ch 2 types of life policies
Which of the following policies would be classified as a traditional level premium contract? A Universal Life B Variable Universal Life C Straight Life D Adjustable Life
Straight Life
In an annuity, the accumulated money is converted into a stream of income during which time period? A Annuitization period B Payment period C Amortization period D Conversion period
Annuitization period
When an annuity is written, whose life expectancy is taken into account? A Annuitant B Beneficiary C Life expectancy is not a factor when writing an annuity. D Owner
Annuitant
Which policy component decreases in decreasing term insurance? A Cash value B Dividend C Premium D Face amount
Face amount
During partial withdrawal from a universal life policy, which portion will be taxed? A Loan B Interest C Cash value D Principal
Interest
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? A Universal Life - Option A B Universal Life - Option B C Equity Indexed Universal Life D Variable Universal Life
Universal Life - Option A
The death benefit under the Universal Life Option B A Decreases by the amount that the cash value increases. B Increases for the first few years of the policy, and then levels off. C Remains level. D Gradually increases each year by the amount that the cash value increases.
Gradually increases each year by the amount that the cash value increases.
Which two terms are associated directly with the way an annuity is funded? A Immediate or deferred B Renewable or convertible C Single payment or periodic payments D Increasing or decreasing
Single payment or periodic payments
Which of the following is called a "second-to-die" policy? A Survivorship life B Family income C Juvenile life D Joint life
Survivorship life
A Straight Life policy has what type of premium? A An increasing annual premium for the life of the insured B A decreasing annual premium for the life of the insured C A variable annual premium for the life of the insured D A level annual premium for the life of the insured
A level annual premium for the life of the insured
The premium of a survivorship life policy compared with that of a joint life policy would be A Half the amount. B Lower. C Higher. D As high.
Lower
An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation? A Variable life B Universal life C Whole life D Decreasing term
Decreasing term
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? A Fixed B Flexible premium C Immediate D Deferred
Deferred
A Return of Premium term life policy is written as what type of term coverage? A Renewable B Level C Increasing D Decreasing
Increasing
What are the two components of a universal policy? A Insurance and investments B Mortality cost and interest C Separate account and policy loans D Insurance and cash account
Insurance and cash account
Which of the following is TRUE regarding variable annuities? A The funds are invested in the company's general account. B The company guarantees a minimum interest rate. C A person selling variable annuities is required to have only a life agent's license. D The annuitant assumes the risks on investment.
The annuitant assumes the risks on investment.
Which of the following is another term for the accumulation period of an annuity? A Pay-in period B Premium period C Liquidation period D Annuity period
Pay-in period
In a survivorship life policy, when does the insurer pay the death benefit? A Upon the last death B Upon the first death C Half at the first death, and half at the second death D If the insured survives to age 100
Upon the last death
Which of the following is a feature of a variable annuity? A Payments into the annuity are kept in the company's general account. B Interest rate is guaranteed. C Securities license is not required. D Benefit payment amounts are not guaranteed.
Benefit payment amounts are not guaranteed.
If an annuitant dies before annuitization occurs, what will the beneficiary receive? A Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount B Amount paid into the plan C Cash value of the plan D Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount
Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount
The LEAST expensive first-year premium is found in which of the following policies? A Level Term B Annually Renewable Term C Increasing Term D Decreasing Term
Annually Renewable Term
Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income? A Annuitization period B Pay-out period C Liquidation period D Depreciation period
Depreciation period
All of the following are true about variable products EXCEPT A The cash value is not guaranteed. B Policyowners bear the investment risk. C The premiums are invested in the insurer's general account. D The minimum death benefit is guaranteed.
The premiums are invested in the insurer's general account.
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) A Variable Annuity. B Flexible Annuity. C Immediate Annuity. D Equity Indexed Annuity.
Equity Indexed Annuity.
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? A Deferred interest annuity B Immediate annuity C Variable annuity D Flexible payment annuity
Immediate annuity
Annually renewable term policies provide a level death benefit for a premium that A Remains level. B Fluctuates. C Increases annually. D Decreases annually.
