Chapter L4: Life Insurance Premiums Proceeds and Beneficiaries

Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?

The Life Income settlement option pays a specified amount to the annuitant with no residual value payable to a beneficiary.

A policy owner is allowed to pay premiums more than once a year under which provision? 1) Insuring 2) Consideration 3) Payor 4) Mode of Premium

Mode of Premium The Mode of Premium provision permits an insured to pay premiums more than once every year.

A policy on earth would like to change the beneficiary on a life insurance policy and make the change permanent. Which type of designation fulfill this need? 1) revocable 2) contingent 3) irrevocable 4) primary

irrevocable

Which type of life insurance beneficiary requires his or her consent when a change of beneficiary is attempted by the policy owner? 1) irrevocable beneficiary 2) tertiary beneficiary 3) primary beneficiary 4) revocable beneficiary

irrevocable beneficiary

Which of these is NOT an element of life insurance premiums? 1) mortality rate 2) insurer's expenses 3) interest credit 4) morbidity rate

morbidity rate

T and S are named Co-primary beneficiaries on a $500,000 accidental death in this memorant policy ensuring their father. Their mother was named contingent beneficiary. Five years later, S. died of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit with a mother receive?

$0

____% of personal life insurance premiums is usually deductible for federal income tax purposes. 1) 100% 2) 75% 3) 50% 4) 0%

0% In general, personal life insurance premiums are NOT deductible for federal income tax purposes.

Which of the following statements is correct regarding the tax treatment of a lump sum payment paid to a life insurance policy's primary beneficiary? 1) The proceeds which exceed the amount paid in premiums are taxable 2) The proceeds are taxable only if the beneficiaries tax break it has changed from the payout 3) All proceeds are considered taxable income in the year they are received 4) All proceeds are income tax free in a year they are received

All proceeds are income tax free in the year they are received

Which premium schedule results in the lowest cost to the policyowner? 1) Semi-annual 2) Monthly 3) Quarterly 4) Annual

Annual If the policyowner chooses to pay the premium more than once per year (example: monthly, quarterly, semi-annually) there normally will be an additional charge because the company will have additional charges in billing and collecting the premium payments.

K has a life insurance policy where her husband is beneficiary and her daughter is contingent beneficiary. Under the Common Disaster clause, if K and her husband are both killed in an automobile accident, where would the death proceeds be directed? 1) Daughter 2) Husband's estate 3) K's estate 4) Trust fund

Daughter With a common disaster provision, a policyowner can be sure that if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary.

A policyowner would like to change the beneficiary on a Life insurance policy and make the change permanent. Which type of designation would fulfill this need? 1) Revocable 2) Contingent 3) Irrevocable 4) Primary

Irrevocable An irrevocable designation may not be changed without the written consent of the beneficiary.

A whole life insurance policyowner does not wish to continue making premium payments. Which of the following enables the policy over to sell the policy for more than its cash value? 1) Cash surrender 2) Life settlement 3) Buy-sell arrangement 4) 1031 exchange

Life settlement contract A Life settlement contract allows a policy owner to sell a life insurance policy for more than its cash value

J would like to maintain the right to change beneficiaries. Which beneficiary designation should be used? 1) Irrevocable 2) Contingent 3) Primary 4) Revocable

Revocable With a revocable beneficiary designation, the policyowner may change the beneficiary at any time without notifying or getting permission from the beneficiary.

The Common Disaster Clause provides that if both The insured and the sole named beneficiaries were to die in a common accident which of the following is true? 1) This clause provides the payment of proceeds to the insureds estate 2) This clause provides the payment of proceeds to the beneficiaries a state 3) The estate taxes in the Insured's estate may be reduced 4) The estate taxes in the beneficiaries a state may be reduced

This clause provides the payment of proceeds to the insured's estate

T is the policyowner for a Life Insurance policy with an Irrevocable beneficiary designation. If T wishes to change the beneficiary, T must obtain permission from the: 1) payor 2) agent 3) beneficiary 4) commissioner of insurance

beneficiary

Which of these statements is incorrect regarding the federal income tax treatment of life insurance? 1) premiums are normally non-deductible 2) cash dividends are normally not taxed 3) entire cash surrender value as taxable 4) proceeds are received tax-free if there is a named beneficiary

entire cash surrender value as taxable

Quarterly premium payments increase the annual cost of insurance because:

interest to the insurer is decreased while the administrative costs are increased

K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?

