Chapters 4 - 5 Exam Prep
A source of supplemental income for a life insurance policyowner can be derived from the.... - Cash value - Payor benefit - Consideration - Face amount
Cash value
A "premature" distribution form a modified endowment contract (MEC) incurs a penalty tax of..... - 5% - 10% - 17.5% - 20%
10%
Any employee insured under a group life insurance plan is normally..... - Given a master certificate - Covered on a noncontributory basis - Required to show proof of insurability - Covered with term life insurance
Covered with term life insurance
A life insurance policy provision that has the ability to reduce the death benefit is called the..... - Accelerated (living) benefit - Insuring clause - Payor benefit - Spendthrift clause
Accelerated (living) benefit
An individual who purchases a modified life insurance policy expects.... - A higher rate of return - Coverage for two people - An improvement in future income - A flexible face amount
An improvement in future income
How may an insurance company classify an accidental death benefit on a life policy? - As am optional policy rider - As a provision of the policy - As a nonforfeiture option - As a mandatory policy rider
As an optional policy rider
When would evidence of insurability be required for a person already covered with a variable universal life policy? - When the premium is increased - When the policy has renewed - When the death benefit is increased - When policy is being converted to permanent coverage
When the death benefit is increased
At what point are death proceeds paid in a joint life insurance policy? - When the first insured dies - When the second insured dies - Only after insurable interest has been confirmed to still exist - If both insureds die from the same accident
When the first insured dies
Which life insurance policy would be eligible to include an automatic premium loan provision? - Increasing term - Level term - Decreasing term - Whole life
Whole life
The conversion option for group term insurance may be exercised by an employee.... - At any time while still employed - Within 2 years of the hire date - Within 31 days of terminated employment - After providing proof of insurability
Within 31 days of terminated employment
Which of the following is generally a form of group credit life insurance? - Decreasing term insurance - Increasing term insurance - Level term insurance - While life insurance
decreasing term insurance
Which life insurance clause prohibits an insurance company from questioning the validity of the contract after a stated period of time has passed? - Entire contract provision - Grace period provision - Incontestable clause - Insuring clause
Incontestable clause
All of these are considered features of whole life insurance EXCEPT.... - Cash value accumulation - Permanent coverage - Initial premium is lower than for an equivalent amount of term insurance - Policy loans are allowed
Initial premium is lower than for an equivalent amount of term insurance
Which statement regarding whole life insurance is accurate? - Cash value loans are not permitted - Insurance coverage can continue for life - Policy normally matures at retirement - No cash value accumulations
Insurance coverage can continue for life
In what way is a life insurance policy affected by an accelerated benefit payment? - Decreases the premiums - Extends the grace period - Increases the policy loan balance - Decreases the death benefit
Decreases the death benefit
Which of the following would NOT be a reason for purchasing life insurance on a child's life? - Provide benefits for the child if the parents die - Pay for the child's funeral expenses - Provide a start of the child's personal insurance - Help provide funds for the child's education
Provide benefits for the child if the parents die
Which of the following could be a future use of the cash value that builds in a recently-purchased whole life insurance policy? - Convert the cash value to a paid-up term policy - Gives policyowner ability to borrow against funds within two years - Increases the policy's face amount - Provide supplemental income in 35 years
Provide supplemental income in 35 years
What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued? - $0 - $50,000 - Under $50,000 initially, but decreases annually over time - Under $50,000 initially, but increases over time
Under $50,000 initially, but increases over time
An insured has a $25,000 whole life insurance policy with $6,000 cash value available. Under the extended term nonforfeiture option, what is the amount of insurance available to the insured? - $6,000 - $19,000 - $25,000 - $31,000
$25,000
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $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? - 0% - 25% - 50% - 100%
100%
What is a juvenile life insurance policy? - Coverage normally sold as a term rider - A life policy that covers the parents of a minor - A life policy that covers the life of a minor - A life policy that covers the lives of both the parents and their children
A life policy that covers the life of a minor
