Ch3: Life Insurance: Types of Policies & Riders
Generally, Universal Life has how many death benefit options to choose from?
2 - Universal Life allows you to choose from two death benefit options, Option A or Option B.
Universal Life provides for an increasing death benefit only if the applicant chooses:
Death Benefit Option B - Option B pays the face amount stated in the contract that is level term, plus any cash values accumulated over the years. This provides for an increasing death benefit.
A _______________ policy has a death benefit that can increase or decrease over time based on stock market performance, a guaranteed minimum death benefit, a choice of subaccounts in which cash value may be allocated, and a fixed premium.
Only Variable Life, also known as Variable Whole Life, has all of these characteristics. Variable Universal Life does not adjust the death benefit in relation to stock market performance. Equity Indexed Universal Life does not permit allocation of cash value in stock-based funds. There is no such thing as Investment Grade Whole Life.
In a Universal Life policy, the minimum separation between the cash value and the death benefit is called the _______.
Risk corridor - A universal life policy must include an amount at risk. If the cash value approaches the face amount, the death benefit must increase so as to provide for this amount at risk. This minimum separation between the cash value and the death benefit is called the 'risk corridor.'
Which of the following is designed for someone with a large insurance need but with limited cash flow? - Whole Life Insurance - Term Life Insurance - Home Service Life Insurance - Variable Life Insurance
Term Insurance is pure protection (i.e. no cash value develops.) Its cost per thousand dollars of coverage is significantly lower initially than Permanent Insurance.
Jason has a Whole Life insurance policy with a face amount of $100,000, an annual premium of $1,000, and a cash value of $10,000. If he wants to borrow money from the insurer, what is the maximum he can obtain?
$10,000 - When using a whole life policy for collateral for a loan from the insurer, the maximum amount of that loan is the amount of cash value in the policy.
C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. What is the insurer's net amount at risk?
$70,000 - The insurer's net amount at risk is the difference between the face amount and the cash surrender values. Here, it is $70,000 ($100,000 - $30,000). (face amount - cash surrender = net amount risk)
Which of the following Whole Life insurance policies has the highest annual premium payment per $1,000 of coverage for a 35-year-old, all other factors being equal? - 30-Pay Ordinary Whole Life - 20-Pay Ordinary Whole Life - Limited Pay Ordinary Whole Life to age 85 - Ordinary Straight Whole Life
20-Pay Ordinary Whole Life - The shorter the premium-paying period, the higher the annual premium.
If Mary is 30 years old and buys a 15 Pay Life policy, how old will Mary be when she stops paying premiums?
45 - 15 Pay means that the policy is guaranteed to be paid up in 15 years. The policy still endows at age 100.
Z suffers a total and permanent disability. The policy he has requires a premium payment of $100 per month. He is on claim for 100 months. Initially, how much did Z have to pay before the waiver of premium benefit on his policy started?
600$ - There is usually a maximum 6-month elimination period before premiums are waived.
A __________ is a contractual agreement that allows a company or person to buy one or more of the rights of ownership in a life policy on the life of another person, should the owner/insured become terminally ill.
A Viatical Settlement is negotiated with a person who is terminally ill and accomplished through absolute assignment.
A payor rider is used to keep what type of policy in force?
A juvenile insurance policy - The rider provides waiver of premium on the juvenile policy payor, generally a parent, so if the payor dies or becomes disabled before the insured juvenile reaches a specified age the policy will remain in force.
An indeterminate premium whole life policy has _______ premiums.
Adjustable - Indeterminate premium whole life has premiums that can be adjusted by the insurer based on investment earnings, mortality, and expenses of the insurer.
Premium payments made into a variable universal life policy:
Are invested in one or more investment portfolios at the policyowner's option - Premiums for a variable universal life policy can be placed in a number of separate account portfolios, at the policyowner's discretion, that will change in value in response to investment experience.
If a father were to add a Child Rider to a policy to cover his children, when would coverage become effective for a newborn?
At 14 or 15 days of age - Children born after the rider is issued are covered automatically after 14 or 15 days, depending on the insurer, at no additional premium.
If overdue premiums are not paid by the end of the grace period, a traditional Whole Life policy will automatically:
Become extended term - The automatic option at the end of the grace period for a traditional Whole Life policy is the extended term nonforfeiture option. This will keep the original face amount in place for a certain number of years and days as indicated on the table inside the policy.
Jill, whose policy contains a waiver of premium rider, becomes disabled for two years during which time the company pays over $400 in premiums. Jill recovers and now must:
Begin paying the premiums as they become due - When the policyowner recovers from the disability he or she must start to pay premiums again. Premiums remain the same.
A married couple wants to have funds available so that the heirs to their estate have the funds necessary to pay the estate taxes. Which of the following would be the most economical and effective way to accomplish this? - Buy a Whole Life policy on each spouse - Buy a Joint Life policy - Buy a Joint Survivorship Life policy - Have one spouse buy a whole life policy and the other one a Universal Life policy
Buy a Joint Survivorship Life policy - Joint Survivorship Life pays upon the death of the last to die, and for this reason it is a popular policy with couples who want to defer estate taxes until both are deceased. It is also more economical to buy this one policy than to buy two separate policies.
