Types of Life Insurance Policies--Chapter 2
Traditional Whole Life Products Which of the following has the right to convert the existing term coverage to permanent insurance? APolicyowner BInsurer CBeneficiary DProducer
A. Policyowner Convertible term insurance gives the policyowner the right to convert the policy to a permanent insurance policy without evidence of insurability.
Indexed Annuities The current interest rate on an equity indexed annuity is often based on AThe insurance company's general account investments. BAn index like Standard & Poor's 500. CThe returns from the insurance company's separate account. DThe annuitant's individual stock portfolio.
B An index like Standard & Poor's 500. Equity indexed annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Interest rates on equity indexed annuities are often tied to a familiar index, such as the Standard and Poor's 500.
Indexed Life What is another name for interest-sensitive whole life insurance? AAdjustable life BCurrent assumption life CVariable life DTerm life
B Current assumption life Interest-sensitive whole life, also referred to as current assumption life, is a whole life policy that provides a guaranteed death benefit to age 100.
Payout Options An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n) AImmediate Annuity. BEquity Indexed Annuity. CVariable Annuity. DFlexible Annuity.
B Equity Indexed Annuity. Correct! The interest rates of Equity Indexed Annuities are tied to the Standard and Poor's Index.
Types A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this? ALimited pay whole life BLevel term CTerm to specified age DOrdinary life policy
B. Level term A 20-year term policy is written to provide a level death benefit for 20 years.
2. Special Features All of the following are true regarding a decreasing term policy EXCEPT AThe face amount steadily declines throughout the duration of the contract. BThe payable premium amount steadily declines throughout the duration of the contract. CThe death benefit is $0 at the end of the policy term. DThe contract pays only in the event of death during the term and there is no cash value.
B. The payable premium amount steadily declines throughout the duration of the contract. Premiums remain level with a decreasing term policy; only the face amount decreases.
Annuities Certain (Types) An individual buys a flexible premium deferred life annuity with 20 year period certain. What would his beneficiary receive if he died 5 years after beginning the annuity phase? ANothing BPayments for 15 years CPayments for 20 years DPayments for life
B Payments for 15 years Correct! With any period certain, death of the annuitant within the stated period will provide payments to the beneficiary only for the remainder of the period certain.
Survivorship Life (Second to Die) In a survivorship life policy, when does the insurer pay the death benefit? AUpon the first death BHalf at the first death, and half at the second death CIf the insured survives to age 100 DUpon the last death
D Upon the last death Correct! Survivorship life pays on the last death rather than upon the first death.
Annuity Investment Options An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin after 1 year since the annuity was purchased. What type of annuity is it? AImmediate BDeferred CFixed DFlexible premium
B Deferred Correct! Deferred annuities may be purchased with either a single lump sum or periodic payments, but they do not begin the income payments until sometime after 1 year from the date of purchase.
Annuities Certain (Types) If a contract provides a set amount of income for two or more persons with the income stopping upon the first death of the insured, it is called a APure annuity. BJoint life annuity. CJoint and survivor annuity. DDeferred annuity.
B Joint life annuity. Joint life annuity settlement option pays benefits to two or more annuitants, but stops upon the death of the first.
Annually Renewable Term Which of the following best describes annually renewable term insurance? AIt provides an annually increasing death benefit. BIt is level term insurance. CIt requires proof of insurability at each renewal. DNeither the premium nor the death benefit is affected by the insured's age.
B. It is level term insurance. Correct! Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.
Annuities Certain (Types) A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select? ACash refund annuity BStraight life CJoint and survivor DJoint annuity
C Joint and survivor Correct! Under a joint settlement option, payments would stop at the first death, but under the joint and survivor, payment would continue until both recipients die. Usually, the surviving beneficiary receives 1/2 or 2/3 of the amount received when both beneficiaries were alive.
Fixed Period Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive AThe amount paid into the annuity. BThe remainder of the principal. CNothing; the payments will cease. DGuaranteed minimum benefit.
C Nothing; the payments will cease. Correct! Straight or pure life annuity will pay a specific amount of income for the remainder of the annuitant's life. This payment will cease at death, regardless of the amount of principal that hasn't been paid out. There is no refund or payments to survivors.
A. Term Life Which of the following is NOT one of the three types of term coverage based on what happens to the face amount during the policy term? A Level B Increasing C Renewable D Decreasing
C Renewable There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is level throughout the term of the policy.
Fixed Period Under a pure life annuity, an income is payable by the company AUntil the principal and interest are exhausted. BFor a guaranteed period of time, whether or not the annuitant survives to the end of that period. CFor as long as either the annuitant or a named beneficiary is alive. DOnly for the life of the annuitant.
