Chapter 3 - Types of Policies and Riders

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. A) $275,000 B) $250,000 C) $225,000 D) Nothing

A) $275,000

C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. What is the maximum loan C can obtain from the insurer using the policy as collateral for the loan? A) $30,000 B) $100,000 C) $130,000 D) $70,000

A) $30,000

C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. What is the maximum loan C can obtain from the insurer using the policy as collateral for the loan? A) $30,000 B) $130,000 C) $70,000 D) $100,000

A) $30,000

All of the following are true about riders, except: All of the following are true about riders, except: A) All riders are available free of charge and can be added at anytime without proof of insurability B) Riders added after the policy has been issued usually require evidence of insurability C) Most riders are added at the time of policy issue D) Once a rider drops from the policy, the additional premium will also drop

A) All riders are available free of charge and can be added at anytime without proof of insurability

All of the following are true in general about riders, except: A) All riders are provided for as long as the policy is in effect B) Riders are optional C) Riders typically are available for an additional premium D) A rider can modify conditions of the policy by expanding or decreasing its benefits

A) All riders are provided for as long as the policy is in effect

With Joint Life Insurance policies, the premium is based on the: A) Average age of both insureds B) Age in a specialized table used for this type of policy C) Age of the oldest insured D) Age of the youngest insured

A) Average age of both insureds

With indexed life, the interest credited to the policy is: A) Based on a percentage of the increase in a stipulated stock index B) Declared by the insurer's board of directors C) Equal to the dividends paid on a stock index's underlying securities D) Established by the full amount of a stock market advance, including dividends

A) Based on a percentage of the increase in a stipulated stock index

Which of the following is not a true characteristic of permanent protection Whole Life? A) The insurer bears all risk B) Premiums are flexible C) Death benefit typically remains level D) Premiums are payable to age 100 in older policies, and to age 121 in newer policies

B) Premiums are flexible

Permanent insurance is designed to provide coverage ___________. A) For a specified period of time B) To age 65 C)For an entire lifetime D) For a temporary period of time

C) For an entire lifetime

increases the death benefit on an annual basis

Increasing term

a special rider that pay the premiums on a minor's policy if the adult who owns the policy dies or becomes disabled while the insured is still a minor

Payor rider

If the insured dies within the period of the term, the beneficiary receives the death benefit of the Whole Life Policy and, through an increasing term rider, the equivalent of the premiums paid on the Whole Life Policy.

Return of Premium Rider

With an Option B death benefit, the beneficiary will receive what?

the face amount plus the cash value as of the date of death.

policies that allow policy owners to invest money in separate accounts that fluctuate and may result in a loss of principal

variable

the insured is terminally ill and money is paid to the policyowner in exchange for making an absolute assignment of the policy to the purchaser

viatical settlement

The _________ settlement industry has increased awareness of STOLI/IOLI. A) Life B) Financial C) Mortality D) Viatical

A) Life

Which of the following term life insurance policies would have the lowest 1st-year annual premium, all other factors being equal? A) 15-year B) 1-year C) 5-year D) 10-year

B) 1-year

Generally, Universal Life has how many death benefit options to choose from? A) 3 B) 2 C) 1 D) 4

B) 2

What is the typical time limit on life expectancy for a Viatical Settlement candidate? A) 4 years B) 2 years C) 3 years D) 5 years

B) 2 years

Term life insurance will not pay out a death claim in which of the following situations? A) Death as a result of accident B) Death after the term expires C) Death as a result of sickness D) Death while at work

B) Death after the term expires

A $100,000 policy with a waiver of premium rider and $30,000 of cash value is in force when the insured dies at age 65. The beneficiary receives how much of the policy's values? A) $130,000 B) $70,000 C) $100,000 D) $30,000

C) $100,000

What is the name of a single policy covering two or more lives that pays benefits upon the death of the first insured? A) Universal Life B) Joint Survivorship Life C) Joint Life D) Accidental Death

C) Joint Life

Term insurance does not accumulate ______________________.

cash value

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

joint life policy

An existing term policy can be converted to a permanent policy without evidence of insurability at what point?

