Chapter 4 Mod 5 Quiz: Variable Products

Donna is getting ready to look at variable life insurance as an option for her insurance. Which of the following statements is TRUE about variable life insurance?

A variable life policy cannot be proposed in a sales scenario unless a prospectus precedes or accompanies the proposal, because it is considered a security. The correct answer is: To sell a variable life insurance policy, the proposal must be accompanied by a prospectus

A variable life policy differs from a universal life policy in that:

All of the items in the list differentiate the variable and universal life type policies. The correct answer is: All of the above

Insurance agent Sam would need a securities license to sell this policy:

Any agent selling variable products must have a securities license in addition to a life insurance license. The correct answer is: Variable life

What is the name of the document that describes investments, charges and policy features of a variable life contract, which must be provided to applicants upon policy application?

Applicants for variable products must receive a prospectus at the time of policy application, which describes the investments, any charges imposed on the contract owner and policy features to help the applicant make an appropriate purchase. The correct answer is: Prospectus

All of the following are characteristics of variable life policies, EXCEPT:

Cash value is not guaranteed in variable life policies. The correct answer is: Guaranteed cash value

All of the following statements are correct regarding variable universal life contract charges and fees, EXCEPT:

Interest earned is credited to the cash value. The correct answer is: Interest earned is credited to the death benefit.

In which fund are premiums for a variable whole life insurance policy invested?

Premiums for variable products are invested in the insurer's separate account. The correct answer is: The insurer's separate account

Hank is looking for the best life insurance policy to meet his needs. He has a limited amount of income and assets, but needs a large amount of insurance protection. Which policy should Hank's insurance agent recommend?

Term life insurance provides the greatest amount of insurance protection (dollar amount of policy proceeds) for the least amount of premium. Remember that term life insurance simply provides death protection, not living benefits. The correct answer is: Term life insurance

All of the following policies could be offered as variable policies, EXCEPT:

Term policies do not build cash value, and, therefore, the interest rate is irrelevant. The correct answer is: Decreasing term

Which of the following laws defined a security product?

The Securities Act of 1933 ruled that applicants for a variable product must receive a prospectus. It also laid out a clear definition of a security product. The correct answer is: Securities Act of 1933

Which of the following laws requires sales representatives selling variable products to have a Series 6 license?

The Securities Act of 1934 requires sales representatives who sell variable products to have a Series 6 license. The law also regulates sales representatives_ duties. The correct answer is: Securities Act of 1934

All of the following are guaranteed features in a variable life insurance policy, EXCEPT:

The cash value is invested in the insurer's separate account, and is, therefore, not guaranteed. The correct answer is: Cash value

The 'variable' component in the variable universal life name refers to ___________ and the universal component refers to _____________.

Variable refers to the ability to invest in separate accounts, and universal refers to the flexibility in making premium payments. The correct answer is: the ability to invest in separate accounts whose values vary; the flexibility in making premium payments

Which of the following policies allows the policyowner to buy term and direct the investments made in the cash value account?

Variable universal life is universal life insurance with a separate account. The correct answer is: Variable universal life

Which life insurance policy allows the policyowner to choose where they want their funds invested?

Variable life insurance policies permit policyowner's to choose where they want premiums invested. The correct answer is: Variable life

Because variable contracts are equity products, they are subject to various regulations. Which of the following applies to variable contracts?

The 12% rule prevents producers from using illustrations with projected interest rates greater than 12% to induce people to purchase policies. They are not bound by NAIC, and they are regulated as both insurance and securities. The correct answer is: The 12% rule

What document must applicants for variable life insurance receive at the time of policy application?

The prospectus details investments and features of a variable life insurance policy. The correct answer is: Prospectus

Which policy has fixed premiums, a guaranteed minimum death benefit and nonguaranteed cash values?

These are all characteristics of variable whole life insurance. Universal life and variable universal life insurance have flexible premiums. The correct answer is: Variable whole life

All of the following are features of variable universal life insurance, EXCEPT:

Death protection is deducted from cash value. The correct answer is: Death protection is not deducted from cash value

Gerald wants a life insurance policy in which he can choose the investment vehicle. Which policy would you recommend to him?

Gerald would be able to choose where he wants his premiums invested with a variable life insurance policy. The correct answer is: Variable life

What is the primary purpose of the Investment Company Act of 1940?

The Investment Company Act of 1940 requires insurers to maintain a separate account for variable investments and establishes a cap for sales fees. The correct answer is: Requires insurer to maintain a separate account for variable investments

Which of the following laws requires that insurers maintain a separate account for variable investments?

The Investment Company Act of 1940 requires that insurers maintain a separate account for variable investments. The correct answer is: Investment Company Act of 1940

What is the primary purpose of the Securities Act of 1933?

The Securities Act of 1933 defines a securities product. The correct answer is: Defines a securities product

All of the following policy features may change throughout the policy term of a variable universal life policy with option 2, EXCEPT:

The face value of a variable universal life policy with option 2 stays constant. The death benefit increases because the cash value is allowed to increase. The correct answer is: Face value

Joanna has selected a variable universal life policy because it meets her needs. Which of the following is not a characteristic of a variable universal policy?

The variable universal life policy DOES have cash value that varies with the performance of the investment. The correct answer is: It has no cash value.

Of the following policies, which has a guaranteed minimum death benefit, fixed premiums and nonguaranteed cash values?

These are all characteristics of variable life insurance. Universal life and variable universal life insurance have flexible premiums. The correct answer is: Variable life

Policy cash value in a variable life policy is connected to the insurer's:

Variable life policies have a guaranteed minimum death benefit, which is the policy face amount, but the policy cash value is not guaranteed since it is tied to the separate account. The correct answer is: separate account

Which of the following policies has premiums that are fixed and level?

Variable life policies have fixed, level premiums. Variable life policies guarantee a minimum death benefit, which is why premiums are fixed and level. The correct answer is: Variable life

All of the following policy elements are not guaranteed in a variable whole life policy, EXCEPT:

Variable whole life policies have a guaranteed minimum death benefit. The cash value is tied to the separate account, which is not guaranteed. The correct answer is: Death benefit

The death benefit in a variable whole life policy:

Variable whole life policies have a guaranteed minimum death benefit. This death benefit may increase, based on the favorable investment activity in the separate account, but not decrease below the guaranteed minimum. The correct answer is: Is a guaranteed minimum, but may increase based on favorable investment activity in the separate account