D Only for the life of the annuitant. Correct! With pure life annuity, income payments cease at the annuitant's death and there is no refund or payments to survivors. This type of annuity is also referred to as Life Only or Straight Life.
Chapter Recap Under which installments option does the annuitant select the amount of each payment, and the insurer determines how long they will pay benefits? AFixed period BFixed amount CVariable period DVariable amount
B Fixed amount Under the installments for a fixed amount option, the annuitant selects the amount of each payment, and the insurer determines how long they will pay benefits. This option pays a specific amount until the funds are exhausted. There are no life contingencies.
Traditional Whole Life Products Which of the following is NOT a type of whole life insurance? AStraight life BLimited payment CLevel term DSingle premium
C. Level term Correct! There are several types of whole life policies. The first three, Straight Life, Limited Payment, and Single Premium, are the basic forms of whole life. Level term is a type of term insurance.
Interest-Sensitive Whole Life All of the following entities regulate variable life policies EXCEPT AFederal government. BThe SEC. CThe Insurance Department. DThe Guaranty Association.
DThe Guaranty Association. Correct! Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.
Indexed Annuities What license or licenses are required to sell variable annuities? ABoth a life insurance license and a securities license BOnly a life insurance license COnly a securities license DNo license is required
A Both a life insurance license and a securities license Agents are required to have both a life insurance license and a securities license to sell variable annuities.
Indexed Annuities Why is an equity indexed annuity considered to be a fixed annuity? AIt has a guaranteed minimum interest rate. BIt has modest investment potential. CIt has a fixed rate of return. DIt is not tied to an index like the S&P 500.
A It has a guaranteed minimum interest rate. Correct! While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.
Annuity Investment Options A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits? AImmediate annuity BVariable annuity CFlexible payment annuity DDeferred interest annuity
A Immediate annuity An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.
Decreasing Term All of the following are true regarding a decreasing term policy EXCEPT AThe face amount steadily declines throughout the duration of the contract. BThe payable premium amount steadily declines throughout the duration of the contract. CThe death benefit is $0 at the end of the policy term. DThe contract pays only in the event of death during the
B. The payable premium amount steadily declines throughout the duration of the contract. Premiums remain level with a decreasing term policy; only the face amount decreases.
Indexed Annuities Which of the following is TRUE regarding variable annuities? AThe annuitant assumes the risks on investment. BThe funds are invested in the company's general account. CThe company guarantees a minimum interest rate. DA person selling variable annuities is required to have only a life agent's license.
A The annuitant assumes the risks on investment. Correct! The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds". Therefore, the annuitant assumes the risk of the investment.
Fixed Period A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy? AJoint life BJoint and survivor CLife with period certain DJoint limited annuity
A Joint life
Ordinary Whole Life Which of the following policies would be classified as a traditional level premium contract? AStraight Life BAdjustable Life CUniversal Life DVariable Universal Life
A. Straight Life Correct! Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.
Term Life Which of the following types of insurance policies would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources? A Term B Whole Life C Annuity D Variable life
A. Term Correct! Term insurance provides a death benefit only; cost per $1,000 of coverage is less than other types of policies that create cash values
Variable Universal Life Which of the following determines the cash value of a variable life policy? AThe premium mode BThe performance of the policy portfolio CThe company's general account DThe policy's guarantees.
B. 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.
Variable Whole Life If an agent wishes to sell variable life policies, what license must the agent obtain? APersonal Lines BSecurities CAdjuster DSurplus Lines
B.Securities !Variable products are governed in part by the Securities and Exchange Commission; therefore, agents selling variable life policies must also secure a securities license.
What characteristic makes whole life permanent protection? AGuaranteed death benefit BGuaranteed level premium CLiving benefits DCoverage until death or age 100
D. Coverage until death or age 100 Correct! Whole Life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured or till the insured's age 100.
Interest-sensitive, Market-sensitive and Adjustable Life Products When would a 20-pay whole life policy endow? AIn 20 years BWhen the insured reaches age 100 CAt the insured's age 65 DAfter 20 payments
B. 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.
. Types of Annuities In an annuity, the accumulated money is converted into a stream of income during which time period? A Amortization period B Conversion period C Annuitization period D Payment period
C Annuitization period Correct! The "annuitization period" (annuity period) is the time during
Variable Universal Life Variable Whole Life insurance is based on what type of premium? ALevel fixed BIncreasing CFlexible DGraded
A.Level fixed Variable Whole Life insurance is a level fixed premium investment-based product.