Increases annually.
Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? A Option A B Option B C Corridor option D Variable option
Option B
All of the following statements about equity index annuities are correct EXCEPT A The interest rate is tied to an index such as the Standard & Poor's 500. B They invest on a more aggressive basis aiming for higher returns. C The annuitant receives a fixed amount of return. D They have a guaranteed minimum interest rate.
The annuitant receives a fixed amount of return.
Which type of life insurance policy generates immediate cash value? A Decreasing Term B Continuous Premium C Single Premium D Level Term
Single Premium
An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called A Graded premium whole life. B Single premium whole life. C Modified Endowment Contract (MEC). D Level term life.
Single premium whole life.
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium? A Variable life B Decreasing term C Straight whole life D Universal life
Universal life
Which of the following products requires a securities license? A Equity Indexed annuity B Deferred annuity C Variable annuity D Fixed annuity
Variable annuity
The death protection component of Universal Life Insurance is always A Decreasing Term B Annually Renewable Term C Whole Life D Adjustable Life
Annually Renewable Term
Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be A Discounted. B Adjusted to the insured's age at the time of renewal. C Determined by the health of the insured. D Based on the issue age of the insured.
Adjusted to the insured's age at the time of renewal.
Which of the following is TRUE regarding the accumulation period of an annuity? A It is also referred to as the annuity period. B It is a period of time during which the beneficiary receives income C It is limited to 10 years. D It is a period during which the payments into the annuity grow tax deferred.
It is a period during which the payments into the annuity grow tax deferred.
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? A Survivorship Life Policy B Second-to-Die C Family Income Policy D Joint Life Policy
Joint Life Policy
If an agent wishes to sell variable life policies, what license must the agent obtain? A Surplus Lines B Personal Lines C Securities D Adjuster.
Securities
Equity indexed annuities A Are more risky than variable annuities. B Are security instruments. C Invest conservatively. D Seek higher returns.
Seek higher returns.
A domestic insurer issuing variable contracts must establish one or more A Annuity accounts. B General accounts. C Separate accounts. D Liability accounts.
Separate accounts.
Which of the following best defines target premium in a universal life policy? A The minimum amount to make sure the policy is annually renewable B The corridor of insurance C The recommended amount to keep the policy in force throughout its lifetime D The maximum amount the policyowner may pay on a policy
The recommended amount to keep the policy in force throughout its lifetime
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? A Universal life B Adjustable life C Term life D Limited pay
Universal life
The minimum interest rate on an equity indexed annuity is often based on A The returns from the insurance company's separate account. B The annuitant's individual stock portfolio. C The insurance company's general account investments. D An index like Standard & Poor's 500.
An index like Standard & Poor's 500.
If the annuitant dies during the accumulation period, who will receive the annuity benefits? A The insurance company B The annuitant's estate C The beneficiary D The annuity owner
The beneficiary
Which of the following is NOT true regarding a Variable Universal Life policy? A The death benefit is fixed. B The policyowner can participate in some of the investment decisions. C The minimum death benefit is guaranteed. D The cash values are not guaranteed.
The death benefit is fixed.
All of the following are true of an annuity owner EXCEPT A The owner must be the party to receive benefits. B The owner pays the premiums on the annuity. C The owner has the right to name the beneficiary. D The owner is the party who may surrender the annuity.
The owner must be the party to receive benefits.
Which of the following is TRUE for both equity indexed annuities and fixed annuities? A Both are considered to be more risky than variable annuities. B They invest on a conservative basis. C They have a guaranteed minimum interest rate. D They are both tied to an equity index.
They have a guaranteed minimum interest rate.
What is the purpose of establishing the target premium for a universal life policy? A To accumulate cash value faster B To pay up the policy faster C To cover all policy expenses D To keep the policy in force
To keep the policy in force
The main difference between immediate and deferred annuities is A The number of insureds. B The amount of each payment. C When the income payments begin. D How the annuity is purchased.
When the income payments begin.
A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy A Decreased death benefit at each renewal. B Required a premium increase each renewal. C Built cash values. D Required proof of insurability every year.