The absolute assignment of a life insurance policy results in.... - All incidents of ownership transferred to the assignee - The assignee receives partial incidents of ownership - The transfer of ownership is revocable at the discretion of the original policyowner - Evidence of insurability must be proven before ownership is transferred
All incidents of ownership transferred to the assignee
Which type of policy can group term life insurance normally be converted to? - An individual renewable policy - An individual level term policy - An individual permanent life insurance policy - A group permanent life insurance policy
An individual permanent life insurance policy
When does the insured stop making payments under a thirty-payment whole life policy? - At the time of death or 30 years after the policy's inception, whichever comes first - It depends on the performance of the underlying investment account - When the cash value surpasses the face amount - At age 100
At the time of death or 30 years after the policy's inception, whichever comes first
In the event of premium default, which life insurance provision will use the cash value to keep the policy in force? - Waiver of premium - Automatic premium loan - Reinstatement - Policy loan
Automatic premium loan
Which statement regarding the waiver of premium rider is accurate? - Policy lans are used to keep the policy active - Cash payments is not directly provided to the policyowner - Insurance companies are required to offer this to policyowners - Premiums are waived in the event of bankruptcy
Cash payments is not directly provided to the policyowner
Which statement regarding universal life insurance is correct? - Cash value accumulations have a guaranteed minimum interest rate - Policyowner can change the face amount but not the premium - Policyowner can change the premium but not the face amount - Partial withdrawals cannot be made from the policy's cash value
Cash value accumulations have a guaranteed minimum interest rate
The policy provision that permits an employee to change from group life coverage to individual life policy is called the..... - Assignment provision - Conversion provision - Certificate provision - Modification provision
Conversion provision
What kind of policy typically offers mortgage protection? - Whole life - Decreasing term - Increasing term - Level term
Decreasing term
Group credit life insurance is typically a form of - Decreasing term insurance - Increasing term insurance - Level term insurance - Whole life insurace
Decreasing term insurance
Which of the following is NOT guaranteed in a whole life policy? - Settlement options - Nonforfeiture options - Dividend scale - Policy loan values
Dividend scale
Which statement about group like insurance is INCORRECT? - Cost can be shared between employer and employees - Each participant requires evidence of insurability - A minimum number of employees participating may be required - Employer is issued a master policy
Each participant requires evidence of insurability
An employer has a group life coverage for his employees. How would an employee in poor health be treated in this situation? - Approved on a graded basis - Not eligible for insurance on this plan - Eligible for the same type of coverage as the other employees - Must pay a rating based on risk
Eligible for the same type of coverage as the other employees
Which of these is NOT considered a type of limited payment whole life insurance? - Life paid-ip to 65 - 20 payment life - 15 payment life - Endowment at age 70
Endowment at age 70
Which life insurance policy option allows the policyowner to have coverage equal to the net death benefit of the lapsed policy? - Reduced paid-up nonforfeiture option - Accelerated benefits option - Extended term nonforfeiture option - Cash surrender option
Extended term nonforfeiture option
Which statement concerning a decreasing term life policy is accurate? - Cash value decreases over the policy period - Premium decreases over the policy period - Face amount decreases over the policy period - Face amount stays the same over the policy period
Face amount decreases over the policy period
Rick owns a variable universal life policy and chooses a variable death benefit option. What will typically happen to the death benefit as a result of this selection? A. Remain the same B. Decrease but never increase C. Increase but never decrease D. Fluctuate with changes in the cash account
Fluctuate with changes in the cash account
How long does one premium payment cover in a single premium whole life policy? - Until the policy's first renewal date - One month - One year - Full life of the policy
Full life of the policy
What is an insurance contract that identifies individuals by relationship to a specific organization? - Employer insurance - Group insurance - COBRA plan - Industrial insurance
Group insurance