only available during the conversion period specified in the contract

an increasing term policy which allows the insurer to pay out the policy's death benefit plus the cumulative premiums paid

return of premium rider

Which of the following best describes the return of premium rider? A) An increasing term benefit that matches the cumulative premiums paid B) A benefit similar to waiver of premium, but is free of charge C) An increasing term benefit that matches the cash value accumulation D) A level term rider in the amount of 20 annual premiums

A) An increasing term benefit that matches the cumulative premiums paid

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? A) Annually Renewable Term B) 20 Year Term C) 10 Year Term D) 30 year Term

A) Annually Renewable Term

A client wants to make sure that they can have a permanent life insurance policy several years from now when they can afford it without having to prove insurability. What feature should they make sure they have on their new term life insurance policy? A) Convertibility B) Renewability C) Flexibility D)Adjustability

A) Convertibility

Which of the following is false in regards to a variable whole life's death benefit? A) Death benefits are recalculated monthly B) While the separate account values may decrease, the policy will never pay less than the guaranteed death benefit in the general account C) Policy loans are available from either the general account or the separate account and will reduce the overall payout until repaid D) The death benefit is tied to and varies with the performance of the separate account

A) Death benefits are recalculated monthly

All of the following are correct regarding renewable term insurance, except: A) Evidence of insurability is required to renew the policy B) The policy is renewable until the expiration date C) The policy renews as long as the premium continues to be paid D) The premium increases at renewal based on attained age

A) Evidence of insurability is required to renew the policy

What happens to the overall annual premium cost once a term rider expires? A) It decreases B) It increases C) It begins to vary D) It stays the same

A) It decreases

When buying a $25,000 life insurance policy on his daughter, a father wanted to make sure the premium would be paid, even if he became disabled, so he also purchased a: A) Payor Rider B) Long-term Care Rider C) Waiver of Premium D) Waiver of Cost of Insurance

A) Payor Rider

An insured dies within the time limit of an Increasing Term Rider and the beneficiary receives the face amount plus the value of all paid premiums. Which rider is attached to the policy? A) Return of Premium B) Waiver of Premium C) Term to age 100 D) Return of Cash Value

A) Return of Premium

Which of the following is designed for someone with a large insurance need but with limited cash flow? A) Term Life Insurance B) Whole Life Insurance C) Home Service Life Insurance D) Variable Life Insurance

A) Term Life Insurance

Which of the following would have the highest first-year annual premium for a 30-year-old, all other factors being equal? A) Term to age 40 B) Term to age 50 C) Term to age 60 D) Term to age 70

A) Term to age 70

Which of the following statements about Indexed Life insurance is TRUE? A) The interest credited to the policy is based off of the performance of a stock market index like the S&P 500 B) The policyowner can decide which separate accounts to invest the policy's cash values into C) The insured/owner bears all risk regarding cash surrender value, as negative stock market performance can cause the cash values to decrease D) To sell Equity Indexed Life, a producer only needs a securities license

A) The interest credited to the policy is based off of the performance of a stock market index like the S&P 500

If the cash value of a permanent life policy equals the face amount, what is that referred to? A) The policy's endowment B) The policy's expiration date C) The cash payout feature D) The premium refund provision

A) The policy's endowment

Which of the following statements about Annual Renewable Term premiums is TRUE? A) The premium increases over time as the insured's age increases B) Premiums initially start out higher than comparable permanent coverage and decrease as the insured's age increases C) Premiums are level over time D) Premiums are variable

A) The premium increases over time as the insured's age increases

What is the primary incentive for a third party to acquire a life insurance policy from a terminally ill insured? A) To profit at the time of claim B) To help those in desperate need C) To perform an act of charity D) To create a secondary market for existing in-force life insurance policies

A) To profit at the time of claim

How long would a policyowner have to pay premiums on a term life policy to age 65 that was taken out at age 35? A) To the earlier of the insured's death, or to age 65 B) 30 years C) Whenever the insured dies D) To age 65

A) To the earlier of the insured's death, or to age 65

The purchase of a policy from a terminally ill insured by a third party who becomes the new owner is considered a ___________. A) Viatical settlement B) Transfer for value C) Senior settlement D) 1035 exchange

A) Viatical settlement

In a viatical settlement transaction, the life insurance policyowner is referred to as the _________. A) Viator B) Provider C) Third party D) Viatee

A) Viator

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? A) 3 B) 7 C) 2 D) 6

B) 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.)

