Chapter 4- Life Insurance Policies; Provisions, Options and Riders (Exam 2)
Which of the following is NOT subject to the promise to pay in an insuring clause?
How the premium is calculated
The insurance coverage in a variable life insurance policy may vary based on the value of
Its underlying investments
Laura added a children's rider to her life insurance policy. What type of coverage was added?
Level term
Joe is a life insurance policyowner who has failed to pay interest on his policy loan. What will result from this nonpayment?
Loan amount is increased to reflect the amount of interest due
Tim is confined to a nursing home but doesn't have a terminal illness. Which life insurance rider is designed to help pay for this type of expense?
Long-term care benefit rider
Which of the following is a TRUE statement regarding universal life insurance?
Policy indicates how much of each premium is used toward company expenses
What happens to a life insurance policy when the policy loan balance exceeds the cash value?
Policy will no longer be in force
How is the insured protected if a payor benefit rider is attached to the life insurance policy?
Premium payments are waived in the event the premium payor dies or becomes disabled
Which of the following could be a future use of the cash value that builds in a recently-purchased whole life insurance policy?
Provide supplemental income in 35 years
What happens to the death benefit of a life insurance policy if the insured elects a partial payment from the accelerated (living) benefit provision?
Reduced
What effect can a long-term care benefit rider have on a life insurance policy?
Reduced death benefit
What is considered the collateral on a life insurance policy loan?
The policy's cash value
Which of these statements regarding the extended term insurance nonforfeiture option in a life policy is accurate?
The premium to purchase the coverage comes from the policy's cash value
What is the face amount of $50,000 graded death benefit life insurance policy when the policy is issued?
Under $50,000 initially, but increases over time.
Which of the following statements about universal life insurance is NOT true?
Universal Life insurance normally has a minimum guaranteed cash value for duration of the policy
How long does protection normally extend to under limited pay whole life policy?
Until age 100
An insurance policy that can also be classified as a securities product is called
Variable Life
At what point are death proceeds paid in a joint life insurance policy?
When the first insured dies
Which life insurance policy would be eligible to include an automatic premium loan provision?
Whole life
An individual who purchases a modified life insurance policy expects
an improvement in future income
A life insurance policy that contains an accelerated (living) benefit rider will provide funds if the
insured is expected to be confined to a nursing home for life
After the extended term life nonforfeiture option is chosen, the available insurance will be
level term for a stated period of time
The automatic premium loan provision can be accurately described as a
provision that provides a policy loan to pay any premiums by the end of the grace period
How long can an insurer legally defer paying the cash value of a surrendered life insurance policy?
6 months
Which benefit is normally payable to a life insurance policyowner when the insured's life expectancy has been severely limited?
Accelerated (living) benefit
How may an insurance company classify an accidental death benefit on a life policy?
As an optional policy rider
Which statement regarding the cash value of a whole life insurance policy is correct?
Available to the policyowner when policy has been surrendered
A source of supplemental income for a life insurance policyowner can be derived from the
Cash Value
Which of the following is NOT a condition that must be met for an accidental death benefit to be paid?
Cause of death must be from a job-related injury
Which statement concerning an adjustable life insurance policy is FALSE?
Evidence of insurability is required when there is a change in premium
Which life insurance policy option allows the policyowner to have coverage equal to the net death benefit of the lapsed policy?
Extended term nonforfeiture option
A nonparticipating whole life insurance policy was surrendered for its $20,000 cash value. The total premiums paid had totaled $16,000. What were the federal income tax consequences to the policyowner on receipt of the cash value?
$16,000 was tax free and $4,000 as ordinary income
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was worth $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?
100%
Which of these may NOT be deducted from premium payments or the cash value of a variable life insurance policy?
Federal Premium Taxes
Which statement regarding the life insurance premium for a children's rider is true?
Premium remains the same no matter how many children
Assets that back the non-guaranteed values of variable life insurance products are held in which account?
Separate account set up by the insurer.
Which statement concerning adjustable life insurance is accurate?
The face amount and premiums can be changed simultaneously by the policy owner. (Length of overage, accumulated cash value, and premiums can be adjusted to fit specific needs)
Taxable income may be the result of all of these modified endowment contract (MEC) transactions EXCEPT for
The policy is surrendered for less than what was paid into it