Annuity Investment Options Which of the following is another term for the accumulation period of an annuity? ALiquidation period BAnnuity period CPay-in period DPremium period
C Pay-in period Correct! The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity.
What does "level" refer to in level term insurance? A Premium BCash value CInterest rate DFace amount
D. Face amount Correct! Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages.
Survivorship Life (Second to Die) Which of the following life insurance policies allows a policyowner to take out a loan from the policy's cash value? AVariable universal life BIncreasing term life CCredit term life DDecreasing term life .
A Variable universal life Correct! Variable universal life policies have cash value, so they allow policy loans. Term insurance policies do not have cash value.
Term Life Which of the following terms best describe the coverage provided by term policies, as compared to any other form of protection? A Longest B Greatest C Least D Most comprehensive
B Greatest Term policies provide for the greatest amount of coverage for the lowest premium, as compared to any other form of protection.
Decreasing Term 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 ARequired proof of insurability every year. BDecreased death benefit at each renewal. CRequired a premium increase each renewal. DBuilt cash values.
C. 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.
Traditional Whole Life Products If the owner of a whole life policy who is also the insured dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary? AA full death benefit BA death benefit equal to the cash value of the policy C50% of the death benefit DThe face amount minus the premiums that would have been collected until the insured reached the age of 100
A full death benefit Whole life insurance policies guarantee the death benefit. If the insured lives to the age of 100, the insurance company pay the owner the face amount (equal the cash value). However, if the insured dies prior to the policy maturity date, the death benefit is paid to the beneficiary.
Universal Life During partial withdrawal from a universal life policy, which portion will be taxed? AInterest BCash value CPrincipal DLoan
A. Interest During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.
Interest-Sensitive Whole Life Which of the following types of policies allows for a flexible premium and a variable investment component? AWhole life insurance BVariable universal life insurance CGuaranteed issue variable life insurance DVariable whole life insurance
B. Variable universal life insurance A variable universal life insurance policy combines a flexible premium with an investment component that allows for potentially great returns.
Universal Life Which Universal Life option has a gradually increasing cash value and a level death benefit? AOption B BOption A CJuvenile life DTerm insurance
B.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.
Ordinary Whole Life Which statement is NOT true regarding a Straight Life policy? AIt usually develops cash value by the end of the third policy year. BIt has the lowest annual premium of the three types of Whole Life policies. CIts premium steadily decreases over time, in response to its growing cash value. DThe face value of the policy is paid to the insured at age 100.
C 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.
Return of Premium A Return of Premium term life policy is written as what type of term coverage? ALevel BIncreasing CDecreasing DRenewable
B. Increasing Return of premium (ROP) life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.
Convertible All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT AEvidence of insurability is not required. BMost term policies contain a convertibility option. CUpon conversion, the premium for the permanent policy will be based upon attained age. DUpon conversion, the death benefit of the permanent policy will be reduced by 50%.
D. Upon conversion, the death benefit of the permanent policy will be reduced by 50%. Convertible term insurance is convertible without proof of insurability up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured's attained age.
Variable Universal Life A domestic insurer issuing variable contracts must establish one or more ASeparate accounts. BLiability accounts. CAnnuity accounts. DGeneral accounts.
A. Separate accounts. Correct! 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.
Variable Whole Life An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined and the cash value fell to $10,000. If the insured dies, how much will be paid out? A$10,000 B$40,000 C$50,000 D$60,000
C.$50,000 The cash value of a variable life insurance policy is not guaranteed. However, even if investments devalue significantly, they cannot be lower than the initial guaranteed benefit amount.
Single Life vs. Multiple Life Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits? A$50,000 B$62,500 C$75,000 DNothing
A$50,000 The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitant's death. Straight life annuity payments stop at death of the annuitant regardless of the principal left in the account.
Special Features Annually renewable term policies provide a level death benefit for a premium that AIncreases annually. BDecreases annually. CRemains level. DFluctuates.
A Increases annually. Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.
Universal Life Which of the following would help prevent a universal life policy from lapsing? ATarget premium BFace amount CAdjustable premium DCorridor of insurance
A. Target premium Correct! 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.
Variable Universal Life All of the following are true about variable products EXCEPT AThe premiums are invested in the insurer's general account. BThe minimum death benefit is guaranteed. CThe cash value is not guaranteed. DPolicyowners bear the investment risk.
A. The premiums are invested in the insurer's general account. Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk.
Chapter Recap All of the following statements are true regarding installments for a fixed amount EXCEPT AThe annuitant may select how big the payments will be. BThe payments will stop when the annuitant dies. CValue of the account and future earnings will determine the time period for the benefits. DThis option pays a specific amount until the funds are exhausted.