How much of a cash value policy loan will an insurer normally grant with a variable type policy? A) 80-90% B) 75-90% C) 50-75% D) 100%

B) 75-90%

Which type of rider pays out a capital sum in case an insured loses a limb or their eyesight? A) Accidental Death B) Accidental Death and Dismemberment C) Disability Benefit D) Return of Premium

B) Accidental Death and Disemberment

What is a way to provide additional life insurance protection for a temporary period of time without having to acquire an additional life insurance policy? A) Choose death benefit option B on a Variable Universal Life insurance policy B) Add a term rider to a new or existing policy C) Choose death benefit option B on a Universal Life insurance policy D) Buy a Joint Life policy

B) Add a term rider to a new or existing policy

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) Buy a Joint Life policy D) Have one spouse buy a whole life policy and the other one a Universal Life policy

B) Buy a Joint Survivorship Life policy

The ________ is the amount payable to the beneficiary upon death of the insured named in a life insurance policy. A) Cash value B) Face amount C) Loan value D) Premium refund

B) Face amount

Why have many states prohibited STOLI/IOLI transactions? A) The amount the policyowner obtains is too little in relationship to the death benefit B) It is a violation of the insurable interest rule C) Consumers are not reporting the cash received as taxable income D) Mostly the investors are not licensed to conduct such a transaction

B) It is a violation of the insurable interest rule

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) It is an advance of the face amount of the policy C) From the policy's dividends D) From the cash values of the policy

B) It is an advance of the face amount of the policy

Which of the following life insurance policies is ideally suited for estate planning purposes? A) Joint Life B) Joint Survivorship C) Variable Whole Life D) Universal Life with death benefit Option B

B) Joint Survivorship

Which of the following riders can be used to cover the life of an additional insured who is an unrelated business partner? A) Child rider B) Nonfamily rider C) Spouse rider D) Family rider

B) Nonfamily rider

The owner of a Variable Life Policy may allocate the premium into a sub-account which is owned by the insurer, this sub-account is a part of what is also known as the: A) Accumulation Account B) Separate Account C) Side Fund D) Allocation Account

B) Separate Account

Angie is the insured under a $100,000 10 year term life insurance policy with her spouse named as her beneficiary. If she dies in year 9, what will her spouse receive? A) A refund of all premiums paid B) The face amount of the policy C) Nothing since this is term insurance D) The policy's cash values

B) The face amount of the policy

What is the risk to the purchaser in a viatical settlement transaction? A) The check given to the seller does not clear the bank B) The insured does not die within the time period anticipated C) The purchaser paid too little for the policy D) The insured dies sooner than expected

B) The insured does not die within the time period anticipated

Which of the following statements about Annual Renewable Term premiums is TRUE? A) Premiums are variable B) The premium increases over time as the insured's age increases C) Premiums are level over time D) Premiums initially start out higher than comparable permanent coverage and decrease as the insured's age increases

B) The premium increases over time as the insured's age increases

Increases in insurance protection to keep a Current Assumption policy from endowing is provided: A) With limited underwriting B) Without evidence of insurability C) With full underwriting D) With simply part 1 of the application completed

B) Without evidence of insurability

Bess received information in regard to her individual Term Insurance explaining that she could convert the policy by doing which of the following? A) Prove insurability and pay higher premiums based on her attained age B) Without providing proof of insurability, pay higher premiums based on her attained age C) Without providing proof of insurability and pay the same level premium D) Prove insurability and pay the same level premium

B) Without providing proof of insurability, pay higher premiums based on her attained age

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? A) $30,000 B) $100,000 C) $70,000 D) $130,000

C) $70,000

Which of the following riders is used to increase the death benefit if death is the result of an unintended fatal injury, paying a multiple of the face amount? A) Accelerated Death Benefits B) Payor Benefit C) Accidental Death D) Disability Benefit

C) Accidental Death

The premium charged for new policies obtained by exercising the Guaranteed Insurability Rider is based upon the: A) Attained age of the policyowner B) Original policy issue age of the policyowner C) Attained age of the insured D) Original policy issue age of the insured