A policyholder has just borrowed from a life insurance policy's cash value. Which of these statements is true? - In the even of death, the loan amount is deducted from the policy proceeds - The policy lapses if not repaid within 5 years - A policyowner must -pre-qualify for the loan to determine creditworthiness - Interest in the loan amount is prohibited
In the event of death, the loan amount is deducted from the policy proceeds
Which of these statements is NOT true regarding a cash value loan against a life insurance policy? - Interest normally accrues on unpaid balances - Loan cannot exceed the policy's cash value - Policy contract terms dictate the interest rate - Interest payments made by the policyowners are deductible
Interest payments made by the policyowners are deductible
Which of these would NOT be a valid reason to add the waiver of premium rider to a life insurance policy? - Prevents a policy from lapsing in the event of total disability - Premiums waived by the insurer do not have to be repaid by the policyowner - Policy's cash value would still increase as policy premiums are being waived - It allows a policy loan to cover premium payments if the policyowner becomes totally disabled
It allows a policy loan to cover premium payments if the policyowner becomes totally disabled
Which statement regarding the certificate of insurance is accurate? - It is an insurance contract between the employer and insurer - It indicates evidence of an employee's insurance coverage - Each certificate of insurance is underwritten on an individual basis - It is issued by the employer to the employee
It indicates evidence of an employee's insurance coverage
What is the guaranteed cash value of a whole life insurance policy when the insured turns 65 years old? - Greater than the policy's face amount - Less than the policy's face amount - Depends on the performance of the separate underlying investment account - Equal to the policy's face amount
Less than the policy's face amount
Joe is a life insurance policyowner who has failed to pay interest on his policy loan. What will result from this nonpayment? - The insurer can charge a higher rate of interest - Loan amount is increased to reflect the amount of interest due - Future loan privileges will be suspended - The loan balance becomes due immediately
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? - cash value rider - Viatical rider - Accelerated (living) benefit rider - Long-term care benefit rider
Long-terms care benefit rider
Why do insurers require a minimum number of employees participate in a group life insurance plan? - Efficiency is maximized - Minimize adverse selection - Profits are maximized - Claims are minimized
Minimize adverse selection
A life insurance guaranteed insurability rider gives the insured the right, without proving insurability, to..... - Purchase life insurance policies on his children as they are born - Purchase life insurance on a spouse after becoming married - Purchased additional life insurance at anytime - Periodically purchase additional insurance
Periodically purchase additional insurance
What happens to a life insurance policy when the policy loan balance exceeds the cash value? - Nonforfeiture options are offered - Policy becomes paid-up - Automatic premium loan provision is utilized - Policy will no longer be in force
Policy will no longer be in force
The automatic premium loan provision can be accurately described as a.... - Provision that charges a premium for the right to borrow against the cash value - Provision that provides a loan for necessary expenditures such as hospital bills, mortgage payments, etc - Provision that automatically waives an unpaid premium at the end of the grace period - Provision that provides a policy loan to pay any premiums by the end of the grace period
Provision that provides a policy loan to pay any premiums by the end of the grace period
Which of the following is NOT a dividend option for a life insurance policy? - Elect to take the dividends in cash - Allow the dividends to accumulate with interest - Use the dividends to pay all of part of the next premium due - Receiving the entire policy cash value
Receiving the entire policy cash value
What happens to the death benefit of a life insurance policy if the insured elects a partial payment from the accelerated (living) benefit provision? - None will be given - Increased - Reduced - No change
Reduced
What effect can a long-term care benefit rider have on a life insurance policy? - Increased cash value - Decreased cash value - Increased death benefit - Reduced death benefit
Reduced death benefit
What could be the potential result of taking out a cash value loan under a life insurance policy? - Death benefit will be subject to income taxes if insured dies with an outstanding loan balance - Interest that accrues on policy loan is tax-deductable to the policywner - Loan amount will be added to the policyowner's gross income - Reduces the amount receivable upon surrender of the contract
Reduces the amount receivable upon surrender of the contract
How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies? - Survivorship life policy is lower - Survivorship life policy is higher - Depends on the investment performance of the underlying accounts - Both have the same actuarial costs
