Life Insurance Policies - Quiz Questions & Answers

All of the following could own group life insurance EXCEPT A. A group needing low-cost life insurance. B. A group sponsored by an employer. C. An alumni group. D. A debtor group.

A. A group needing low-cost life insurance. Groups purchasing group life insurance must be formed for a reason other than purchasing insurance.

Which of the following are generally NOT considered when underwriting group insurance? A. The size of the group B. The insureds' medical history C. The nature of the group D. The group's past claim experience

B. The insureds' medical history Group life insurance is written on a group, not individual basis. Each individual completes an application that identifies the participant and beneficiary. Then, the group is judged based on its nature and past claim experience. Generally, medical questions are not necessary.

A Straight Life policy has what type of premium? A. A decreasing annual premium for the life of the insured B. A variable annual premium for the life of the insured C. A level annual premium for the life of the insured D. An increasing annual premium for the life of the insured

C. A level annual premium for the life of the insured Straight Life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit.

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated? A. Those who have dependents B. Those who have no history of claims C. Those who have been insured under the plan for at least 5 years D. Those who have worked in the company for at least 3 years

C. Those who have been insured under the plan for at least 5 years If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage.

Which statement is NOT true regarding a Straight Life policy? A. Its premium steadily decreases over time, in response to its growing cash value. B. The face value of the policy is paid to the insured at age 100. C. It usually develops cash value by the end of the third policy year. D. It has the lowest annual premium of the three types of Whole Life policies.

A. Its premium steadily decreases over time, in response to its growing cash value. Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.

Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? A. Joint Life B. Decreasing Term C. Whole Life D. Ordinary Life

A. Join Life A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy A. Required a premium increase each renewal. B. Built cash values. C. Required proof of insurability every year. D. Decreased death benefit at each renewal.

A. Required a premium increase each renewal. Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.

Which of the following statements is correct regarding a whole life policy? A. The policyowner is entitled to policy loans. B. Cash values are not guaranteed. C. The policy premium is based on the attained age. D. The death benefit may increase or decrease during the policy period.

A. The policyowner is entitled to policy loans. Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans.

All of the following are characteristics of a group life insurance plan EXCEPT A. There is a requirement to prove insurability on the part of the participants. B. The participants receive a Certificate of Insurance as their proof of insurance. C. A minimum number of participants is required in order to underwrite the plan. D. The cost of the plan is determined by the average age of the group.

A. There is a requirement to prove insurability on the part of the participants.

Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be A. Discounted. B. Adjusted to the insured's age at the time of renewal. C. Determined by the health of the insured. D. Based on the issue age of the insured.

B. Adjusted to the insured's age at the time of renewal. If a level term product is renewed at the end of the term period the premium will be based upon the attained age of the insured.

In increasing and decreasing term policies, which policy component fluctuates during the policy term? A. Nonforfeiture values B. Death benefit C. Premium D. Cash value

B. Death benefit Correct! There are three basic types of term policies: level, increasing and decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may change.

If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may A. Increase medical requirements on existing members. B. Require evidence of insurability. C. Require a higher premium. D. Prolong the open enrollment period.

B. Require evidence of insurability. In group underwriting the evidence of insurability is usually not required of each participant unless he or she is enrolling for coverage outside of the normal enrollment period.

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called A. Graded premium whole life. B. Single premium whole life. C. Modified Endowment Contract (MEC). D. Level term life.

B. Single Premium whole life. Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception.

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? A. The premium for individual coverage will be based upon the insured's attained age. B. The insured may choose to convert to term or permanent individual coverage. C. The insured would not need to prove insurability for a conversion policy. D. The insured may convert coverage to an individual policy within 31 days.

B. The insured may choose to convert to term or permanent individual coverage. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance.

An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term? A. The insured may renew the policy for another 10 years at the same premium rate. B. The insured may renew the policy for another 10 years, but at a higher premium rate. C. The insured must provide evidence of insurability to renew the policy. D. The insured may only convert the policy to another term policy.