Premiums for a variable universal life policy: - Are fixed and must be paid at the specified intervals - Can vary in amount as well as payment schedule - Are fixed but may vary in payment schedule - Are determined by using the AIR method of rate calculation
Can vary in amount as well as payment schedule - Variable universal life premiums can be paid in any amount and at any frequency within certain limitations. What makes the premiums so flexible is the fact that this is a universal type policy. Universal simply means flexible.
The Double Indemnity Rider requires that the insured die within _____ days of the accident.
Death must occur within 90 days of the accident for the Accidental Death (Double Indemnity) Rider benefit to be paid.
The net amount at risk in an Ordinary Whole Life Insurance Policy _________ over the life of the policy.
Decreases - As the cash values build, the net amount at risk for the insurer declines since the face amount is the benefit paid out upon the death of the insured. It is a way to keep the premiums affordable as the insured ages and the risk of death increases.
Which of the following term life insurance policies cannot be renewed? - Decreasing - Re-entry - Level - Increasing
Decreasing - Decreasing term follows the debt repayment schedule and once the debt has been paid off the policy ends, therefore it cannot be renewed.
Which of the following is not a true characteristic of permanent protection Whole Life? - The insurer bears all risk - Premiums are flexible - Premiums are payable to age 100 in older policies, and to age 121 in newer policies - Death benefit typically remains level
Flexible premiums are not a characteristic of a Whole Life Insurance Policy.
The current rate of interest paid to the cash value account of a universal life policy consists of: - None of the answers listed - Guaranteed interest plus excess interest - Guaranteed interest plus equity earnings - Excess interest plus equity earnings
Guaranteed interest plus excess interest - The 'current interest' in a universal life policy is simply the guaranteed interest plus all excess interest earnings that the insurance company is earning at that time.
Which of the following term policies cost the least (all other factors being the same)? - Renewable and non-convertible - Nonrenewable and non-convertible - Renewable and convertible - Nonrenewable and convertible
Nonrenewable and non-convertible - The fewer features a policy has the less it will cost the consumer.
The face amount of an Ordinary Whole Life Policy _________ over the life of the policy.
Remains the same - The face amount is the same as the death benefit and is the amount payable to the beneficiary upon the insured's death. Over the life of the policy it remains level.
A limited pay life policy:
Requires premium payments for a specified number of years or until a specified age is reached - In a limited pay life policy the insured policyowner pays premiums for a specified time period or until a specified age, and the insurance protection continues throughout his or her life or until endowment at age 100, whichever comes first.
The owner of a Variable Life Policy may allocate the premium into a subaccount which is owned by the insurer. This subaccount is a part of what is also known as the:
Separate Account - Owners of Variable insurance products may allocate their cash value into the insurer's separate account, with subaccounts that work like mutual funds, or into a guaranteed interest fund, which is held in the insurer's general account.
Which Whole Life policy would require you to put the least amount of premium into the plan over the total life of the plan?
Single Pay/Premium - A Single Pay Premium pays the total premium up front at a discounted rate. This method of premium would result in the least amount of total premium over the life of the plan. The insured is discounted for paying the total premium up front.
Which Whole Life policy is designed to provide a substantial immediate cash value?
Single Premium Whole Life Policy - A single premium policy is paid up (i.e. requires no more premiums due) after only one premium. As a result, it starts with substantial cash value.
What is the net amount at risk in a Whole Life Insurance policy?
The face amount less the cash values - The net amount at risk to the insurer is the difference between the face amount and the cash values.
If an insured has a Life Paid-Up at 75 Policy (a limited-pay life paid-up at age 75), what would the beneficiary receive if the insured died at age 68?
The full face amount (death benefit) is payable to the beneficiary any time death occurs while the policy is in force.
An insured owns a $50,000 permanent life policy that she purchased 4 years ago that has a disability waiver of premium. The insured becomes disabled and pays premiums during the waiting period until the waiver begins. Once the waiver begins, what happens to the premiums she paid during the waiting period?
The insurer refunds it - Once the waiver of premium takes effect, it is retroactive to the date of the disability. The insurer refunds the premiums paid during the waiting period essentially recognizing the fact that the disability was covered from the first day.
No assignment of the policy will be binding on the insurer unless it is in writing and received at the insurer's home office. The insurer is not responsible for determining the validity of the assignment. - The new policy's premiums will be based on the insured's attained age - The new policy's premium will be based on the premium class approved by the company - The new policy's premium will be based on the insured's original age - The new policy's premium will be based on the rates in effect by the insurer at the time of re-entry
The new policy's premium will be based on the insured's original age - The new policy's premium will be based on the insured's attained age, the rates in effect by the insurer at the time of re-entry, and the premium class approved by the company.
All of the following are characteristics of Universal Life Insurance, except: - The policyowner has the option to adjust the death benefit up or down - Each month a mortality charge is deducted from the policy's cash value for the cost of the insurance protection and expenses - The policyowner may determine the amount and mode of premium payments - The policyowner can choose which investment(s) to place the cash values into from those available
The policyowner can choose which investment(s) to place the cash values into from those available - The policyowner can pay any amount of premium at any time subject to policy limitations and can request an increase (if proof of insurability is provided) or decrease in the face amount. Costs for coverage are deducted monthly from the cash values.
