Chapter 2: quiz

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. Joint Life Policy B. Survivorship Life Policy C. Second-to-Die D. Family Income Policy

A. 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.

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

C. $100,000

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. Whole Life B. Ordinary Life C. Joint Life D. Decreasing Term

c. A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.

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.

B. It would not occur in a deferred annuity. The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax-deferred (which would be the case in a deferred annuity).

All of the following are true of an annuity owner EXCEPT A. The owner has the right to name the beneficiary. B. The owner is the party who may surrender the annuity. C. The owner must be the party to receive benefits. D. The owner pays the premiums on the annuity.

C. The "owner" is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary.

which statement is NOT true regarding a straight life policy? 1. its premium steadily decreases over time, in response to its growing cash value 2. the face value of the policy is paid to the insured at age 100 3. it usually develops cash value by the end of the third policy year 4. it has the lowest annual premium of the three types of whole life products

its premium steadily decreases over time, in response to its growing cash value

Which of the following best describes annually renewable term insurance?

It is level term insurance Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

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.

C. The annuitant must be a natural person. Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.

All other factors being equal, the least expensive first-year premium payment is found in A. Level Term. B. Annually Renewable Term. C. Increasing Term. D. Decreasing Term.

Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.

In an annuity, the accumulated money is converted into a stream of income during which time period? A. Payment period B. Amortization period C. Conversion period D. Annuitization period

D. Annuitization period The "annuitization period" (annuity period) is the time during which accumulated money is converted into an income stream.

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.

B. Required a premium increase each renewal. Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.

Which two terms are associated directly with the way an annuity is funded? A.Increasing or decreasing B.Immediate or deferred C.Renewable or convertible D.Single payment or periodic payments

D. Single payment or periodic payment Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installment varies.

All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy? A. half the amount B. lower C. higher D. as high

B. Lower Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.

The policy-owner 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 only when the policy has developed a cash value. B. The death benefit can be increased only by exchanging the existing policy for a new one. C. The death benefit can be increased by providing evidence of insurability. D. The death benefit cannot be increased.

C. The policyowner (insured) would need to prove insurability for the amount of the increase.

Which of the following is TRUE regarding the annuity period? A. During this period of time the annuity payments grow interest tax deferred. B. It is also referred to as the accumulation period. C. It is the period of time during which the annuitant makes premium payments into the annuity. D. It may last for the lifetime of the annuitant.

D. It may last for the lifetime of the annuitant. The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.