CHAPTER 5 LIFE INSURANCE

What is the primary feature of a viatical settlement?

Reduced death benefit prepayment (The primary feature of a viatical settlement is the prepayment of a reduced death benefit.)

What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured?

Specified amount of money

Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors?

Spendthrift Clause

Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident?

contingent beneficiary

Naming a contingent beneficiary as "all surviving children" is described by which term?

Class designation

Which of these is affected by the frequency of an insurance policy's premium payments?

Cost

Which of these is considered a major tax advantage of life insurance?

Income tax is typically not owed on proceeds paid directly to a beneficiary (One of the major tax advantages of life insurance is that the beneficiary generally does not pay income tax on the proceeds.)

What happens to the total amount of premium paid for an insurance policy when the payment frequency increases?

Increases (As the premium payment frequency increases, the total amount of premium paid for an insurance policy increases.)

Which type of beneficiary should be named if the insured wants to give explicit directions on how the policy proceeds should be paid?

Individual

A policyowner is prohibited from making any changes to the policy without the beneficiary's written consent under which beneficiary designation?

Irrevocable beneficiary

An example of naming a beneficiary by class would be

"To the children born of my union with Ned Jackson"

How does life insurance create an immediate estate?

After first premium is paid, the face amount may be available to the beneficiary (An immediate estate can be created because the face amount may be available to the beneficiary after the first premium is paid.)

Over the course of a year, which premium payment mode is most expensive?

Monthly

What would be an expense factor in an insurance program?

Mortality costs

A policyowner can receive a percentage payment of the death benefits prior to death by using what kind of contract?

Viatical settlement agreement (Viatical settlement agreements typically include a percentage payment of the death benefits to the policyowner prior to the death of the insured.)

A tax-free Section 1035 Exchange of a life insurance policy to a different policy is permitted if it occurs

from insurer to insurer and no cash is received by the policyowner

Level premium term life insurance policies

have premiums that are averaged over the policy period

Mortality is calculated by using a large risk pool of

people and time

If the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if

the insured outlived the beneficiary (This allows the proceeds to go to the contingent beneficiary.)