B The payments will stop when the annuitant dies. Installments for a fixed amount option has no life contingencies. A specific amount of benefits will be paid until funds are exhausted whether or not the annuitant is living.
Survivorship Life (Second to Die) An individual purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy? ANothing B$50,000 C$100,000 D$200,000
C$100,000 Correct! In joint life policies, the death benefit is paid upon the first death only.
Interest-sensitive, Market-sensitive and Adjustable Life Products Which of the following is an example of a limited-pay life policy? AStraight Life BLife Paid-up at Age 65 CRenewable Term to Age 70 DLevel Term Life
B. Life Paid-up at Age 65 Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.
Variable Universal Life All of the following entities regulate variable life policies EXCEPT AFederal government. BThe SEC. CThe Insurance Department. DThe Guaranty Association.
D. The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.
Types Which of the following is INCORRECT regarding a $100,000 20-year level term policy? AAt the end of 20 years, the policy's cash value will equal $100,000. BThe policy premiums will remain level for 20 years. CIf the insured dies before the policy expired, the beneficiary will receive $100,000. DThe policy will expire at the end of the 20-year period.
A At the end of 20 years, the policy's cash value will equal $100,000. Correct! Term policies do not develop cash values. All the other statements are true.
Decreasing Term Which of the following is INCORRECT regarding a $100,000 20-year level term policy? AAt the end of 20 years, the policy's cash value will equal $100,000. BThe policy premiums will remain level for 20 years. CIf the insured dies before the policy expired, the beneficiary will receive $100,000. DThe policy will expire at the end of the 20-year period.
A At the end of 20 years, the policy's cash value will equal $100,000. Term policies do not develop cash values. All the other statements are true.
Interest-sensitive, Market-sensitive and Adjustable Life Products Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? AIncreasing term BLimited pay whole life CInterest-sensitive whole life DLife annuity with period certain
B. Limited pay whole life Correct! Premium payments will cease at her age 65, but coverage will continue to her death or age 100.
Universal Life Which type of life insurance policy allows the policyowner to pay more or less than the planned premium? A Decreasing term B Straight whole life C Universal life D Variable whole life
C Universal life 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.
Universal Life A Universal Life Insurance policy is best described as a/an AWhole Life policy with two premiums: target and minimum. BFlexible Premium Variable Life policy. CAnnually Renewable Term policy with a cash value account. DVariable Life with a cash value account.
C. Annually Renewable Term policy with a cash value account. 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.
Variable Whole Life For variable products, underlying assets must be kept in AA general account. BA separate account. CA revenue account. DA money market account.
B. A separate account. Correct! Under a variable life insurance policy, assets must be placed in a separate fund, used primarily for the investment of stocks, bonds, and other security investment options.
Universal Life What kind of policy allows withdrawals or partial surrenders? AUniversal life B20-pay life CTerm policy DVariable whole life
A. Universal life Correct! Universal Life products allow the partial withdrawal, or surrender, of the policy cash value.
Traditional Whole Life Products The type of policy that can be changed from one that does not accumulate cash value to the one that does is a ARenewable Term Policy. BDecreasing Term Policy. CWhole Life Policy. DConvertible Term Policy.
D Convertible Term Policy. A convertible term policy has a provision that allows the policyowner to convert to permanent insurance.
Single Life vs. Multiple Life The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called AJoint and survivorship. BJoint life annuity. CLife income with period certain. DLife income with refund.
. C Life income with period certain. Correct! If the annuitant dies before the period certain, the payments continue to a beneficiary or the estate for the remainder of the period certain.
Indexed Life An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined and the cash value fell to $10,000. If the insured dies, how much will be paid out? A$10,000 B$40,000 C$50,000 D$60,000
C$50,000 The cash value of a variable life insurance policy is not guaranteed. However, even if investments devalue significantly, they cannot be lower than the initial guaranteed benefit amount.
Indexed Annuities Which of the following is a feature of a variable annuity? ABenefit payment amounts are not guaranteed. BPayments into the annuity are kept in the company's general account. CInterest rate is guaranteed. DSecurities license is not required.
ABenefit payment amounts are not guaranteed. Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent's license.
F. Chapter Recap Which of the following is NOT true regarding an annuity certain? AThere are no life contingencies. BIt is a short-term annuity. CBenefits stop at the annuitant's death. DIt will pay until a fixed amount is liquidated.
C Benefits stop at the annuitant's death. Annuities Certain are short-term annuities which limit the amount paid to a certain fixed period or until a certain fixed amount is liquidated. There are no life contingencies.
