Life Insurance
One type of life insurance is a nonparticipating whole life policy in which cash values are based on the insurer's present mortality, investment, and expense experience. An accumulation account is used to reflect the cash value of the policy, and a fixed death benefit and maximum premium level are stated at the time the policy is issued. This type of life insurance is called
current assumption whole life
Incontestibility Clause
after 2 years
Policy Loan Provision
allows the policyholder to borrow the cash value
Which of the following statements is (are) true with respect to life insurance policy loans? Interest must be paid on life insurance policy loans. If a policy loan has not been repaid when the insured dies, the outstanding loan balance is deducted from the proceeds paid to the beneficiary.
both
Which of the following statements is (are) true with respect to the traditional net cost method of determining the cost per thousand of cash value life insurance? The traditional net cost per thousand per year can be a negative number. The traditional net cost method ignores interest that could have been earned on the premiums by investing them elsewhere.
both
Some term insurance policies permit the policyholder to exchange the policy for a cash value policy without having to demonstrate insurability. Such term insurance policies are described as
convertible
STOLI
- Stranger-Orignated Life Insurance - Typically target seniors
blended policies
A term insurance rider can be added to a cash-value policy to increase the total death benefit but still keep the policy affordable
four major factors of cost
Annual premiums Cash values Dividends Time value of money
shopping for life insurance credentials
Chartered Life Underwriter (CLU) Chartered Financial Consultant (ChFC) Certified Financial Planner (CFP)
Which of the following statements is (are) true with respect to the tax treatment of life insurance? A beneficiary who receives life insurance proceeds in a lump-sum does not have to pay income tax on the life insurance proceeds. Premiums paid by an individual for a life insurance policy on her own life are a tax-deductible expense.
I
Which of the following statements is (are) true regarding life insurance policyholder dividends? Life insurance policies that pay dividends to policyholders are called participating policies. Life insurance policyholder dividends are guaranteed.
I only
Which of the following statements is (are) true with respect to universal life insurance? Universal life insurance provides premium payment flexibility for the policyholder. Universal life insurance permits the policyholder to select where the cash value is invested.
I only
nonforfeiture options
Payment to withdrawing policyholder Cash value Reduced paid-up insurance Extended term insurance
Linton Yield
a method for comparing insurance products on an "apples to apples" basis
Elaine was diagnosed with a terminal illness. Her doctor said that her only chance of survival is an experimental treatment. The treatment is expensive and is not covered by Elaine's health insurance. Which life insurance policy provision will permit Elaine to use the life insurance proceeds before she dies to pay for her medical care?
accelerated death benefits rider
One life insurance policy provision permits the policyholder to pledge certain rights in the life insurance policy to secure a loan. This provision is called a(n)
collateral assignment
In determining the taxable estate, all of the following may be deducted from the gross estate of the deceased EXCEPT
interest income
Accidental Death Benefit Rider
doubles the face amount of life insurance if death occurs as a result of an accident
Lynn, age 32, would like to purchase permanent life insurance. She is concerned that premiums may become a burden after she retires. Given her coverage preferences, which of the following life insurance policies is the best policy for Lynn to purchase?
limited-payment whole life insurance
Which of the following is a measure of the rate of return on the savings portion of a cash value life insurance policy?
linton yeild
All of the following are nonforfeiture options EXCEPT
paid up additions
Dividends
payments of cash from a corporation to its stockholders
Len would like to purchase life insurance. Just before he left to see his agent, Marcy, his wife, said, "Be sure to consider participating coverage." A participating policy is a policy that
pays policyholder dividends
the two types of policies
term life and cash value life
All of the following life insurance policies develop a cash value EXCEPT
term life insurance
All of the following are defects of the traditional net cost method EXCEPT
the cash value of the policy is not considered.
Sheila would like to purchase a cash value life insurance policy. She is concerned, however, that if she becomes disabled she will be unable to pay the premiums as they come due. What provision can Sheila add to her policy to address this concern?
waiver-of-premium rider
From an economic perspective, "premature death" is defined as death of a family head
with outstanding financial obligations
time value of money
Money's potential to grow in value over time. The relationship between time, money, a rate of return, and earnings growth.
The first step in shopping for life insurance is to
determine whether you need life insurance
All of the following are characteristics of variable life insurance EXCEPT
flexible premium payments
Eric purchased a cash value life insurance policy six years ago. He forgot to pay the premium that was due last week. Eric's coverage is still in force because of which life insurance policy provision?
grace period provision
two approaches to life insurance
human life and needs
One life insurance policy provision specifies that the insurer cannot deny payment to the beneficiary because of concealment or misrepresentation if the life insurance policy has been in force for two years during the insured's lifetime. This provision is the
incontestable clause
The gross estate can be reduced by a number of deductions before estate taxes are assessed. One deduction is the value of property that is passed to a surviving spouse. This property is taxed later when the surviving spouse dies. This deduction is called
marital deduction
Which of the following statements is (are) true with respect to the human life value approach? The human life value approach considers all sources of income that the family receives. The human life value approach does not consider the time value of money-future cash flows are not discounted back to present value.
neither
Marcus is analyzing a life insurance policy. He calculated the future value of the premiums that he would pay over 20 years, then he subtracted the future value of the expected policyholder dividends over 20 years. Next, he converted the resulting value to an annual cash outflow while taking into consideration the time value of money. Finally, he divided the annual outflow by the number of thousands of dollars of coverage to arrive at a cost per thousand. Marcus calculated the
net payment cost per thousand per year.
Under the needs approach of determining the amount of life insurance to purchase, one consideration is providing income to the surviving spouse and children during the one- or two-year period following the breadwinner's death. This period is called the
readjustment period
Under which nonforfeiture option will permanent life insurance coverage be in force after the nonforfeiture option is exercised?
reduced paid up
All of the following are optional methods of settlement after the insured has died EXCEPT
reduced paid- up
Bob and Tonya are supporting their children, ages 4 and 2. Bob's father is also financially dependent upon Bob and Tonya. This type of family is called a(n)
sandwiched
Entire Contract Clause
states that the life insurance policy and attached application constitute the entire contract between the parties
All of the following factors must be considered in determining the interest-adjusted cost of cash value life insurance EXCEPT
stockholder dividends.