C) Attained age of the insured

All of the following activities could cause an insurance purchase to be treated as a STOLI, except: A) Keep paying policy premiums until the insured dies, and then file a claim B) Pay for the policy they acquire from the policyowner C) Fill out the application for life insurance on behalf of the insured D)Change the policy ownership and beneficiary designations

C) Fill out the application for life insurance on behalf of the insured

Which of the following is TRUE of a term rider when attached to a permanent life policy? A) It only pays out a death benefit in cases of accidental death B) It always is in the amount of the base policy C) It can provide additional temporary coverage on the insured or on other members of the family D) It allows the policy to achieve paid up status at the end of the term

C) It can provide additional temporary coverage on the insured or on other members of the family

Which of the following term policies cost the least (all other factors being the same)? A) Nonrenewable and convertible B) Renewable and non-convertible C) Nonrenewable and non-convertible D) Renewable and convertible

C) Nonrenewable and non-convertible

How is a Variable Universal Life Insurance policy different from a Universal Life Insurance policy? A) The adjustability of the face amount B) The death benefit options C) The ability to invest the cash values in various separate accounts D) The premium payments

C) The ability to invest the cash values in various separate accounts

All of the following regarding convertible term life insurance is true, except: A) Conversion can be based on either the attained or original issue age of the insured B) Conversion is without evidence of insurability C) The conversion can take place at any time D) The new premium will be higher on the conversion policy compared to the original policy

C) The conversion can take place at any time

Each of the following are characteristics of a Current Assumption Whole Life insurance policy, except: A) The insurance company can change the premium B) If interest rates increase premiums can be reduced or cash values can increase at a faster rate C) The death benefit is not guaranteed D) The insurance company can change the interest rate credited to the policy

C) The death benefit is not guaranteed

All of the following are risks to the life settlement purchaser, except: A) The insurer will not honor the claim based on lack of insurable interest B) The third party runs out of funds to pay on-going premiums C) The insured dies sooner than expected D) The insurer becomes insolvent

C) The insured dies sooner than expected

Universal Life and Variable Universal Life share all of the following characteristics, except: A) Flexible premiums B) Adjustable death benefit options C) The investment risk D) Policy loans, surrenders, and partial withdrawals are permitted

C) The investment risk

Each of the following choices are true of whole life, except: A) As an insured ages, the premiums remain the same B) The death benefit and cash values are guaranteed C) The policy can be converted into a term life insurance plan at anytime D) Endowment occurs at age 100

C) The policy can be converted into a term life insurance plan at anytime

If a client owns an indexed product, what happens if the market falls in value by a large amount? A) The policy's losses must first be made up before any future interest can be credited B) The policy's values are reduced in proportion to the loss C) The policy's values can never decline due to negative index performance D) The policy's values are reduced on a dollar-for-dollar basis

C) The policy's values can never decline due to negative index performance

How long would a policyowner have to pay premiums on a term life policy to age 65 that was taken out at age 35? A) Whenever the insured dies B) To age 65 C) To the earlier of the insured's death, or to age 65 D) 30 years

C) To the earlier of the insured's death, or to age 65

Agents must have a FINRA registration as well as an insurance license in order to sell A) Universal Life B) Indexed and Variable Life C) Variable Life D) Indexed Life

C) Variable Life

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) Leveraged Insurance Agreement B) Living Needs Rider C) Viatical Settlement D) Emergency Fund Rider

C) Viatical Settlement

Increases in insurance protection to keep a Current Assumption policy from endowing is provided: A) With limited underwriting B) With full underwriting C) Without evidence of insurability D) With simply part 1 of the application completed

C) Without evidence of insurability

An insured purchases a 20-Pay Life Policy with a face amount of $25,000 and an annual premium of $1,000. The insured dies 15 years later when the cash value is $5,000. What amount will the beneficiary receive? A) $20,000 B) $30,000 C) $15,000 D) $25,000

D) $25,000

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? A) $800 B) $700 C) $50 D) $750

D) $750

In a viatical settlement, a third party purchases a policy from a terminally ill insured for approximately _____ to _____% of the policy's face amount. A) 40/60 B) 50/70 C) 30/50 D) 60/80