Required a premium increase each renewal.
All of the following entities regulate variable life policies EXCEPT A The Guaranty Association. B Federal government. C The SEC. D The Insurance Department.
The Guaranty Association.
Which of the following is NOT true regarding the annuitant? A The annuitant receives the annuity benefits. B The annuitant must be a natural person. C The annuitant cannot be the same person as the annuity owner. D The annuitant's life expectancy is taken into consideration for the annuity.
The annuitant cannot be the same person as the annuity owner.
Fixed annuities provide all of the following EXCEPT A Future income payments. B Hedge against inflation. C Equal monthly payments for life. D Minimum guaranteed rate of interest.
Hedge against inflation.
Which of the following is NOT true regarding the accumulation period of an annuity? A It is also known as the pay-in period. B It would not occur in a deferred annuity. C It is the period during which the annuity payments earn interest. D It is the period over which the owner makes payments into an annuity.
It would not occur in a deferred annuity.
The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE? A The money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary. B The beneficiary will receive the greater of the money paid into the annuity or the cash value. C The owner's estate will receive the money paid into the annuity. D The insurance company will retain the cash value and pay back the premiums to the owner's estate.
The beneficiary will receive the greater of the money paid into the annuity or the cash value.
What license or licenses are required to sell variable annuities? A No license is required B Both a life insurance license and a securities license C Only a life insurance license D Only a securities license
Both a life insurance license and a securities license
What are the licensing requirements for someone who sells variable universal life insurance? A Life insurance B Securities C Universal life and variable products D Life insurance and securities
Life insurance and securities
The type of policy that can be changed from one that does not accumulate cash value to the one that does is a A Convertible Term Policy. B Renewable Term Policy. C Decreasing Term Policy. D Whole Life Policy.
Convertible Term Policy.
Which statement is NOT true regarding a Straight Life policy? A The face value of the policy is paid to the insured at age 100. B It usually develops cash value by the end of the third policy year. C It has the lowest annual premium of the three types of Whole Life policies. D Its premium steadily decreases over time, in response to its growing cash value.
Its premium steadily decreases over time, in response to its growing cash value.
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? A Life annuity with period certain B Increasing term C Limited pay whole life D Interest-sensitive whole life
Limited pay whole life
An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term? A The insured may renew the policy for another 10 years, but at a higher premium rate. B The insured must provide evidence of insurability to renew the policy. C The insured may only convert the policy to another term policy. D The insured may renew the policy for another 10 years at the same premium rate.
The insured may renew the policy for another 10 years, but at a higher premium rate.
Which of the following features of the Indexed Whole Life policy is NOT fixed? A Cash value growth B Premium C Death benefit D Policy period
Cash value growth
The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? A The death benefit can be increased by providing evidence of insurability. B The death benefit cannot be increased. C The death benefit can be increased only when the policy has developed a cash value. D The death benefit can be increased only by exchanging the existing policy for a new one.
The death benefit can be increased by providing evidence of insurability.
Which Universal Life option has a gradually increasing cash value and a level death benefit? A Juvenile life B Term insurance C Option B D Option A
Option A
All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT A Upon conversion, the premium for the permanent policy will be based upon attained age. B Upon conversion, the death benefit of the permanent policy will be reduced by 50%. C Evidence of insurability is not required. D Most term policies contain a convertibility option.
Upon conversion, the death benefit of the permanent policy will be reduced by 50%.
Which of the following is TRUE regarding the annuity period? A It is also referred to as the accumulation period. B It is the period of time during which the annuitant makes premium payments into the annuity. C It may last for the lifetime of the annuitant. D During this period of time the annuity payments grow interest tax deferred.
It may last for the lifetime of the annuitant.
An agent selling variable annuities must be registered with A The Guaranty Association. B SEC. C FINRA. D Department of Insurance.
FINRA
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? A A corporation can be an annuitant as long as the beneficiary is a natural person. B The contract can be issued without an annuitant. C The annuitant must be a natural person. D A corporation can be an annuitant as long as it is also the owner.