Proceeds will be payable to K's estate if P dies within a specified time

C is trying to determine whether to convert her convertible term life policy to whole life insurance using her original age or attained age. What factor would affect her decision the most? 1) The cost 2) The nonforfeiture options 3) The contestable period 4) The assignment of ownership

The cost In this situation, the cost of insurance is most important when an insured owner is trying to decide whether to convert term insurance at the insured's original age or the insured's attained age.

T is covered by an Accidental Death and Dismemberment (AD&D) policy that has an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?

Request of the change will be refused An irrevocable policy must have approval from beneficiary in writing.

M purchased an Accidental Death and Dismemberment (AD&D) policy and named his son as beneficiary. M has the right to change the beneficiary designation at anytime. What type of beneficiary is his son? 1) Tertiary 2) Irrevocable 3) Revocable 4) Contingent

Revocable With a revocable beneficiary designation, the policyowner may change the beneficiary at any time without notifying or getting permission from the beneficiary.

P and Q are married and have three children. P is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the contingent beneficiary. P, Q, and R are involved in a car accident and Q and R are killed instantly. The Accidental Death benefits will be paid to:

P only

J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct? 1) The gross premium is higher on a monthly payment mode as compared to being paid annually 2) The gross premium is lower on a monthly payment mode as compared to being paid annually 3) The cash value from a life policy paid on a monthly basis builds quicker than one paid on an annual basis 4) The face amount of a life policy paid on a monthly basis is higher than one paid on an annual basis

The gross premium is higher on a monthly payment mode as compared to being paid annually A premium payment mode that is more frequent than an annual payment will result in a higher gross premium.

What is the underline concept regarding level premiums? 1) level premiums build cash value quicker in the early years 2) the early years are charged more than what is needed 3) the early years are charter less than what is needed 4) level premiums can only be pain annually

the early years are charged more than what is needed The concept of level premiums charges more than needed in early years.

Which of the following best describes a contingent beneficiary? 1) Person designated by the insured to receive policy proceeds in the event that the primary beneficiary dies before the insured 2) Person designated by the primary beneficiary's executor to receive policy proceeds 3) Person designated by the state to receive policy proceeds in the event that the primary beneficiary dies 4) Person designated by the insurance company to receive policy proceeds in the event that the primary beneficiary dies

Person designated by the insured to receive policy proceeds in the event that the primary beneficiary dies before the insured A contingent beneficiary is named by the insured to receive the policy proceeds if the primary beneficiary dies before the insured.

If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the uniform simultaneous death act? 1) primary beneficiary's estate 2) primary beneficiary's next of kin 3) insured's estate 4) insured's contingent beneficiary

insured's contingent beneficiary If the primary beneficiary dies before the insured, the contingent beneficiary will receive the proceeds when the insured dies.

How would a contingent beneficiary receive the policy proceeds in an accidental death and dismemberment policy?

If the primary beneficiary dies before the insured

Which statement is true regarding a minor beneficiary? 1) Normally the death proceeds are required to be healed interest until the beneficiary reaches the age of 21 2) Normally a guardian is required to be appointed in the beneficiary clause of the contract 3) The minor must pay the deaths of the insurance a state before receiving any of the proceeds 4) The minor is entitled to receive the death proceeds immediately

Normally a guardian is required to be appointed the beneficiary clause of the contract

Which statement regarding the Change of Beneficiary provision is true? 1) The beneficiary can only be changed with the consent of the insurer 2) The policyowner can change the beneficiary 3) The insured can change the beneficiary 4) A beneficiary change is subject to underwriting procedures

The policyowner can change the beneficiary A policyowner may change a beneficiary at any time. However, consent may be needed by the current beneficiary if designated as irrovocable.

A level premium indicates: 1) the premium is fixed for a period stated in the contract, then becomes variable 2) the premium can only be changed with the consent of the insurer 3) the premium stays level until the policy's renewal date 4) the premium is fixed for the entire duration of the contract

the premium is fixed for the entire duration of the contract A level premium means that the premium remains fixed through the life of a policy.