D) 60/80

The Double Indemnity Rider requires that the insured die within _____ days of the accident. A) 120 B) 180 C) 365 D) 90

D) 90

A and B are married. They have two minor age children. A and B feel that all family members should have coverage on their lives, not just A. What would be the least expensive way to accomplish this? A) Buy a traditional whole life policy on B, and juvenile policies on the children B) Buy traditional whole life policies on B and the two children C) Add accidental death coverage riders on B and the two children D) Add a term life insurance rider to this policy to provide additional coverage on the spouse and children

D) Add a term life insurance rider to this policy to provide additional coverage on the spouse and children

An insured owns a whole life policy that ends at age 100 and lives to be 100 years of age. Why does the insurer pay the face value to the insured? A) Because risk exceeds reward to the insurer B) Because the cash values exceed the death benefit C) Because the mortality costs exceed the premium D) Because the policy endows

D) Because the policy endows

The value within a permanent life insurance policy that the policyowner can access through a policy loan or policy surrender is known as the ___________. A) Endowment Value B) Annuity Value C) Rider Value D) Cash Value

D) Cash Value

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? A) Family Rider B) Level Term Rider C) Increasing Term Rider D) Decreasing Term Rider

D) Decreasing Term Rider

All of the following are true regarding Current Assumption Whole Life, except: A) The policy has a guaranteed minimum death benefit B) The insurer may have to add a corridor of insurance protection to keep the policy from endowing C) Interest rate changes affect policy premiums D) If current rates decrease, the policyowner pays reduced premiums, or the cash values will grow faster

D) If current rates decrease, the policyowner pays reduced premiums, or the cash values will grow faster

Which type of term protection has an increasing face value as the insured gets older? A) Renewable Term B) Convertible Term C) Level Term D) Increasing Term

D) Increasing Term

Which type of term protection has an increasing face value as the insured gets older? A) Renewable Term B) Level Term C) Convertible Term D) Increasing Term

D) Increasing Term

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? A) Buy two separate Limited payment life policies B) Buy a Joint and Survivorship Life Policy C) Buy two separate Whole Life policies D) Purchase a Joint life policy

D) Purchase a Joint life policy

The face amount of an Ordinary Whole Life Policy _________ over the life of the policy. A) Increases B) Decreases C) Varies D) Remains the same

D) Remains the same

Individual Term policies are generally stand-alone policies, but may be written with other types of policies as a(n): A) Bonus B) Endorsement C) Dividend D) Rider

D) Rider

Index Life, Variable, and Variable Universal all have which of the following characteristics in common? A) All have a guaranteed death benefit B) The owner chooses the separate account(s) to invest the cash values in C) A securities license is required to sell each policy D) The overall policy performance has something to do with the stock market in general

D) The overall policy performance has something to do with the stock market in general

How is Variable Whole Life different from Variable Universal Life? A) It is designed to provide a hedge against inflation B) The policyowner takes on all of the investment risk C) Cash values can be invested in a separate account D) The policy has a guaranteed minimum face amount

D) The policy has a guaranteed minimum face amount

Universal Life is similar to Whole Life in all of the following ways, except: A) Cash values accumulate based on premium deposits and interest B) Any internal cash value growth is tax-deferred C) It provides a death benefit D) The timing and amount of premium is flexible

D) The timing and amount of premium is flexible

First-to-die and last-to-die life insurance policies have in common all of the following, except: A) Generally they cover the lives of two people, typically husband and wife B) They both require premiums to be paid on time C) They are both issued by an insurance company D) They both continue in force after one of the named insureds dies

D) They both continue in force after one of the named insureds dies

Which of the following policies must be sold by prospectus? A) Ordinary Whole Life B) Equity Indexed Whole Life C) Universal Life D) Variable Whole Life

D) Variable Whole Life

If the insured becomes totally disabled, the company waives premiums for the duration of the disability if a _____________ is in force. A) Premium payor benefit B) Paid up provision C) Disability rider D) Waiver of premium rider

D) Waiver of premium rider

The net amount at risk to the insurance company at the endowment date is: A) The cash values B) The face amount C) The total of the premiums paid to date D) Zero

D) Zero

The Long-Term Care Rider's initial benefit is from an advance of the _____________.

death benefit