All of the following life insurance policies have a cash value that increases based on interest being credited to the cash value, except: - Current Assumption Whole Life - Variable Universal Life - Equity-Indexed Whole Life - Universal Life
Variable Universal Life - Variable Universal Life's cash values grow based on the performance of the separate accounts chosen by the policyowner, while the other three policies have interest credited to the cash values by the insurer.
If Alvin purchases a Variable Universal Life Policy with a face amount of $250,000, and chooses death benefit Option B, upon his death the amount of the benefit payable to the beneficiary would be _________ if the policy had $25,000 in cash values.
$275,000 - With an Option B death benefit, the beneficiary will receive the face amount plus the cash value as of the date of death.
A $100,000 policy with a waiver of premium rider and $30,000 of cash value is in force. The base policy costs $750 and the rider is $50. What is the total premium annually the policyowner must pay to keep the policy in force if the policyowner decides to cancel the rider?
$750 - Riders such as the waiver of premium are a provided benefit for an additional cost, therefore if canceled, the annual premium would then become $750 ($800 - $50).
A 22 year-old applicant for life insurance has a limited budget for premiums. Which of the following policies would provide for the highest face value, for the lowest premium amount?
Annually Renewable Term -Term insurance does not accumulate cash value. The 'pure premium' purchases the highest amount of insurance compared to the other forms of life insurance. The shortest term period offers the lowest cost per $1,000 of coverage at the outset and in the early years.
Any extra premium charged for the waiver of premium rider:
Does not apply to the policy's cash value - Premium for the waiver of premium rider helps meet the cost of providing the rider. It does not apply to the policy cash values.
Most group life insurance has a(n) ______ term death benefit.
Group term life insurance has a level death benefit.
Which of the following Whole Life insurance policies has the lowest annual premium payment per $1,000 of coverage for a 35-year-old, all other factors being equal? - Ordinary Straight Whole Life - 30-Pay Ordinary Life - Limited Pay Ordinary Whole to age 85 - 20-Pay Ordinary Life
Ordinary Straight Whole Life -
What does a long-term care rider offer that a Living Needs rider does not?
Provides up to 100% of the death benefit in a daily or monthly amount for the non-hospital expenses of a chronically ill person who cannot perform any 2 of the 6 activities of daily living
How long would a policyowner have to pay premiums on a term life policy to age 65 that was taken out at age 35?
To the earlier of the insured's death, or to age 65 - The policyowner would pay premiums to the earlier of the insured's death, or to age 65.
Which of the following policies cannot have a premium payment period of less than to age 100? - Ordinary Straight Whole Life - Limited Pay Life - Indeterminate Premium - Adjustable Life
Ordinary Straight Whole Life - Straight Whole Life premium schedule is level and payable to age 100 or death of the insured, whichever comes first.
Variable whole life has all of the following features, except: - The owner may select which separate account they want their premium to be invested in - The policy provides for both a general account and a separate account - Partial surrenders are allowed - The premium is determined by the insurer and remains fixed and level throughout the contract
Partial surrenders are allowed - Partial surrenders are not allowed from a variable whole life policy.
A participating life insurance policy has a long-term care rider. The insured qualifies for the benefit. Where does the initial benefit money come from?
It is an advance of the face amount of the policy - The Long-Term Care Rider's initial benefit is from an advance of the death benefit, after which additional dollars are paid out by the insurer. The amount the insurer is responsible to pay out maximum is determined at the time the rider is acquired. The bigger the benefit the more the rider costs.
An existing term life insurance policy may be exchanged for a new term life insurance policy on the ______ date.
The policy will specify when the Re-Entry can take place.
Which of the following policies could be expected to have the lowest premium? - Endowment to age 65 - Whole life - Single pay life - 10-pay life
Whole life - Payments on limited-pay policies are accelerated and larger than a whole life policy. With whole life policies, the longer the period designated to pay premiums, the smaller the premiums.
Which of the following term life insurance policies would have the lowest 1st-year annual premium, all other factors being equal? - 1-year - 10-year - 5-year - 15-year
1-year - The 1-year term life insurance policy would have the lowest first-year premium of the choices provided. In essence, one year of coverage is less risky to the insurer than being locked in to more years.
How is a life settlement transaction similar to a viatical settlement transaction?
A third party buys a life insurance policy for less than its face amount - A Life Settlement is similar to a viatical settlement in that it is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its death benefit. There is no requirement for the insured to be terminally ill in order for a life settlement to occur. A policyowner may choose to sell their policy because the premiums are too high or they want to purchase a different policy. Note: If your state has particular Viatical or Life Settlement licensing and solicitation laws, they will be addressed in the state law chapter.
All of the following are true regarding the accelerated death benefit rider, except: - These benefits do not include disability income - Accelerated death benefits have to be repaid if the insured's health improves - These benefits could be provided based on an insured qualifying as catastrophic illness, such as the need for an organ transplant - These benefits could be provided based on an insured qualifying for long-term care, if unable to perform activities of daily living
Accelerated death benefits do not have to be repaid if the insured's health improves.
