NWM Chapter 6 review
When premiums are determined, one factor would be the expenses of the
insurer
Life insurance premiums are computed on what three factors?
Mortality, interest, expenses
Which tax cost is normally associated with death?
Federal estate tax
Which life insurance policy provision prohibits a beneficiary from "commuting, encumbering, withdrawing, or assigning" any portion of the proceeds prior to actual receipt from the company?
Spendthrift clause
A terminally ill policyowner decides to sell his life insurance policy at a discount to help support his family. This sale is called a(n)
viatical settlement
A policyowner with a terminal illness who sells his life insurance policy to a third party is called a
viator
How long do most states allow an insurance company to delay the payment of a cash surrender under the Delayed Payment provision?
6 months
Which of these is an accurate statement regarding the fixed period settlement option on a life insurance policy?
A portion of the payments paid to the beneficiary comes from interest calculated on the proceeds of the policy
The highest mortality rate belongs to which group?
Age 70 males
Kevin has an existing life insurance policy and assigns it to another insurer for a new contract. How would this transaction be treated for tax purposes?
As a Section 1035 exchange
Which would be described as a beneficiary designation by class?
Children of the insured
What effect does interest income have upon insurance premiums?
Decreases premium
A policyowner fell behind on the premium payments of a whole life policy and is now in the grace period. How much will the beneficiary receive if the insured dies during this grace period and the policy also contains an outstanding policy loan?
Face amount minus the loan balance and past-due premium
Which tax is normally associated with an individual's death?
Federal estate tax
Which life insurance settlement option pays a stated monthly benefit until both principal and interest are exhausted?
Fixed amount installment option
Which settlement option makes minimum guaranteed dollar payments over a stated number of years?
Fixed-Period
Where will a life insurance policy's proceeds be directed to if all the beneficiaries die before the insured?
Insured's estate
Which statement is INCORRECT about the interest-only settlement option in a life insurance policy?
Interest on proceeds must be paid by the beneficiary
When a policy loan is requested by a policyowner and it requires the consent of the beneficiary, what kind of beneficiary designation is this?
Irrevocable beneficiary
Which life insurance settlement option pays lifetime benefits to two or more people?
Joint and survivor
A life insurance beneficiary died after receiving only six payments under the policy's life income settlement option. What happens with the remaining balance of the death proceeds?
Kept by the insurance company
How much is normally paid to a policyowner in a life (viatical) settlement?
Less than the death benefit
What would be a valid reason for naming a trust as the beneficiary of a life insurance policy as opposed to naming an individual?
Management of proceeds would be provided
What is considered a valid reason for an insurer's refusal to pay policy proceeds directly to a minor?
Minors are normally not capable of handling money in a reasonable manner
Wyatt is shopping for life insurance and is mainly concerned with the policy's death benefit. Which index should he be looking at when making comparisons?
Net payment cost index
A life insurance company just paid a $100,000 death benefit to a beneficiary. When the insured died, the cash value was $15,000 and the total premiums-paid equaled $10,000. How much of the proceeds will be added to the beneficiary's gross income for federal income tax purposes?
Nothing
Which statement best describes a single premium whole life policy?
Paid-up policy that offers lifetime protection
The beneficiary of a life insurance policy is normally selected by whom?
Policyowner
Which of these factors does NOT affect life insurance premium rates?
Producer Certification
Which of these occurrences could improve an insurer's ability to reduce premiums?
Rate of earnings on investments increase
T is covered by an Accidental Death and Dismemberment (AD&D) policy that contains an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?
Request of the change will be refused
What kind of arrangement gives the policyowner the right to change the beneficiary?
Revocable designation
Switching Life insurance policies without tax consequence is permitted under
Section 1035 rules
Which statement regarding the joint and survivor life insurance settlement option is NOT true?
The amount of each installment is larger than the single life income option
Which statement regarding a fixed period settlement option is correct?
The installment payment amount is determined by the total number of installments
Which of the following statements about the installments for a fixed period settlement option in life insurance policies is NOT true?
The periodic payment amount is determined by the beneficiary's age
Who is the beneficiary in a life insurance policy?
The stated person or entity who is designated to receive the death proceeds
What would be the disadvantage of naming a trust as beneficiary of a life insurance policy?
Trust administration fees would reduce policy proceeds
When there is a named beneficiary on a life insurance policy, the death benefits
are paid directly to the beneficiary without interference from the insured's creditors
A life policy's spendthrift clause would have no effect if the beneficiary is paid the proceeds as a
lump-sum payment
Al surrenders his life insurance policy for its cash value. The total of premiums paid into the policy minus total dividends received in cash or used to offset premiums is referred to as the
cost basis
Death benefits from a life insurance policy are normally considered to be
exempt from federal income tax
Death proceeds from a life insurance policy are typically included in a deceased insured's gross estate
for federal income tax reasons
During the early years of a whole life insurance policy, the cash value will normally be
less than the total premiums paid
A life insurance policy's contingent beneficiary is the
person who receives the death benefits if the primary beneficiary dies before the insured