Single Life vs. Multiple Life Which of the following is NOT true regarding the Life with Guaranteed Minimum annuity settlement option? AThe beneficiary receives the remainder of the principal amount upon the annuitant's death. BPayments can be made in installments and as a single cash refund. CIt does not guarantee that the entire principal amount will be paid out. DIt is a life contingency option.
C It does not guarantee that the entire principal amount will be paid out. With the Life with Guaranteed Minimum annuity settlement option, if the annuitant dies before the principal amount (the amount paid for the annuity) has been paid out, the remainder of the principal amount will be refunded to his/her beneficiary. Pure life provides the highest monthly benefits for an individual annuitant.
Chapter Recap Which of the following is a short-term annuity that limits the amounts paid to a specific fixed period or until a specific fixed amount is liquidated? AFixed annuity BRefund life CVariable annuity DAnnuity certain
D Annuity certain Annuity certain option allows the annuitant to select the time period or the amount of the benefits to be paid out. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date.
Single Life vs. Multiple Life Under a pure life annuity, an income is payable by the company AUntil the principal and interest are exhausted. BFor a guaranteed period of time, whether or not the annuitant survives to the end of that period. CFor as long as either the annuitant or a named beneficiary is alive. DOnly for the life of the annuitant.
D Only for the life of the annuitant. With pure life annuity, income payments cease at the annuitant's death and there is no refund or payments to survivors. This type of annuity is also referred to as Life Only or Straight Life.
Annuity Investment Options Which two terms are associated directly with the way an annuity is funded? ASingle payment or periodic payments BIncreasing or decreasing CImmediate or deferred DRenewable or convertible
A Single payment or periodic payments Correct! Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installment varies.
Annuities Certain (Types) Under a pure life annuity, an income is payable by the company AUntil the principal and interest are exhausted. BFor a guaranteed period of time, whether or not the annuitant survives to the end of that period. CFor as long as either the annuitant or a named beneficiary is alive. DOnly for the life of the annuitant.
. D Only for the life of the annuitant. Correct! With pure life annuity, income payments cease at the annuitant's death and there is no refund or payments to survivors. This type of annuity is also referred to as Life Only or Straight Life.
Indexed Annuities An agent selling variable annuities must be registered with ASEC. BFINRA. CDepartment of Insurance. DThe Guaranty Association.
B FINRA. Correct! Because variable annuities are considered to be securities, a person must be registered with the FINRA and hold a securities license in addition to a life agent's license in order to sell variable annuities.
Annuities Certain (Types) Which of the following is NOT true regarding the Life with Guaranteed Minimum annuity settlement option? AThe beneficiary receives the remainder of the principal amount upon the annuitant's death. BPayments can be made in installments and as a single cash refund. CIt does not guarantee that the entire principal amount will be paid out. DIt is a life contingency option.
C It does not guarantee that the entire principal amount will be paid out. Correct! With the Life with Guaranteed Minimum annuity settlement option, if the annuitant dies before the principal amount (the amount paid for the annuity) has been paid out, the remainder of the principal amount will be refunded to his/her beneficiary. Pure life provides the highest monthly benefits for an individual annuitant.
Types of Annuities Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income? ADepreciation period BAnnuitization period CPay-out period DLiquidation period
A Depreciation period Correct! The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.
. Survivorship Life (Second to Die) A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that? AFamily Income Policy BJoint Life Policy CSurvivorship Life Policy DSecond-to-Die
B Joint Life Policy Correct! Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends.
Single Life vs. Multiple Life Which of the following types of annuities will generally provide the highest monthly income? ALife with a 10-year period certain BStraight life CJoint and survivor DInstallment refund
B Straight life Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; therefore, it has the potential to provide the highest monthly income. Any time a "period certain" option is included, it will reduce the monthly payout amount because, even if the annuitant dies, the company must continue to pay benefits for the period certain.
Annuities Certain (Types) Which of the following is NOT true about a joint and survivor annuity benefit option? AA period certain option may be included. BThis option guarantees income for two or more recipients. CThe surviving annuitant may receive reduced payments. DPayments stop after the first death among the annuitants.
D Payments stop after the first death among the annuitants. Correct! A joint and survivor annuity will pay until the last annuitant has died; however, the surviving annuitant may receive reduced payments.
Survivorship Life (Second to Die) The premium of a survivorship life policy compared with that of a joint life policy would be AHigher. BAs high. CHalf the amount. DLower.
. D Lower. Survivorship Life 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. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.
4. Variable Universal Life To sell variable life insurance policies, an agent must receive all of the following EXCEPT ASEC registration. BFINRA registration. CA securities license. DA life insurance license.