What is the fastest way to pay up a traditional whole life policy?
Buy a single premium policy - A single premium life policy only requires one premium payment to be made therefore this would pay up the policy the quickest.
Adjustable life allows the policyowner to do all of the following, except: - Adjust the death benefit - Adjust the premium - Change the insured - Adjust the premium paying period
Change the insured - Adjustable life allows policyowners to manipulate the period of protection (to age 100 or shorter), increase or decrease the face amount with insurability, raise or lower the premium amount, and change the length of the premium payment period.
What rider is designed to help the insured offset the effects of future inflation on the policy's face amount?
Cost of Living - The Cost of Living Rider allows for the policy's death benefit to keep up with inflation without having to prove insurability but with an increase in premium to reflect the added risk to the insurer.
With a Variable Life Policy, which of the following is guaranteed? - Death benefit - Investment returns - Cash value - Dividends
Death benefit - In a VL policy a death benefit is guaranteed as long as all premiums are paid on time. There is both a guaranteed minimum death benefit and a higher stated face amount. The face amount and cash value are not guaranteed and could be higher or lower than expected.
All of the following are true regarding Current Assumption Whole Life, except: - The insurer may have to add a corridor of insurance protection to keep the policy from endowing - The policy has a guaranteed minimum death benefit - If current rates decrease, the policyowner pays reduced premiums, or the cash values will grow faster - Interest rate changes affect policy premiums
If current rates decrease, the policyowner pays reduced premiums, or the cash values will grow faster - If current rates increase (not decrease), either the policyowner pays a reduced premium, or the cash value will increase at a faster rate.
How does an Option A death benefit feature of a Universal Life policy work?
It pays out the policy's face amount - Option A in a Universal Life Insurance policy pays out a level death benefit, while Option B pays out an increasing death benefit, the face amount plus the cash values.
What is the name of a single policy covering two or more lives that pays benefits upon the death of the first insured?
Joint Life - A Joint Life Policy covers two or more lives under a single policy, resulting in a reduction in premium, with the death benefit payable upon the death of the first to die.
An insured owning an Adjustable Life Policy enjoys a policy that has characteristics of both ______ and _______.
Permanent and Term - Adjustable Life, the precursor to Universal Life, combines the features of term and whole life coverage.
Which of the following term policies costs the most, all other factors being equal? - Renewable and non-convertible - Renewable and convertible - Nonrenewable and convertible - Nonrenewable and non-convertible
Renewable and convertible - The more features a policy has, the more it will cost the consumer.
Mary decides to convert her Term Policy to permanent protection. Which of the following statements is true regarding the conversion? - She may convert without evidence of insurability - She may convert after proof of insurability - Premiums and the amount of coverage remain the same - She may convert at any time
She may convert without evidence of insurability - The Conversion Option of a Term Policy allows conversion to a Permanent Policy without evidence of insurability, but it is not an option that lasts forever. Typically the policyowner must do so within the first 10 years or so, and not after a specified age, such as 60.
Life insurance that does not require a medical exam is known as:
Simplified issue - Simplified issue life insurance requires no medical exam and only asks very basic health related questions on the application. Usually this type of insurance is only available in low face amounts, to reduce the risk of adverse selection.
What is the risk to the purchaser in a viatical settlement transaction?
The insured does not die within the time period anticipated - The risk to the purchaser is that the insured does not die within the time period anticipated and therefore the purchaser could lose money on the transaction.
All of the following statements regarding the Living Needs Rider are true, except: - The rider is most often added without an additional premium charge - It allows a partial payment of the face amount before death if the insured becomes terminally ill - The insurer charges an annual premium for this rider which creates a pool of money from which to pay out the benefit - At death, the early payment is deducted from the beneficiary's benefit
The insurer charges an annual premium for this rider which creates a pool of money from which to pay out the benefit - The benefit comes from the acceleration of the death benefit, so no additional coverage or cost is involved. The rider merely explains the terms and conditions associated with exercising the rights in the rider.
All of the following are true regarding re-entry term, except: - The new policy's premiums will be based on the insured's attained age - The new policy's premium will be based on the insured's original age - The new policy's premium will be based on the premium class approved by the company - The new policy's premium will be based on the rates in effect by the insurer at the time of re-entry
The new policy's premium will be based on the insured's attained age, the rates in effect by the insurer at the time of re-entry, and the premium class approved by the company.
Equity Universal, Variable, and Variable Universal all have which of the following characteristics in common?
The overall policy performance has something to do with the stock market in general - All of these policies do not have a guaranteed death benefit, and the Equity Universal life policy does not require a securities registration. However, all of them have a death benefit that is somehow tied to the stock market.
A viatical settlement is contract between a life insurance policyowner and a _______________.
Viatical settlement provider - A viatical settlement is an agreement between a viatical settlement provider and a life insurance policyowner. A viatical settlement broker may be involved in the transaction, but is not a party to the contract.
If the insured becomes totally disabled, the company waives premiums for the duration of the disability if a _____________ is in force.
Waiver of premium rider - If a client has a Waiver of Premium rider in effect, and if the insured becomes totally disabled, the company waives premiums for the duration of the disability. Therefore the policy remains in force.
