Types of Life Policies

Which of the following documents delivered to the policyowner includes info about premium amounts, cash values, surrender values and death benefits for specific policy years?

A policy summary (A policy summary usually includes all the listed info, and must be delivered along with a new policy.)

Level term insurance provides a level death benefit and level premium during the policy term. If the policy renews at the end of a specified period of time, the policy will be

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

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

Any form of life insurance (Any form of life insurance may be used to fund a buy-sell agreement.)

All of the following statements are correct regarding credit life insurance EXCEPT

Benefits are paid to the borrower's beneficiary (In credit life insurance, the creditor is the beneficiary for the amount of benefit equal to the outstanding balance of the loan.)

All of the following are personal uses of life insurance EXCEPT

Buy0sell agreement (Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. A buy-sell agreement is for business uses of life insurance.)

The type of insurance sold to a debtor and designed to pay the amount due on a loan if the debtor if the debtor dies before the loas is repaid is called

Credit life (Credit life is most often sold by lenders and is term insurance written a face amount and term that is matched to the amount and length of the loan period. Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance in the event of the death of the debtor.)

Which of the following would be beneficiary in credit life insurance?

Creditor (The creditor is the owner and the beneficiary of the policy.)

Which of the following is NOT allowed in credit life insurance?

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 may not require the debtor to purchase insurance from a specific insurer.)

Which of the following types of insurance policies is most commonly used in credit life insurance?

Decreasing term (Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. It is usually written as decreasing term insurance.)

When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n)

Executive bonus (When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called an executive bonus.)

Which rider, when attached to a permanent life ins policy, provides an amount of insurance on every family member?

Family term rider (A single rider that provides coverage on every family member is called a "family rider").

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

For 20 years of 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.)

What kind of policy does NOT typically require proof of insurability?

Group insurance (Individual life insurance is written on a single life. The rate and coverage is based upon the underwriting of that individual. Group life insurance is written as a master policy, issued to the sponsoring organization, covering the lives of more than one individual member of that group. In group insurance, individual participants typically do not need to provide proof of insurability.)

What kind of policy issues certificates of insurance to insureds?

Group insurance (Individuals covered by group life insurance do not receive a policy, but receive a certificate of insurance from the master policy.)

A father purchases a life insurance on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?

If the father is disabled for more than 6 months. (Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months).

A Return of Premium term life policy is written as what type of term coverage?

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.)

What type of insurance would be used for a Return of Premium rider?

Increasing Term (The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.)

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?

Joint Life Policy (Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends.)

If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this?

Jumping juvenile policy (While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21).

Concerning Juvenile Life Insurance, which of the following statements is INCORRECT?

Juvenile Life is classified as any life insurance purchased by a minor. (Juvenile Life insures the life of a minor. It does not need to be purchased by a minor.)

Variable Whole Life insurance is based on what type of premium?

Level fixed (Variable Whole Life insurance is a level fixed premium investment-based product.)

What is the term used when a person sells his assets as a way to gain money?

Liquidation (Liquidation is the process of selling one's assets in order to accumulate money. Keeping assets is called retention.)

One of the advantages of a family life insurance policy that provides coverage for children is that it

May be converted to permanent insurance for the children without requiring evidence of insurability. (Children covered by a family policy may convert their term coverage to permanent coverage w/o evidence of insurability.)

An insured and his spouse own a home. When the insured dies, the insurer pays the remaining balance on his home loan. Whish type of life insurance provision/rider does this describe?

Mortgage Redemption (The mortgage redemption provision insures the life of a homeowner for an amount equal to his mortgage. If the insured dies, the insurer assumes responsibility for the remaining loan balance.)

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will

Pay the policy proceeds only if it would have issued the policy. (The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.)

Which of the following riders would NOT cause the Death Benefit to increase?

Payor Benefit Rider (Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.)

Regarding the taxation of Business Overhead policies,

Premiums are deductible, and benefits are taxed. (The premiums paid for BOE insurance are tax deductible to the business as a business expense. However, the benefits received are taxable to the business as received.)

Which type of life insurance policy generates immediate cash value?

Single premium (Like other types of whole life policies, Single Premium Whole Life (SPWL) endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing feature of a SPWL is the fact that it generates immediate cash value, due to the lump-sum payment made to the insurer.)

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles?

Standard risk is representative of the majority of people. (Standard risks are representative of the majority of people in their age and with similar lifestyles. They are the average risk.)

Which of the following types of risk will result in the highest premium?

Substandard risk (The "substandard" rating indicates that an individual represents an under-average risk because of physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium if policy is issued.)

Signing and dating a delivery receipt for a life insurance policy helps to establish all of the following timeframes EXCEPT

The Grace Period (When the consumer signs and dates the policy delivery receipt, the exact date of the acceptance is established, which starts the incontestability period. The client also has between 10 to 30 days to review the policy and return for a full refund, called the Right of Rescission, or Free Look Period. The grace period refers to the time period allowed after subsequent premium payments during which a policy will not lapse.)

All of the following entities regulate variable life policies EXCEPT

The Guaranty Association (Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.)

An Adjustable Life policyowner can change which of the following policy features?

The coverage period (Typically, the owner of an adjustable life policy has the following privileges; increasing or decreasing the premium; changing the premium-paying period; increasing or decreasing or decreasing the premium face amount of coverage; or changing the premium face amount period of protection.)

Which of the following is TRUE regarding the insurance amount in a credit life policy?

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 debtor to death of the insured.)

Which of the following determines the cash value of a variable life policy?

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.)

All of the following are true about variable products EXCEPT

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.)

All of the following are requirements for life insurance illustrations EXCEPT

They must be part of the contract (An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.)

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contract. (It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.)

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?

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 the life insurance.)

Which of the following life insurance policies allows a policyowner to take out a loan from the policy's cash value?

Variable universal life (Variable universal life policies have cash value, so they allow policy loans. Term insurance policies do not have cash value.)

Which of the following types of policies allows for a flexible premium and a variable investment component?

Variable universal life insurance (A variable universal life insurance policy combines a flexible premium with an investment component that allows for potentially great returns.)

Which of the following is a key distinction between variable whole life and variable universal life products?

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