Life Insurance Policies TEST

Cheryl Schultze, age 27, is advised by her producer to purchase life insurance to cover a 20-year-amortized $50,000 business-improvement loan. Which plan would adequately protect Ms. Schultze at the minimum premium outlay:

A $50,000 Decreasing Term policy for 20 years Explanation: The key words here are "minimum premium." Term is the most inexpensive type of coverage. Since Cheryl's $50,000 loan will be paid off over 20 years and the loan balance will decrease each year, Decreasing Term makes sense. Decreasing Term is not renewable or convertible.

The plan of Permanent Life insurance that offers cash value at the lowest premium is:

A Whole Life policy

A single premium used to buy a Whole Life policy will pay up the policy:

For the life of the policy

Which of the following policies provides only a Death benefit that declines over a definite and limited period of time

Decreasing Term

Which policy is generally used to accumulate funds for education:

Endowment

survivorship life insurance

Explanation: Survivorship life insurance policies only pay when the last party dies and are often used to pay estate taxes.

An insured has a 30-year decreasing term life insurance policy with a $90,000 policy limit. If they die 20 years into the policy period, how much will the insurer pay:

$30,000 EXPLANATIONSince the amount of coverage decreases on a decreasing term policy, you can easily eliminate one of the answers, since you know they will not pay the full face amount. From there you can determine that the face amount will have decreased by 2/3rds since the coverage term is 2/3rds complete. 2/3rds of $90,000 is $60,000, which would leave 1/3rd or $30,000 remaining.

At age 30, Clark Peterson wishes to purchase a Whole Life policy. His producer explains that he can pay for the policy in several ways. One method is called 20-Pay Life, and another, Straight Life. Clark wishes to know which plan will accumulate cash value at a faster rate in the early years of the policy. Which of the following would be the producer's most appropriate response:

20-Pay Life will accumulate cash value faster."

Mr. Shulkin owns a 30-Pay life policy that he purchased at the age of 30. The cash value will equal the face amount of the policy when he reaches the age of:

Correct Answer: 120 Explanation: Limited pay life insurance policies such as Life Paid Up at 65 or 20-Pay Life are simply variations of Whole Life policies. The cash value will equal the face amount of the policy (at least) at the maturity of the policy, which is always age 120 on Whole Life policies. These limited-pay policies are designed so that the insured may pay their premiums faster and be "paid up" at a certain age. However, just because the premiums are paid up doesn't mean the policy has matured.

Which statement about a Renewable Term policy is true:

It is renewable at the option of the insured

Which of the following is an example of a Limited-Pay life policy:

Life Paid-Up at age 65

If an insured makes an assignment to a third party for an amount less than the death benefit of the policy, it is known as a:

Life settlement

What type of life insurance has limits on either the number of years premiums must be paid or the age by which all premiums must be paid

Limited pay whole life

Which of the following is NOT true regarding Universal Life insurance policies:

Loans are prohibited

Which type of Life insurance is written as whole life:

Single premium

An employee becomes ineligible for the group plan. The employee has the option to convert their $10,000 of group coverage to individual coverage within 31 days. Which of the following is true:

The employee can convert to a maximum of $10,000 of whole life coverage without a physical exam, with the premium based on the insured's age at conversion Explanation: The insured is eligible to convert from the group policy to an individual policy issued by the same insurer within 31 days of ineligibility. The insured CANNOT convert to term, but they can convert to a more expensive type of life insurance, such as whole life. There is no underwriting to convert to an individual policy, however the ex-employee would be responsible for paying the entire premium, which is based on their age at conversion (attained age), not age of enrollment in the group. When converting from a group policy the individual can only convert to a face amount that is no higher than that of the group policy

Which policy provides the greatest amount of protection for an insured's premium dollar as well as some cash accumulation:

Whole Life

Francisco purchases a five year non-renewable level term policy with a $100,000 policy limit and dies eight years later. How much will his beneficiary receive:

Zero

The insured can receive the face amount of an Endowment policy if they are still living when the policy's:

Cash value equals the face amount

An employee's evidence of participation in a Group Life plan is the:

Certificate of Insurance

A Whole Life policy furnishes a form of Permanent protection because it never has to be:

Renewed or converted

Variable life insurance

Variable life insurance is sold with a fixed, level premium. It is variable/universal life that has a flexible premium.

When a corporation establishes a contributory Group Term contract, what percentage test must be met for participation:

75%

Life settlement contracts are between the:

Policy holder and a third party

Which statement is true about the premium payment schedule for a Whole Life policy:

Premiums are payable throughout the insured's lifetime, and coverage continues until the insured's death

Which of the following statements about Adjustable Whole Life is true:

Adjusting the premium will also adjust the face amount Adjustable Whole Life is marketed to meet an insured's changing needs and ability to pay premiums in an uncertain economic climate. It is the most flexible type of Whole Life insurance. The insured can adjust the premium, face amount or the length of coverage. If the insured increases the premium they pay, the cash value will build faster and the face amount of coverage will increase. However, no physical exam is required unless the insured wants to increase the face amount above that which they originally purchased.

An insurance prospect wants to purchase a policy that will accumulate the largest amount of cash by the age of 65. Which policy would be most likely to satisfy the prospect's needs:

Endowment at age 65 Since an Endowment at age 65 reaches maturity at age 65, rather than age 120, it will be much more expensive than an LP 65. Since it is more expensive, it will also build cash values much faster, since the face amount and the cash value must be at least equal by age 65.

When an insured purchases a Decreasing Term policy, which of the following decreases each year:

Explanation: Although the premium remains the same each year on Decreasing Term insurance, the face amount decreases, usually straight line each year. So, if you bought a 20-year Decreasing Term policy, after 10 years your face amount would be reduced by half. However, since the premium remains the same, you could say the cost of your insurance had doubled! Decreasing Term has no cash value. It is usually convertible, but not renewable.

Credit Life insurance

Credit life is a type of decreasing term insurance written on the life of the debtor. Proceeds from the policy are payable to the creditor to extinguish the debtor's debt. The maximum policy period cannot exceed the life of the loan, and the policy limit cannot exceed the amount owed. It is not unlimited!

What type of Life insurance has a rate of return that may keep up with inflation, but will never fall below the minimum guaranteed in the policy:

Equity indexed life

On term life insurance, the re-entry option is contingent upon:

Being able to pass a physical exam

Universal Life insurance

Proceeds payable to a beneficiary are taxable An advantage of UL is the flexibility of premium payments, meaning that if there is adequate cash value in the policy, the customer may skip premium payments and the policy won't lapse. UL policies are also considered to be "transparent," meaning that the expenses, such as the cost of insurance protection, must be clearly shown. Policy loans are permitted, but proceeds payable to a beneficiary are not taxable.

Which type of insurance policy would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources:

Term

All of the following is true about Universal Life, EXCEPT:

The death benefit paid to the beneficiary is taxable as ordinary income

Which of the following best describes the normal Conversion benefit available to terminated employees under a Group Life insurance policy?

The employee may convert to an individual Permanent Life policy within 31 days without submitting evidence of insurability

Which of the following is NOT true regarding employer group life insurance:

The employer is the beneficiary

If a client buys a new $50,000 life insurance policy and dies 1 month later:

The insurer must pay the claim