Joe has a whole life policy with a guaranteed insurability rider. He was 21 at the time the policy was issued. If he exercises all of the options at the ages specified under the typical rider, how many policies will he end up with?
7 - Under the typical guaranteed insurability rider, Joe would have options to buy additional policies of the same type and face amount at ages 25, 28, 31, 34, 37, and 40, therefore he would buy 6 more to bring his total policies owned to 7.
Which of the following permanent policies could actually end up acting like term life insurance? - Single Premium Whole Life - Indeterminate Premium - Ordinary Straight Whole Life - Adjustable Life
Adjustable Life - Adjustable Life is a type of permanent life insurance that combines features of term and whole life coverage, giving policyowners the option to change the characteristics of their policies as their needs change over time. These policies also provide cash value, although reducing the premium could stop the cash value from increasing therefore adjusting the coverage to term insurance.
Which of the following best describes the return of premium rider? - A benefit similar to waiver of premium, but is free of charge - An increasing term benefit that matches the cumulative premiums paid - An increasing term benefit that matches the cash value accumulation - A level term rider in the amount of 20 annual premiums
An increasing term benefit that matches the cumulative premiums paid - The return of premium rider is an increasing term policy which allows the insurer to pay out the policy's death benefit plus the cumulative premiums paid.
Amounts paid out under the accelerated benefits rider:
Are deducted from the policy's death benefit - An accelerated or living benefits rider allows insureds who need funds for health care to collect some or all of the policy's death benefit while they are still living. The amount withdrawn is deducted from the policy's death benefit.
All of the following riders will waive the premiums in the event of a disability, except: - Disability Income - Guaranteed Insurability - Waiver of Premium - Payor Benefit
Guaranteed insurability provides the insured with the right to buy coverage at specified times in the future.
The purpose of the Re-Entry Term option is to:
Obtain a new term policy at a lower rate - The main purpose of a Re-Entry Term option is to allow a healthy insured to acquire a new term life insurance policy at a rate lower than what is currently being charged on the existing policy.
A married couple wants to make sure that if either of them dies, the survivor has enough funds to maintain their standard of living but want to accomplish this in the most economical way. Which of the following recommendations is best suited to accomplish their goal? - Buy two separate Whole Life policies - Buy two separate Limited payment life policies - Buy a Joint Survivorship Life Policy - Purchase a Joint life policy
Purchase a Joint life policy - Joint Life pays on the death of the first insured. It is less expensive than buying two separate policies.
In a whole life insurance policy:
The cash value is greatest at the end of the policy period, and the insurance protection is greatest at the start of the policy - At the start, a whole life policy is all insurance protection. The policy begins to build cash value, the cash value will eventually equal the death benefit when the policy endows. Therefore, the cash value is its greatest at the end of the policy term.
Equity Universal, Variable, and Variable Universal all have which of the following characteristics in common? - The overall policy performance has something to do with the stock market in general - All have a guaranteed death benefit - A securities license is required to sell each policy - The owner chooses the separate account(s) to invest the cash values in
The overall policy performance has something to do with the stock market in general - All of these policies do not have a guaranteed death benefit, and the Equity Universal life policy does not require a securities registration. However, all of them have a death benefit that is somehow tied to the stock market.
All of the following are characteristics of Universal Life Insurance, except: - The policyowner has the option to adjust the death benefit up or down - The policyowner can choose which investment(s) to place the cash values into from those available - Each month a mortality charge is deducted from the policy's cash value for the cost of the insurance protection and expenses - The policyowner may determine the amount and mode of premium payments
The policyowner can choose which investment(s) to place the cash values into from those available - The policyowner can pay any amount of premium at any time subject to policy limitations and can request an increase (if proof of insurability is provided) or decrease in the face amount. Costs for coverage are deducted monthly from the cash values.
All of the following are correct pertaining to Decreasing Term, except: - The death benefit decreases - The premium stays level - Its most common use is in credit life insurance - The premium declines throughout the term of the policy
The premium declines throughout the term of the policy - A decreasing term policy has a death benefit that reduces over a defined number of years, but the premium remains the same in all years.
The waiver of premium rider normally expires at age:
The waiver of premium rider generally expires when the insured reaches age 65.
A $100,000 policy with a waiver of premium rider and $30,000 of cash value is in force. The base policy costs $750 and the rider is $50. What is the total premium annually the policyowner must pay to keep the policy in force?
$800 - Riders such as the waiver of premium are a provided benefit for an additional cost, therefore the annual premium would be $800 ($750 + $50).
A life insurance applicant wants a combination of savings and insurance protection with guarantees. If the applicant is willing to pay premiums only until the age of 65, at which time the policy is fully paid-up, which of the following should he/she purchase?
Limited Pay Whole Life-Age to age 65 - A life policy payable to age 65 is a limited payment policy. If the insured does not die within the limited premium period, premiums cease because the policy is fully paid up (i.e. no more premiums are due). Death always results in the payment of the policy proceeds as long as the policy is in force. Cash values build as in any other Ordinary Whole Life policy.
