Chapter 3 Exam
The net amount at risk in an Ordinary Whole Life Insurance Policy _________ over the life of the policy. A - Decreases B - Remains the same C - Increases D - Varies
A - 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 Whole Life policy is designed to provide a substantial immediate cash value? A - Single Premium Whole Life Policy B - Indeterminate C - Ordinary Straight Life D - Adjustable
A - 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.
Universal Life provides for an increasing death benefit only if the applicant chooses: A - To include an inflation rider at the time of application B - To add an increasing term rider to the policy C - Death Benefit Option B D - A return of premium rider to the plan
C - 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.
Which of the following would have the lowest first-year annual premium for a 30-year-old, all other factors being equal? A - Term to age 70 B - Term to age 50 C - Term to age 40 D - Term to age 60
C - Term to age 40 10 years of coverage is less costly than longer terms of coverage.
A Living Needs Accelerated Benefit Rider allows the early payment of a portion of the face amount of a life insurance policy before death, should the insured become terminally ill with less than how many months to live? A - 36 B - 24 C - 48 D - 60
B - 24 A Living Needs Accelerated Benefit Rider allows the early payment of a portion of the face amount of a life insurance policy before death, should the insured become terminally ill with less than 24 months to live.
Which of the following situations will require proof of insurability? A - Variable Whole Life insurance as the cash values grow due to favorable separate account investment earnings B - Adjusting the face amount up on a Universal Life insurance policy with Option A death benefit selected C - Current Assumption Whole Life when the interest crediting is so favorable that the insurer adds a corridor of protection to keep the policy from endowing D - Universal Life insurance with Option B death benefit as the cash values grow due to additional premium payments and favorable interest rate crediting
B - Adjusting the face amount up on a Universal Life insurance policy with Option A death benefit selected Requesting an increase in face amount always requires proof of insurability. The other scenarios are when the death benefit is driven up based on policy performance which essentially is a payout of the cash value growth.
How does an Option A death benefit feature of a Universal Life policy work? A - It pays out the policy's cash values B - It pays out the policy's face amount C - It pays out the face amount less the cash values D - It pays out the policy's face amount plus the cash values
B - 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.
In order to convert a term policy to a permanent policy as of the original issue age, all of the following must occur, except: A - Interest will be charged and have to be paid at the time of conversion B - The cash values will have to be paid out first before the conversion can be effected C - The request for conversion must be made on a timely basis D - Back premiums will have to be paid at the time of conversion
B - The cash values will have to be paid out first before the conversion can be effected If the conversion is as of the issue or original age, back premiums plus interest will be required to be paid at the time of conversion.
Mary decides to convert her Term Policy to permanent protection. Which of the following statements is true regarding the conversion? A - Premiums and the amount of coverage remain the same B - She may convert after proof of insurability C - She may convert without evidence of insurability D - She may convert at any time
C - 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.
What happens if a Return of Premium Term policy is not held to the end of term? A - All premiums paid can be 'rolled-over' into an annuity using the IRS Code 1035 exchange rules B - There will be no return of any premium paid C - All premiums paid can be used to offset the first year cost of a traditional whole-life insurance policy D - There will be a nominal return of premiums paid, the amount will depend upon how long the policy was in-force
D - There will be a nominal return of premiums paid, the amount will depend upon how long the policy was in-force A Return of Premium Term policy charges a higher premium than level term insurance with the additional premium providing a nonforfeiture value which will offer a nominal return of premiums paid if the policy is not held to the end of term depending upon how long the policy was in-force.
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? A - From the insurance company by policy loan B- From the policy's dividends C - It is an advance of the face amount of the policy D - From the cash values of the policy
C - 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.
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? A - Buy a Whole Life policy on each spouse B - Buy a Joint Survivorship Life policy C - Have one spouse buy a whole life policy and the other one a Universal Life policy D - Buy a Joint Life policy
B - 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.
A rider is usually requested at the time of ____________. A - Conversion B - Policy Purchase C - Claim D - First policy renewal
B - Policy Purchase A rider is usually requested at the time the policy is purchased, but in certain instances one can be applied for while the policy is in force. Some riders require proof of insurability such as disability waiver of premium.
The applicant/insured wants a term life insurance policy that will last for 20 years and understands that the premium can be increased to a new premium level prior to the end of the term, so the producer should show him/her a(n): A - 20 year indeterminate premium term life insurance policy B - 20 year adjustable premium term life insurance policy C - 20 year non-guaranteed level premium term life insurance policy D - 20 year increasing premium term life insurance policy
C - 20 year non-guaranteed level premium term life insurance policy Non-guaranteed level premium has premiums that can be increased to a new premium level for the remainder of the term.
What is the 'waiver of premium' called on a Universal Life insurance policy? A - Waiver of flexible premium B - Monthly premium waiver C - Waiver of Cost of Insurance D - Disability premium income
C - Waiver of Cost of Insurance Waiver of Cost of Insurance is a rider that waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled, usually after 6 months of continuous disability.