
All of the following about the tax treatment of individually-purchased life insurance are true EXCEPT a: policyowner dividends are received tax-free b: the annual increase in cash value is not taxable while the policy remains in force c: premiums paid for individual life insurance are tax deductible d: life insurance proceeds paid to a beneficiary in a lump-sum are received tax-free
c: premiums paid for individual life insurance are tax deductible
Major factors that must be considered in determining the cost of life insurance include all of the following EXCEPT: a: time value of money b: premiums paid c: settlement options d: dividends
c: settlement options
Diane is a single parent. She has limited income and significant life insurance needs. Which type of life insurance makes sense for someone in this situation? a: limited-payment whole life insurance b: variable life insurance c: term insurance d: endowment insurance
c: term insurance
Which of the following statements about beneficiary designations is true? a: a primary beneficiary is entitled to the death proceeds of a life insurance policy only if the contingent beneficiary dies before the insured b: if a revocable beneficiary designation is used, the insured must obtain the beneficiary's permission to exercise most policy rights c: the effect of a class beneficiary is to divide death proceeds equally among the members of a particular group d: naming the insured's estate as primary beneficiary is the best way to avoid probate expenses, inheritance taxes, and claims of creditors
c: the effect of a class beneficiary is to divide death proceeds equally among the members of a particular group
If the insured has any incidents of ownership in the policy at the time of death a: the entire proceeds are included in the gross estate of the insured for federal income tax purposes b: the value above his/her basis is included in the gross estate of the insured for federal estate tax purposes c: the entire proceeds are included in the gross estate of the insured for federal estate tax purposes d: none of the above
c: the entire proceeds are included int he gross estate of the insured for federal estate tax purposes
What major feature distinguishes a participating policy from a nonparticipating policy? a: the availability of a waiver-of-premium provision b: the existence of settlement options c: the payment of dividends d: the method by which beneficiaries can be named
c: the payment of dividends
Carl would like to purchase life insurance. He would also like to invest in a mutual fund. An agent told Carl about a form of life insurance in which Carl could select where the saving component is invested. This form of life insurance has fixed premiums and the cash value is not guaranteed. This type of life insurance is called a: variable universal life insurance b: current assumption whole life c: variable life insurance d: indeterminate-premium whole life
c: variable life insurance
Which $50,000 life insurance contract if purchased when the insured was 32, would have the highest cash value when the insured is 50? a: whole life paid at 65 b: 10 year level term c: continuous premium whole life d: 10 payment whole life
d: 10 payment whole life
Which of the following statements about limited-payment life insurance is true? a: It is a form of term insurance b: It matures at the end of the premium-paying period c: the premium decreases each year during the premium-paying period d: Its use may be appropriate if a person wants paid-up life insurance by retirement
d: Its use may be appropriate if a person wants paid-up life insurance by retirement
Which of the following statements about the waiver-of-premium provision is true? a: Because the probability of becoming disabled exceeds the probability of premature death, the cost to include this provision is usually prohibitive at younger ages b: Premiums are usually waived if the insured becomes partially disabled c: Life insurance protection continues in force during a period of disability, but dividends cease and cash values are reduced d: The disability must occur before a stated age, such as 65, for premiums to be waived
d: The disability must occur before a stated age, such as 65, for premiums to be waived
All of the following statements about the requirements to reinstate a lapsed life insurance policy are true EXCEPT a: Evidence of insurability is required b: The lapse must have resulted from something other than the surrender of the policy for its cash value c: All overdue premiums must be paid along with interest from the premium due dates d: The policy must be reinstated within 1 year
d: The policy must be reinstated within 1 year
All of the following are reasons an insurer can contest a policy after the contestable period has ended EXCEPT a: The beneficiary purchased a policy with the intent of murdering the insured b: An insurable interest did not exist at the inception of the policy c: The applicant for insurance had someone else take the medical examination required for policy approval d: The policyowner concealed a material fact at the time of application
d: The policyowner concealed a material fact at the time of application
All of the following statements about individual disability income policies are true EXCEPT a: premiums are often waived while a person is disabled but must be resumed if the insured recovers b: at the time of purchase, the insured can choose the length of the benefit period from among several available options c: in order to encourage rehabilitation, benefits may be continued during periods of vocational training d: most long-term disability policies contain an elimination period of 30 or fewer days
d: most long-term disability policies contain an elimination period of 30 or fewer days
All of the following statements about term insurance are true EXCEPT: a: the insurance provides protection for a temporary period of time b: most policies can be renewed for without evidence of insurability c: most policies can be converted to a permanent life insurance policy d: most policies have a CV that is refunded when coverage ceases
d: most policies have a CV that is refunded when coverage ceases
Which of the following about life income settlement options is true? I. Under a joint-and-survivor life income option, payments cease at the death of the first annuitant II. Under a life income with period certain, a contingent beneficiary is guaranteed a minimum number of payments regardless of when the primary beneficiary dies a: I only b: II only c: both I and II d: neither I nor II
d: neither I nor II
Which of the following about yearly renewable term insurance is true? I. It requires evidence of insurability for renewal II. It is most appropriate when an insured needs lifetime protection a: I only b: II only c: both I and II d: neither I nor II
d: neither I nor II
Which of the following statements about disability is (are) true? I. The economic loss to a family from the breadwinner's long-term total and permanent disability is less than the economic loss from the bread-winner's premature death II. The probability of a working individual, age 25, being disabled at least 3 months before age 65 is less than 1 percent a: I only b: II only c: both I and II d: neither I nor II
d: neither I nor II
Alex, age 26, purchased a 20-payment whole life insurance policy. After Alex has made 20 premium payments, his life insurance policy is considered a: matured b: reduced c: expired d: paid-up
d: paid-up
All of the following are common dividend options found in participating whole life insurance policies EXCEPT a: reduction of premiums b: dividend accumulations c: purchase of paid up insurance d: purchase of insurance company stock
d: purchase of insurance company stock
Tom and Nancy Boyle provide financial support for their two children. In addition, they provide financial support for Tom's aged father and Nancy's aged mother. The Boyle family can be described as a a: blended family b: single-parent family c: two-income earner family d: sandwiched family
d: sandwiched family