Which of the following Whole Life insurance policies has the highest annual premium payment per $1,000 of coverage for a 35-year-old, all other factors being equal? - 20-Pay Ordinary Whole Life - 30-Pay Ordinary Whole Life - Limited Pay Ordinary Whole Life to age 85 - Ordinary Straight Whole Life
20-Pay Ordinary Whole Life - The shorter the premium-paying period, the higher the annual premium.
Ordinarily, who would not be the owner of a juvenile policy from the outset?
A brother or sister - Typically it is the parents or grandparents who buy juvenile policies on their children or grandchildren.
A Last-to-Die policy would be the most appropriate recommendation for which of the following? -A corporation concerned that its CEO might die before the end of his employment contract. - Two business partners who are concerned about the future success of the business and want to provide funds to purchase the business from the decedent's family - A husband and wife concerned about paying estate taxes after they have died - A business owner who wants to make sure his wife has enough money to buy the business from his partner if he dies before his partner does
A husband and wife concerned about paying estate taxes after they have died - Married couples worried about estate taxes would be best served in most cases by a Last-to-Die, or Survivorship, policy.
The cash value of a permanent life insurance policy can be used for all of the following, except: - Cash withdrawals - Policy loans - Accidental death benefits - Nonforfeiture options
Accidental death benefits - Cash values can be used as nonforfeiture options, policy loans, full or partial surrenders, but not for accidental death benefits.
A Child Rider that is added to an insured's permanent policy includes which of the following features? - The covered child becomes the premium payor - All children (beyond 14 or 15 days of age) are covered, and the rider may be converted to permanent coverage at a specified age without evidence of insurability - If the child rider death benefit is paid, it reduces the face amount of coverage - Coverage is for the same amount as the primary insured
All children (beyond 14 or 15 days of age) are covered, and the rider may be converted to permanent coverage at a specified age without evidence of insurability - The benefit of a Child Rider is twofold. It provides basic coverage, and is convertible to a permanent policy without proof of insurability, when the child reaches the maximum age.
Some traditional whole life policies offer a(n) __________ feature to keep the policy in force if there are sufficient cash values to do so.
Automatic premium loan - Some policies offer an automatic premium loan feature to keep the policy in force if there are sufficient cash values to do so.
A producer is explaining the concept of limited-pay life insurance to her client. Which of these statements is incorrect? - A policy fully paid up at age 65 will not endow until age 100 - Paying over a longer period of time will make the total payments higher - By paying over a shorter period of time, each of the payments will be higher - By paying over a shorter period of time, each of the payments will be lower
By paying over a shorter period of time, each of the payments will be lower - The basic concept of insurance premiums is that by paying less often, a person will pay less in total premium. However, in cash value policies, because the payments are funding the cash value, the actual amount per payment in a limited payment policy will be higher as the number of payments is reduced. A 10-pay policy will have higher premiums than a 20-pay policy, but the total of the 10 payments will be much less than the total of the 20 payments.
If the insured of a Whole Life policy is on claim with a Waiver of Premium rider, what happens to the cash values?
Cash value and dividends are not affected - Under a Waiver of Premium rider, cash value and dividends continue as if normal premium payments have been made.
______________ is a form of whole life in which the insurance company can change the premiums or interest rate being credited to the account based on current money market rates.
Current Assumption Whole Life - Current Assumption or Interest-Sensitive Whole Life is a form of whole life in which the insurance company can change the premiums or interest rate being credited to the account based on current money market rates.
Which of the following are characteristics of universal life insurance policies?
Death benefit options, death benefit, and premiums may be changed - Death benefits options are a key characteristic of all forms of universal life insurance. All UL policies permit the policyowner to make changes in both the amount and timing of premium payments, including making no payments at all, and the death benefit may be increased or decreased in accordance with the terms and provisions of the policy.
In which of the following circumstances would the accidental death benefit not apply? - Death caused as a direct result of an occupational accident - Death caused by an automobile accident - Death caused as the result of being a passenger on a regularly scheduled airline - Death caused by an intentional act
Death caused by an intentional act - Coverage for death caused by an intentional act is excluded from accidental death benefits as is death resulting from riot, insurrection, war, a self-inflicted injury, or commission of a crime.
Sean has a home with a mortgage. He needs life insurance to protect his family but also wants to leave them without a mortgage payment if he dies. Ideally which of the following riders should he acquire? - Increasing Term Rider - Level Term Rider - Decreasing Term Rider - Family Rider
Decreasing Term Rider - Deceasing Term Riders are ideally suited to cover the balance of an outstanding mortgage.
A client wants coverage for himself as well as coverage for his wife and children all under one policy at an affordable price. Which of the following would best meet the need?
Family Rider - The Family Rider covers all members of the family with Whole Life Coverage on the head (wage earner) of the family and Level Term Coverage in the form of a rider on the spouse and children.
Which type of term protection has an increasing face value as the insured gets older?
Increasing Term, as its name implies, increases the death benefit on an annual basis. Used primarily as a rider attached to a permanent policy, the annual premium typically stays level.
What happens to the overall policy premium when most riders on a life insurance policy expire?
It goes down - Most life insurance policy riders have a premium associated with it. Once the rider expires so too does the obligation to continue paying its premium.