A 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.
Variable Universal Life What type of premium do both Universal Life and Variable Universal Life policies have? ALevel fixed BDecreasing CIncreasing DFlexible
D. Flexible Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, as long as there is enough value in the policy to fund the death benefit.
Variable Universal Life Which of the following life insurance policies allows a policyowner to take out a loan from the policy's cash value? AVariable universal life BIncreasing term life CCredit term life DDecreasing term life
A. AVariable universal life Variable universal life policies have cash value, so they allow policy loans. Term insurance policies do not have cash value.
Types of Annuities The annuitant dies while the annuity is still in the accumulation stage. Which of the following is TRUE? AThe beneficiary will receive the greater of the money paid into the annuity or the cash value. BThe owner's estate will receive the money paid into the annuity. CThe insurance company will retain the cash value and pay back the premiums to the owner's estate. DThe money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary.
A The beneficiary will receive the greater of the money paid into the annuity or the cash value. Correct! If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value, whichever is greater.
Traditional Whole Life Products Which of the following types of policies will provide permanent protection? AGroup life BWhole life CCredit life DTerm life
B. Whole life Correct! Whole life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured. Both the premiums and death benefit are guaranteed and will remain level for life.
Universal Life What is the purpose of establishing the target premium for a universal life policy? ATo keep the policy in force BTo accumulate cash value faster CTo pay up the policy faster DTo cover all policy expenses
A. To keep the policy in force Correct! 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.
. Universal Life Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? AVariable Universal Life BUniversal Life - Option A CUniversal Life - Option B DEquity Indexed Universal Life
B. 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.
. Variable Universal Life Which of the following types of policies allows for a flexible premium and a variable investment component? AWhole life insurance BVariable universal life insurance CGuaranteed issue variable life insurance DVariable whole life insurance
B. Variable universal life insurance Correct! A variable universal life insurance policy combines a flexible premium with an investment component that allows for potentially great returns.
Annuities Certain (Types) Your client is planning to retire. She has accumulated $100,000 in a retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for as long as she lives. As her agent, you should recommend AStraight life. BLife income with period certain. CInstallment refund. DJoint and survivor.
A Straight life. Correct! With the straight life option, the annuity payments cease at death. However, because there are no other guarantees that might incur additional charges, this option provides the highest monthly benefits for an individual annuitant.
Types of Annuities Which of the following is NOT true regarding the annuitant? AThe annuitant cannot be the same person as the annuity owner. BThe annuitant's life expectancy is taken into consideration for the annuity. CThe annuitant receives the annuity benefits. DThe annuitant must be a natural person.
A The annuitant cannot be the same person as the annuity owner. While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person.
Combination Plans and Variations All of the following are true about variable products EXCEPT AThe premiums are invested in the insurer's general account. BThe minimum death benefit is guaranteed. CThe cash value is not guaranteed. DPolicyowners bear the investment risk.
A. The premiums are invested in the insurer's general account. Correct! Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk.
Variable Universal Life Which of the following is a key distinction between variable whole life and variable universal life products? AVariable universal life has a fixed premium. BVariable whole life has a guaranteed death benefit. CVariable universal life is regulated solely through FINRA. DVariable whole life allows policy loans from the cash value.
B. 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.
Traditional Whole Life Products The insured is also the policyowner of a whole life policy. What age must the insured attain in order to receive the policy's face amount? A 65 B 70 1/2 C 90 D 100
D. 100 Whole life insurance policies mature when the insured reaches the age of 100. The cash value at that time is scheduled to equal the face amount; therefore, when the insurance company pays the face amount, it also, in effect, pays the cash value.
Combination Plans and Variations Which of the following features of the Indexed Whole Life policy is NOT fixed? APremium BDeath benefit CPolicy period DCash value growth
D Cash value growth Correct! Under the Indexed Whole Life policy, the premium is fixed, and the death benefit is guaranteed. Cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed.
Chapter Recap All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT AIt is a life contingency option. BIt will pay the benefit only for a designated period of time. CThe payments are not guaranteed for life. DThe insurer determines the amount for each payment.
A It is a life contingency option. Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only, and there are no life contingencies.
Survivorship Life (Second to Die) What is another name for interest-sensitive whole life insurance? AAdjustable life BCurrent assumption life CVariable life DTerm life
B Current assumption life Correct! Interest-sensitive whole life, also referred to as current assumption life, is a whole life policy that provides a guaranteed death benefit to age 100.
Types of Annuities Which of the following is NOT true regarding the accumulation period of an annuity? AIt is the period over which the owner makes payments into an annuity. BIt is also known as the pay-in period. CIt would not occur in a deferred annuity. DIt is the period during which the annuity payments earn interest.
