Chapter 9- Life Policies Review

Secure a license from FINRA, as well as the state

An agent who wants to qualify to sell variable life plans must: To offer variable products, an agent must be licensed from both the state and FINRA (formerly NASD), because variable plans are regulated as securities. Failure to do either could result in some very harsh penalties.

Renewable term

John purchased a life insurance policy. After a year, John buys the same policy without having to show proof of insurability. What type of policy did John buy? A renewable term policy can be renewed after the set period without the insured having to show proof of insurability.

Both provide death protection and cash value

Universal life policies are similar to whole life in that they: Both a whole life policy and a universal life policy provide death protection and cash value. The similarities end there. The universal life policies offer flexibility, but benefits are not fixed and guaranteed as they are in the whole life policies. Whole life policies do not treat cash withdrawals as partial surrenders.

Universal life

A partial surrender is allowed in what type policy? A partial surrender is allowed in a universal life policy. This is not a loan, and it decreases the cash value of the policy.

Variable life

A separate account is a part of which type policies? A separate account is a feature in a variable life policy.

Provides death protection and cash value

A universal life plan differs from a whole life plan in all of the following ways, EXCEPT: Universal life policies are similar to whole life in that they both provide death protection and cash value.

Variable universal life

If a policyowner does not want to have all investment risk, which policy is not an appropriate option? In a variable universal life policy the policyowner assumes the investment risk.

The insurance company maintains separate accounts for each investment and they are not co-mingled with other assets.

Matthew has recently purchased a variable life insurance policy. In reading his prospectus, he sees that the various accounts have the same managers as some of the mutual funds he owns. Matthew should understand which of the following: Always remember that the investments in a variable product are referred to as a separate account. While the name of the manager on the account may be the same as well known investment companies, the investments may not be exactly the same. The account will be managed by the same people and the same philosophy, but money flow and timing may cause the performance of a separate account to differ from the mutual fund managed by the same managers.

Universal life

What type policy allows a partial surrender? A partial surrender is allowed in a universal life policy. This is not a loan, and it decreases the cash value of the policy.

The policyholder will always know the amount of cash value available.

All of the following are true concerning Interest Sensitive Whole Life (ISWL), EXCEPT: By definition, the cash value of an interest sensitive policy will vary. There may be a minimum guarantee, but the final cash account will be determined by the actual interest credited from year to year. An interest sensitive plan will allow the policyholder to earn a market-based interest, but the minimum guarantees for the plan are generally lower than a standard whole life.

Her policy was a decreasing term.

Angelina purchased a policy with a face value of $100,000. She died 10 years later and the policy paid a death benefit of $50,000. Why? A level term policy has a fixed face amount. This amount remains the same for the entire term of the policy. Her policy was a 20-year decreasing term policy. Because the amount of benefit paid was half of the original face value after 10 years - we can see that it decreased 50% over 10 years.

Death benefits

Brady is worried about his policy becoming a MEC, if it does it will be taxed on all of the following EXCEPT: A MEC will not be on the death benefit paid to the beneficiaries. It will be taxed on any amount the policy owner receives such as policy loans, withdrawals, or surrender. A policy will be considered a MEC if it doesn't meet the 7-pay test.

Guaranteed

Cash value in a whole life policy is: The cash value in a whole life policy is guaranteed.

It has the lowest annual premium.

Continuous premium, limited premium and single premium are types of whole life policies. Which of the following is indicative of a continuous premium method? The straight/continuous premium whole life has the lowest annual premium, and requires that payments be made for the longest period of time. The cash value grows slowly with a continuous premium policy. It is a single premium whole life policy that has immediate cash value, and the lowest cost over the life of the insured. A limited pay whole life is also called 20-pay life.

General account

The cash value in a whole life policy is held in the insurance company's: The cash value of a whole life policy is held in the company's general account. That means the money is co-mingled with other assets and the investments for that account are usually subject to state and/or federal regulation. When a policyholder makes a loan, for instance, on a whole life plan, the money is loaned from the general fund, and not the cash value of the policy.

Survivorship life

Tom's life insurance policy covers two lives and pays the death benefits after the second person dies. What kind of policy does Tom have? A survivorship life policy pays after the second person or last survivor dies. Joint life pays the death benefits after the first person dies.

Premiums and face value cannot be changed.

Helen and Mark have purchased a policy to cover both of their lives. They know that there are benefits and also disadvantages of such a policy. Which of the following is not something that would be regarded as a benefit of a joint policy? The fact that the premiums and face value of the policy cannot be changed are regarded as drawbacks of a joint life policy. Another drawback is that the premiums are an average of the ages of the two policyholders, which could result in the younger policyholder paying more than he/she would if they took out an individual policy.

a. The premiums remain level for the entire period that the policy is in force. b. Whole life policies have a guaranteed cash value. c. The face amount of the policy does not change while the policy is in force.

One of the most common types of life insurance is the whole life insurance policy. Which of the following is a typical characteristic of a whole life policy? All of the items listed are characteristics of a typical whole life insurance policy. The correct answer is: All of the above

Interest-sensitive/Current assumption whole life

There are several types of whole life policies. Which of the following types of whole life policy offers flexible premium payments tied to interest rate fluctuations? Interest-sensitive/Current assumption whole life offers flexible payments tied to interest rates. The premiums can be raised or lowered by the insurance company, usually annually.

Term insurance

Valerie is looking at types of insurance to enhance her retirement. Which of the following should she NOT consider in planning her retirement? Term is not considered a retirement plan policy. Term is used to cover a need for a fixed period of time. There is no cash value at the end of the term.

Convertible term

David purchased a term life insurance policy. After a year, David exchanges his term policy for a whole life policy without having to show proof of insurability. What type of policy did David purchase? A convertible term policy can be exchanged for a whole life policy after the set period without the insured having to show proof of insurability.

Joint life

George's life insurance policy covers two lives and pays the death benefits after the first person dies. What kind of policy does George have? Joint life pays the death benefits after the first person dies. A survivorship life policy pays after the second person or last survivor dies.

Change the named insured

Sadie is looking at buying an adjustable like policy, which of the following is not a change that she can make to it? Changing the named insured is not a change the policyowner can make to an adjustable life policy.

None of the above

Term coverage has many applications, such as mortgage protection. It gives the insured the best "bang for their buck." It is not without its disadvantages, however. Which of the following is not a disadvantage of term insurance? All of the items listed are disadvantages of term insurance. Although usually less expensive in the beginning, it becomes more and more expensive as the insured ages. Because it is generally not renewable after a certain age, betting on protection may be very difficult for the insured, once he/she attains that age.

A limited payment life plain

Timothy has a plan that provides coverage for life, but the premiums are not due beyond age 65. It has guaranteed premium, accumulates cash value and the coverage will never decrease. Timothy has purchased: A limited payment life plan is one that provides the same benefits as a standard whole life plan, but has a shorter premium paying period. Limited payment plans can range from single premium whole life to life paid up at a specified age, for instance age 65. The policy holder pays the approximate same premium, discounted for interest earnings, as he would for a whole life plan payable for life.