Which of the following is correct regarding a 15-Pay Life policy? - It is term insurance providing 15 years of coverage - It is permanent insurance providing 15 years of coverage - It is term insurance but converts to permanent after 15 years of on-time premium payments - It is permanent insurance but the insured only pays premiums for 15 years
It is permanent insurance but the insured only pays premiums for 15 years - Limited pay policies are a kind of Whole Life, and are permanent insurance. They allow the insured to fully pay off the policy within a set period of time--in this case, 15 years.
Of the following, which best describes a Straight Whole Life Policy? - Level guaranteed premium and face value for the life of the insured - Decreasing face amount and level premiums - Increasing cash value and decreasing premiums - Increasing premium and level death benefit for the life of the insured
Level guaranteed premium and face value for the life of the insured - A traditional Straight Whole Life Policy has as its primary characteristic, fixed (i.e. guaranteed) premiums and death benefit over the life of the policy. It has substantial guarantees, but virtually no flexibility.
Quentin, age 65, has a life insurance policy he no longer needs and no longer can afford, but he does have a need for cash. XYZ Inc. purchased his policy for less than the face amount but more than the cash value and is now the policyowner and premium payor. This was which of the following transactions? - Viatical Trust Settlement Agreement - Buy/Sell Agreement - Living Needs Transaction - Life Settlement
Life Settlement - A Life Settlement is like a Viatical Settlement except it does not involve a terminally ill insured.
The death benefit of a variable life policy:
May go up or down but will never fall below the face amount of the policy - Changes in investment results can cause changes in the amount of death benefit as well as cash values of a variable life policy, but the death benefit amount will never fall below the guaranteed minimum, which is equal to the policy's initial face amount.
If X has a life insurance policy that is no longer wanted or needed and is considering selling their policy, how much might X receive if the premiums are $10,000 annually, the cash value is $200,000, and the face amount is $1,000,000?
More than $200,000 but less than $1,000,000 - A Life Settlement is similar to a viatical settlement in that it is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its death benefit.
Producers selling variable life insurance:
Must have a valid life license and must also be registered with FINRA - All variable products require the agent to have 2 licenses: a valid life license and a securities license. To be registered with FINRA is to be securities licensed. The policyowner is bearing all investment risk in the stock market and all products that have investment risk are considered securities.
If Greg's policy has a Guaranteed Insurability rider, it means that he can purchase more insurance:
On his own life at certain specified ages without proof of insurability - GI rider allows the insured to purchase additional amounts of insurance at certain ages, events or specified dates in the future without any proof of insurability. You are basically purchasing the guaranteed right to purchase more insurance later, regardless of health.
Which of the following policies cannot have a premium payment period of less than to age 100? - Adjustable Life - Indeterminate Premium - Limited Pay Life - Ordinary Straight Whole Life
Ordinary Straight Whole Life - Straight Whole Life premium schedule is level and payable to age 100 or death of the insured, whichever comes first.
Which of these best describes a disability income rider? - Provides for double the face amount if the insured is disabled and has no income - Automatically creates an unlimited loan fund in the amount of the death benefit, secured by the cash value, when an insured is totally disabled - Pays a percentage of the death benefit as monthly income to the insured when totally disabled - Pays a percentage of the annual premiums as monthly income to the insured if they are totally disabled
Pays a percentage of the death benefit as monthly income to the insured when totally disabled - A disability income rider pays monthly income to a totally disabled insured. The income is a specified number of dollars per $1,000 of death benefit, which may be expressed as a percentage of the death benefit. Waiver of premium allows the insured to avoid paying premiums when totally disabled. Money paid as income under a disability income rider does not affect the death benefit in any way.
If a policyowner wants to increase the death benefit of an Adjustable Life Insurance policy, what is required?
Prove insurability for the increase - In just about every situation in which a policyowner wants to increase the face amount of a policy, the insured must prove insurability for the increase.
Which of the following would have the lowest first-year annual premium for a 30-year-old, all other factors being equal? - Term to age 40 - Term to age 70 - Term to age 60 - Term to age 50
Term to age 40 - 10 years of coverage is less costly than longer terms of coverage.
How is a Variable Universal Life Insurance policy different from a Universal Life Insurance policy?
The ability to invest the cash values in various separate accounts - The policy has a variable component, meaning that the cash values can be invested outside of the insurer's general account in various separate accounts.
Each of the following are characteristics of a Current Assumption Whole Life insurance policy, except: - The insurance company can change the premium - The death benefit is not guaranteed - If interest rates increase premiums can be reduced or cash values can increase at a faster rate - The insurance company can change the interest rate credited to the policy
The death benefit is not guaranteed - Current Assumption Whole Life guarantees a death benefit just like any other whole life insurance product. However based on interest rates premiums can be reduced or increased and cash values can be credited with a higher or lower interest rate.
What "jumps" in a jumping juvenile policy?
The face amount jumps one time, usually to five times the amount of insurance, at age 21 or 25 - A "jumping juvenile" policy will normally increase the face amount of insurance by a factor of five with no change in premium at the next anniversary after the child turns anywhere from age 21 to 25 (depends on the policy). Ownership of the policy also changes at that time to the child, who is now an adult.