B. The insured may renew the policy for another 10 years, but at a higher premium rate. Policies that are guaranteed renewable and convertible may be renewed, without evidence of insurability, for another like term, or may be converted to permanent insurance, without evidence of insurability.

The death protection component of Universal Life Insurance is always A. Adjustable Life B. Decreasing Term C. Annually Renewable Term D. Whole Life

C. Annually Renewable Term A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

The death benefit under the Universal Life Option B A. Increases for the first few years of the policy, and then levels off. BRemains level. C. Gradually increases each year by the amount that the cash value increases. D. Decreases by the amount that the cash value increases.

C. Gradually increases each year by the amount that the cash value increases. Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases.

Which of the following has the right to convert the existing term coverage to permanent insurance? A. Beneficiary B. Producer C. Policyowner D. Insurer

C. Policyowner Convertible term insurance gives the policyowner the right to convert the policy to a permanent insurance policy without evidence of insurability.

To sell variable life insurance policies, an agent must receive all of the following EXCEPT A. A securities license. B. A life insurance license. C. SEC registration. D. FINRA registration.

C. SEC registration. Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.

A domestic insurer issuing variable contracts must establish one or more A. Annuity accounts. B. General accounts. C. Separate accounts. D. Liability accounts.

C. Separate accounts. Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

Which of the following would help prevent a universal life policy from lapsing? A. Adjustable premium B. Corridor of insurance C. Target premium D. Face amount

C. Target premium The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Which of the following statements about group life is correct? A. The group sponsor receives a Certificate of Insurance. B. The policy can be converted to an individual term insurance policy. C. The cost of coverage is based on the ratio of men and women in the group. D. The premiums are higher than in an individual policy because there is no medical exam.

C. The cost of coverage is based on the ratio of men and women in the group.

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen? A. The insurer will pay the death benefit minus one month's premium. B. The insurer will pay nothing because the employee has terminated his group insurance and hasn't started the individual one. C. The insurer will pay the full death benefit from the group policy to the beneficiary. D. The insurer will pay a reduced death benefit to the beneficiary.

C. The insurer will pay the full death benefit from the group policy to the beneficiary. The employee usually has a period of 31 days after terminating from the group in order to exercise the conversion option. During this time, the employee is still covered under the original group policy. Note - It is not arrears. You pay for next months the month prior. So no premium required.

Which of the following determines the cash value of a variable life policy? A. The policy's guarantees. B. The premium mode C. The performance of the policy portfolio D. The company's general account

C. The performance of the policy portfolio The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. Personal Note - Cash Value is designed to trick you into thinking tax-free AKA Premium. But what they mean is interest+premium.

A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why? A. There are not enough people in the group to qualify for group life insurance. B. The group has not been established for long enough. C. The purpose of the group was to purchase life insurance. D. Their profession poses too high of a risk for the insurer.

C. The purpose of the group was to purchase life insurance. In order to qualify for small group life insurance, a group must be formed for a purpose other than attaining life insurance.

Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? A. Variable life B. Adjustable life C. Universal life D. Flexible life

C. Universal life With universal life policies, the policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium, and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

Jack has a $20,000 life insurance policy on himself. He wants to insure the life of his 13 year old daughter. According to New York law, what is the maximum amount of life insurance he can purchase on his daughter? A. $5,000 B. $7,500 C. $10,000 D. $50,000

D. $50,000 The limits for a minor under 14½ are $50,000 or 50% of the amount of insurance a person has on him/herself. $10,000 is 50% of $20,000, but Jack can purchase the greater amount of either $50,000 or 50%.

The death protection component of Universal Life Insurance is always A. Whole Life B. Adjustable Life C. Decreasing Term D. Annually Renewable Term

D. Annually Renewable Term A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

Which of the following is TRUE about credit life insurance? A. Debtor is the annuitant. B. Creditor is the insured. C. Debtor is the policy beneficiary. D. Creditor is the policyowner.