C It would not occur in a deferred annuity. The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity).
Types of Annuities Which of the following is TRUE regarding the accumulation period of an annuity? AIt is a period during which the payments into the annuity grow tax deferred. BIt is also referred to as the annuity period. CIt is a period of time during which the beneficiary receives income DIt is limited to 10 years.
A, It is a period during which the payments into the annuity grow tax deferred. The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.
Decreasing Term The LEAST expensive first-year premium is found in which of the following policies? ADecreasing Term BLevel Term CAnnually Renewable Term DIncreasing Term
C. Annually Renewable Term Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.
Variable Whole Life Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? AVariable option BOption A COption B DCorridor option
C. Option B Correct! 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. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.
Types of Annuities Which of the following best describes what the annuity period is? AThe period of time during which money is accumulated in an annuity BThe period of time from the effective date of the contract to the date of its termination CThe period of time during which accumulated money is converted into income payments DThe period of time from the accumulation period to the annuitization period
C The period of time during which accumulated money is converted into income payments The annuity period is the time during which accumulated money is converted into an income stream.
Interest-sensitive, Market-sensitive and Adjustable Life Products Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid AFor at least 20 years. BUntil the policyowner's age 100, when the policy matures. CFor 20 years or until death, whichever occurs first. DUntil the policyowner reaches age 65.
C, For 20 years or until death, whichever occurs first. Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.
2. Universal Life The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as AThe policy contains sufficient cash value to cover the cost of insurance. BThe previous premium payments were high enough to create an excess of premium. CThe policyowner cannot skip premiums without the policy lapsing. DThe next month's premium is sufficient to cover both the current premium amount and the skipped amount.
A. The policy contains sufficient cash value to cover the cost of insurance. Correct! In Universal Life Insurance, the policyowner may skip a premium payment without lapsing the policy as long as the policy contains sufficient cash value at the time to cover the cost of insurance for that premium period.
Universal Life The death benefit under the Universal Life Option B ARemains level. BGradually increases each year by the amount that the cash value increases. CDecreases by the amount that the cash value increases. DIncreases for the first few years of the policy, and then levels off.
BGradually 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.
2. Universal Life Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? AVariable option BOption A COption B DCorridor option
C. Option B 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. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.
Variable Whole Life Which of the following is a key distinction between variable whole life and variable universal life products? AVariable universal life has a fixed premium. BVariable whole life has a guaranteed death benefit. CVariable universal life is regulated solely through FINRA. DVariable whole life allows policy loans from the cash value.
B. 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.
Decreasing Term An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium? AIt will increase because the insured will be 5 years older than when the policy was originally purchased. BIt will remain the same for the new 5-year term. CIt will decrease for the new 5-year term since the insured is now a lesser risk to the company. DIt will increase each year during the next 5 years as the face amount increases each year.
A It will increase because the insured will be 5 years older than when the policy was originally purchased. The premium will remain level during the entire level premium term policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal.
Universal Life What are the two components of a universal policy? AInsurance and cash account BInsurance and investments CMortality cost and interest DSeparate account and policy loans
A. Insurance and cash account Correct! A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher.
Ordinary Whole Life In which of the following cases will the insured be able to receive the full face amount from a whole life policy? AIf the insured lives to age 100 BAs soon as the cash value exceeds the face amount CIf there are no named beneficiaries when the policy is paid up DAt age 65
A. If the insured lives to age 100 Correct! Whole life insurance provides protection for the entire lifetime of the insured. If the insured lives to the age of 100, the company pays the face amount of the policy to the policyowner (usually the insured).
Types of Annuities If an annuitant dies before annuitization occurs, what will the beneficiary receive? AAmount paid into the plan BCash value of the plan CEither the amount paid into the plan or the cash value of the plan, whichever is the greater amount DEither the amount paid into the plan or the cash value of the plan, whichever is the lesser amount
C Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount Correct! If an annuitant dies before annuitization, the beneficiary will receive either the amount paid into the plan or the cash value of the plan, whichever is greater.
Types of Annuities The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true? AA corporation can be an annuitant as long as it is also the owner. BA corporation can be an annuitant as long as the beneficiary is a natural person. CThe contract can be issued without an annuitant. DThe annuitant must be a natural person.
D The annuitant must be a natural person. Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.
Term Life Which of the following is TRUE regarding the premium in term policies? AOnly level term policy has a level premium. BThe premium in term policies is not based on the insured's age. CDecreasing term policy will have a decreasing premium. DThe premium is level for the term of the policy.