Which of the following provides the basis for the benefit amount paid to an insured under a disability income rider?
The face amount of the policy - The amount of income provided by a disability income rider is usually based on the face amount of the life policy to which it is attached. It is usually a specified dollar amount per $1,000 of face amount of insurance.
All of the following are risks to the life settlement purchaser, except: - The third party runs out of funds to pay on-going premiums - The insurer becomes insolvent - The insured dies sooner than expected - The insurer will not honor the claim based on lack of insurable interest
The insured dies sooner than expected - If the insured dies sooner than expected then the purchaser will achieve a greater return than they had planned on.
Which of the following statements about Equity Indexed Life insurance is TRUE? - The policyowner can decide which separate accounts to invest the policy's cash values into - To sell Equity Indexed Life, a producer only needs a securities license - The insured/owner bears all risk regarding cash surrender value, as negative stock market performance can cause the cash values to decrease - The interest credited to the policy is based off of the performance of a stock market index like the S&P 500
The interest credited to the policy is based off of the performance of a stock market index like the S&P 500 - The attraction of this policy is that potentially the interest credit can be higher than what a typically insurer's general account can pay by tying the potential interest credit to a stock market index. Based on the design of the policy, if the index falls in value there is no negative impact to existing cash values.
All of the following provisions of an adjustable life policy may be changed to meet the policyholder's needs, except: - The face amount of the policy - The person named as the insured on the policy - The amount and/or frequency of premium payments - The period of insurance protection
The person named as the insured on the policy - With an adjustable life policy, the policyholder can change the premium payment or frequency, face amount of the policy, and the period of insurance protection. This is considered a flexible type policy.
When the cash value account of a universal life policy reaches zero, the policyowner must make a premium payment or:
The policy goes into the grace period - When the cash value account reaches zero, it has actually made its last premium payment, at that time it has entered the grace period. At the end of the grace period, if no premium payment has been made, the policy then lapses.
In which way is variable whole life different from variable universal life?
The policy has a guaranteed minimum face amount - Generally speaking, variable whole life has a guaranteed minimum death benefit provided that all premiums are paid in full and on time as scheduled, whereas a variable universal life policy has no guaranteed death benefit.
All of the following are characteristics of Universal Life Insurance, except: - Each month a mortality charge is deducted from the policy's cash value for the cost of the insurance protection and expenses - The policyowner has the option to adjust the death benefit up or down - The policyowner can choose which investment(s) to place the cash values into from those available - The policyowner may determine the amount and mode of premium payments
The policyowner can choose which investment(s) to place the cash values into from those available - The policyowner can pay any amount of premium at any time subject to policy limitations and can request an increase (if proof of insurability is provided) or decrease in the face amount. Costs for coverage are deducted monthly from the cash values.
What happens to a spouse or child rider just prior to it expiring?
The spouse or child has a conversion option - Both spouse and child riders will also provide a conversion provision permitting the spouse or child to convert to permanent coverage without evidence of insurability prior to the termination of the rider or upon the death of the insured under the basic policy (or upon reaching age of majority for the child covered under a child rider).
A viatical settlement is made between the purchaser of a person's life insurance policy and ____________________.
The terminally ill insured who must receive at least as much as would be available from the insurance company under any full cash surrender or living needs rider - The viatical life settlement laws which have been adopted by the states are intended to protect a terminally ill person from exploitation. They must not obtain a lesser benefit than they could obtain on their own by taking a loan or cash surrender from their life insurance company or through a living needs provision or rider in their policy.
If a policyowner has a whole life insurance policy with a disability waiver of premium rider, when does the rider benefit start if a qualifying disability should occur?
Typically 6 months after the disability occurs - The disability waiver of premium typically has a 6 month waiting period prior to the insurer actually waiving the premiums when a qualifying disability occurs. During the 6 month time period premiums are expected to be paid in order to keep the policy in force.
Which of the following policies requires a producer to have both a life and securities license to sell? - Universal - Equity-Indexed - Variable Universal - Indeterminate Premium
Variable Universal - Both Variable Life and Variable Universal Life require a securities and life license to sell. A securities license is not required for Adjustable Life, Universal Life, or Equity-Indexed Life.
Which of the following policies must be sold by prospectus? - Equity Indexed Whole Life - Ordinary Whole Life - Universal Life - Variable Whole Life
Variable Whole Life - Variable Whole Life is a security. It is required that the producer have a securities registration in order to sell it and the policy must be sold with a prospectus detailing all fees, charges, risks, and expenses.
Which of the following policies must be sold by prospectus? - Equity Indexed Whole Life - Universal Life - Ordinary Whole Life - Variable Whole Life
Variable Whole Life - Variable Whole Life is a security. It is required that the producer have a securities registration in order to sell it and the policy must be sold with a prospectus detailing all fees, charges, risks, and expenses.
Increases in insurance protection to keep a Current Assumption policy from endowing is provided:
Without evidence of insurability - It is possible that the cash value will increase too quickly and could cause the policy to mature prior to age 100. To prevent this from happening, the insurer will add a corridor of insurance protection without requiring evidence of insurability to keep the policy from endowing.