D. Creditor is the policyowner. In credit life insurance, the creditor is the policyowner and the beneficiary; the debtor is the insured.

Which of the following is NOT allowed in credit life insurance? A. Creditor having a collateral assignment on the policy B. Creditor requiring that a debtor has a life insurance C. Creditor becoming a policy beneficiary D. Creditor requiring that a debtor buys insurance from a certain insurer

D. Creditor requiring that a debtor buys insurance from a certain insurer In credit life insurance, a creditor may require that the debtor have life insurance, but they cannot require the debtor to purchase insurance through a specific insurer.

Which of the following terms best describe the coverage provided by term policies, as compared to any other form of protection? A. Least B. Most comprehensive C. Longest D. Greatest

D. Greatest Term policies provide for the greatest amount of coverage for the lowest premium, as compared to any other form of protection.

Annually renewable term policies provide a level death benefit for a premium that A. Decreases annually. B. Remains level. C. Fluctuates. D. Increases annually.

D. Increases annually. Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.

Which of the following best describes annually renewable term insurance? A. It requires proof of insurability at each renewal. B. Neither the premium nor the death benefit is affected by the insured's age. C. It provides an annually increasing death benefit. D. It is level term insurance.

D. It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it? A. Variable Life B. Adjustable Life C. Graded Premium Life D. Limited-pay Life

D. Limited-pay Life In limited-pay policies, the premiums for coverage will be completely paid-up well before age 100, usually after a specified number of years.

Which Universal Life option has a gradually increasing cash value and a level death benefit? A. Juvenile life B. Term insurance C Option B D. Option A

D. Option A Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures. Personal Note - They try to trick you by listing option B over A. Level death benefit vs increasing death benefit is the key here

All of the following are characteristics of group life insurance EXCEPT A. Amount of coverage is determined according to nondiscriminatory rules. B. Individuals covered under the policy receive a certificate of insurance. C. Certificate holders may convert coverage to an individual policy without evidence of insurability. D. Premiums are determined by the age, sex and occupation of each individual certificate holder.

D. Premiums are determined by the age, sex and occupation of each individual certificate holder. Premiums are determined by the age, sex and occupation of the entire group.

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy A. Built cash values. B. Required proof of insurability every year. C. Decreased death benefit at each renewal. D. Required a premium increase each renewal.

D. Required a premium increase each renewal. Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.

Which of the following is called a "second-to-die" policy? A. Family income B. Juvenile life C. Joint life D. Survivorship life

D. Survivorship life Survivorship life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.

Which of the following is TRUE regarding the insurance amount in a credit life policy? A. The creditor may insure the debtor for an unlimited amount of coverage. B. Allowable amount of coverage is determined by the State Insurance Commissioner. C. The amount of coverage can be greater than the amount owed. D. The creditor can only insure the debtor for the amount owed.

D. The creditor can only insure the debtor for the amount owed. Credit life insurance cannot pay out more than the balance of the debt, so that there is no financial incentive for the death of the insured.

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? A. Universal Life - Option B B. Equity Indexed Universal Life C. Variable Universal Life D. Universal Life - Option A

D. Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

Which of the following is a key distinction between variable whole life and variable universal life products? A. Variable universal life is regulated solely through FINRA. B. Variable whole life allows policy loans from the cash value. C. Variable universal life has a fixed premium. D. Variable whole life has a guaranteed death benefit.

D. Variable whole life has a guaranteed death benefit. Variable universal life insurance may or may not have a minimum death benefit, unlike variable whole life insurance which guarantees a minimum death benefit.

When would a 20-pay whole life policy endow? A. At the insured's age 65 B. After 20 payments C. In 20 years D. When the insured reaches age 100

D. When the insured reaches age 100 A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.