The annuitant must be a natural person.
When would a 20-pay whole life policy endow? A At the insured's age 65 B After 20 payments C In 20 years D When the insured reaches age 100
When the insured reaches age 100
The term "fixed" in a fixed annuity refers to all of the following EXCEPT A Equal annuity payments B Amount and length of payments C Death benefit D Guaranteed rate of interest
Death benefit
An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it? A Variable Life B Adjustable Life C Graded Premium Life D Limited-pay Life
Limited-pay Life
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? A Nothing B $50,000 C $100,000 D $200,000
$100,000
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 A Adjustable Life. B Interest-sensitive Whole Life. C Credit Life. D Annual Renewable Term.
Interest-sensitive Whole Life.
Why is an equity indexed annuity considered to be a fixed annuity? A It is not tied to an index like the S&P 500. B It has a guaranteed minimum interest rate. C It has modest investment potential. D It has a fixed rate of return.
It has a guaranteed minimum interest rate.
Which of the following best describes annually renewable term insurance? A Neither the premium nor the death benefit is affected by the insured's age. B It provides an annually increasing death benefit. C It is level term insurance. D It requires proof of insurability at each renewal.
It is level term insurance.
Which of the following has the right to convert the existing term coverage to permanent insurance? A Producer B Policyowner C Insurer D Beneficiary
Policyowner
To sell variable life insurance policies, an agent must receive all of the following EXCEPT A A life insurance license. B SEC registration. C FINRA registration. D A securities license.
SEC registration.
The death benefit in a variable universal life policy A Is guaranteed to be higher than when the policy is originally issued. B Is fixed. C Always equals the face amount stated in the policy. D Depends on the performance of a separate account.
Depends on the performance of a separate account.
Which of the following is an example of a limited-pay life policy? A Level Term Life B Straight Life C Life Paid-up at Age 65 D Renewable Term to Age 70
Life Paid-up at Age 65
A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it? A Flexible B Deferred C Variable D Immediate
Immediate
For variable products, underlying assets must be kept in A A separate account. B A revenue account. C A money market account. D A general account.
A separate account.
Who bears all of the investment risk in a fixed annuity? A The insurance company B The owner C The beneficiary D The annuitant
The insurance company
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 A Until the policyowner reaches age 65. B For 20 years. C Until the policyowner's age 100, when the policy matures. D For 20 years or until death, whichever occurs first.
For 20 years or until death, whichever occurs first.
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? A Joint Life B Decreasing Term C Whole Life D Ordinary Life
Joint Life
Which of the following determines the cash value of a variable life policy? A The performance of the policy portfolio B The company's general account C The policy's guarantees. D The premium mode
The performance of the policy portfolio
Which of the following best describes what the annuity period is? A The period of time from the effective date of the contract to the date of its termination B The period of time during which accumulated money is converted into income payments C The period of time from the accumulation period to the annuitization period D The period of time during which money is accumulated in an annuity
The period of time during which accumulated money is converted into income payments
Which of the following is NOT true regarding Equity Indexed Annuities? A They have guaranteed minimum interest rates. B They are less risky than variable annuities. C They earn lower interest rates than fixed annuities. D The insurance company keeps a percentage of the returns.
They earn lower interest rates than fixed annuities.
Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? A Variable life B Adjustable life C Universal life D Flexible life
Universal life
All of the following are true regarding a decreasing term policy EXCEPT A The payable premium amount steadily declines throughout the duration of the contract. B The death benefit is $0 at the end of the policy term. C The contract pays only in the event of death during the term and there is no cash value. D The face amount steadily declines throughout the duration of the contract.
The payable premium amount steadily declines throughout the duration of the contract.
The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as A The policyowner cannot skip premiums without the policy lapsing. B The next month's premium is sufficient to cover both the current premium amount and the skipped amount. C The policy contains sufficient cash value to cover the cost of insurance. D The previous premium payments were high enough to create an excess of premium.
The policy contains sufficient cash value to cover the cost of insurance.
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
$50,000