D. The premium is level for the term of the policy. The premium on a term life insurance policy is level throughout the term of the policy. Only the amount of the death benefit may change. This does not apply to annual renewable term insurance, in which the premium increases annually according to the attained age.
Interest-sensitive, Market-sensitive and Adjustable Life Products 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 ALevel term life. BGraded premium whole life. CSingle premium whole life. DModified Endowment Contract (MEC).
Single premium whole life. Correct! Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception.
Types of Annuities All of the following are true of an annuity owner EXCEPT AThe owner pays the premiums on the annuity. BThe owner has the right to name the beneficiary. CThe owner is the party who may surrender the annuity. DThe owner must be the party to receive benefits.
D The owner must be the party to receive benefits. Correct! The "owner" is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary.
Universal Life An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? ALimited pay BUniversal life CAdjustable life DTerm life
B. Universal life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.
Decreasing Term Which policy component decreases in decreasing term insurance? APremium BFace amount CCash value DDividend
B. Face amount Decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.
Traditional Whole Life Products Which of the following statements is correct regarding a whole life policy? AThe death benefit may increase or decrease during the policy period. BThe policyowner is entitled to policy loans. CCash values are not guaranteed. DThe policy premium is based on the attained age.
B. 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.
Universal Life The death protection component of Universal Life Insurance is always AAnnually Renewable Term BWhole Life CAdjustable Life DDecreasing Term
A. 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.
Survivorship Life (Second to Die) Which of the following features of the Indexed Whole Life policy is NOT fixed? APremium BDeath benefit CPolicy period DCash value growth .
D Cash value growth Under the Indexed Whole Life policy, the premium is fixed, and the death benefit is guaranteed. Cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed.
types of Annuities Which of the following best describes what the annuity period is? AThe period of time during which money is accumulated in an annuity BThe period of time from the effective date of the contract to the date of its termination CThe period of time during which accumulated money is converted into income payments DThe period of time from the accumulation period to the annuitization period
C The period of time during which accumulated money is converted into income payments The annuity period is the time during which accumulated money is converted into an income stream.
Interest-Sensitive Whole Life An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an AAnnual Renewable Term. BAdjustable Life. CInterest-sensitive Whole Life. DCredit Life.
C. Interest-sensitive Whole Life. Correct! Because the cash values are generated by investments, interest rates will affect the amount of the cash value.
Survivorship Life (Second to Die) Which of the following is called a "second-to-die" policy? AJoint life BSurvivorship life CFamily income DJuvenile life
B Survivorship life Correct! 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.
Types of Annuities If the annuitant dies during the accumulation period, who will receive the annuity benefits? AThe beneficiary BThe annuity owner CThe insurance company DThe annuitant's estate
A The beneficiary Correct! If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.
Annuity Investment Options The main difference between immediate and deferred annuities is AWhen the income payments begin. BHow the annuity is purchased. CThe number of insureds. DThe amount of each payment.
A When the income payments begin. The main difference between immediate and deferred annuities is when the income payments begin. Immediate annuities will begin payments within the first year, while deferred annuities will not begin payments until sometime after the first year.
Ordinary Whole Life A Straight Life policy has what type of premium? AA level annual premium for the life of the insured BAn increasing annual premium for the life of the insured CA decreasing annual premium for the life of the insured DA variable annual premium for the life of the insured
A level annual premium for the life of the insured Correct! Straight Life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit.
Convertible 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? AThe insured may only convert the policy to another term policy. BThe insured may renew the policy for another 10 years at the same premium rate. CThe insured may renew the policy for another 10 years, but at a higher premium rate. DThe insured must provide evidence of insurability to renew the policy.
C. The insured may renew the policy for another 10 years, but at a higher premium rate. Correct! 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.
Payout Options Which of the following is NOT true regarding Equity Indexed Annuities? AThey are less risky than variable annuities. BThey earn lower interest rates than fixed annuities. CThe insurance company keeps a percentage of the returns. DThey have guaranteed minimum interest rates. .
B They earn lower interest rates than fixed annuities. Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
.Indexed Annuities Which of the following products requires a securities license? ADeferred annuity BVariable annuity CFixed annuity DEquity Indexed annuity
B Variable annuity A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities.
Variable Universal Life Which of the following determines the cash value of a variable life policy? AThe premium mode BThe performance of the policy portfolio CThe company's general account DThe policy's guarantees.
B. 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.
Interest-Sensitive Whole Life What type of premium do both Universal Life and Variable Universal Life policies have? ALevel fixed BDecreasing CIncreasing DFlexible
D Flexible Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, as long as there is enough value in the policy to fund the death benefit.