Survivorship life policy is lower
When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for..... - Ten year term insurance for a person aged 55 - Ten year term insurance for a person aged 45 - Yearly renewable term insurance for a person aged 55 - Yearly renewable term insurance for a person aged 45
Ten year term insurance for a person aged 55
A material change in a modified endowment contract (MEC) results in.... - The contract becoming void - A new contestable period - The 7-pay test, adjusted for cash value, applies again - A tax penalty
The 7-pay test, adjusted for cash value, applies again
A survivorship life insurance policy usually covers how many lives? - 1 - 2 - 3 - 4
2
The death proceeds of a credit life insurance policy typically paid to the.... - Borrower - Lender - Annuitant - Borrower's dependents
Lender
Which statement regarding an adjustable life insurance policy is NOT true? - Combines term and permanent insurance into a single plan - Allows flexibility as insurance needs change - Plan of coverage may be changed by the policyowner - Policy loans are not permitted
Policy loans are not permitted
What typically changes at the re-entry option date found in some term like policies? - Beneficiary - Amount of coverage - Premium - Contestable period
Premium
An insurance policy that can also be classified as a securities product is called..... - Variable life - Modified life - Universal life - A MEC
Variable life
Which type of life insurance policy allows a policyowner the choice of investments along with flexible premium payments? - Variable universal life - Modified endowment contract - Adjustable life - Graded premium whole life
Variable universal life
When can a life insurance policy be issued WITHOUT the insured's consent? - When an employer purchases a policy on the life of an employee - When a parent purchases a policy on the life of a minor child - When a partner purchases a policy on the life of another partner - When a creditor purchases a policy on the life of a borrower
When a parent purchases a policy of the life of a minor child
A policyowner is permitted to take out a policy loan on a whole life policy at what point? - When the policy has a cash value - When the policy has been in force 2 years - When the cash value equals the face amount - When the policyowner has demonstrated financial need
When the policy has a cash value
Which statement concerning an adjustable life insurance policy is FALSE? - Cash surrender is possible - Evidence of insurability is required when there is a change in premium - Combines term and permanent insurance into a single plan - An extra premium paid is allowable
Evident of insurability is required when there is a change in premium
Which life insurance policy provision allows a policyowner to cancel the policy and receive a full refund within a limited time period after policy delivery? - Grace period - Incontestable period - Elimination period - Free-look period
Free-look period
What is the name of the rider that provides an additional purchase option in a life insurance policy? - Payor rider - Cost of living rider - Waiver of premium rider - Guaranteed insurability rider
Guaranteed insurability rider
What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured? - Joint and survivorship - Survivorship life - Universal life - Joint life
Joint life
What type of premiums are associated with individual mortgage protection life insurance policies? - Level premiums - Flexible premiums - Modified premiums - Decreasing premiums
Level premiums
Laura added a children's rider to her life insurance policy. What type of coverage was added? - Level term - Increasing term - Decreasing term - Juvenile term
Level term
After the extended term life nonforfeiture option is chosen, the available insurance will be.... - Increasing term for a stated period of time - Level term for a stated period of time - Decreasing term for a stated period of time - Renewable for a stated period of time
Level term for a stated period of time
Group life insurance is typically issued as.... - Whole life insurance - Decreasing term insurance - Increasing term insurance - Level term insurance
Level term insurance
How long can an insurer legally defer paying the cash value of a surrendered life insurance policy? - 2 months - 4 months - 6 months - 12 months
6 months
Which of these is NOT an advantage of term life insurance? - The greatest amount of coverage can be provided for the initial premium paid - It can be provided as a rider to another policy - A cash benefit will be provided if the insured is alive at the end of the policy period - Temporary insurance needs can be met
A cash benefit will be provided if the insured is alive at the ends of the policy period
Which of the following combinations best describe a universal life insurance policy? - A mutual fund and an endowment policy - A term insurance policy and a whole life policy - A modified endowment policy an a n annual term insurance policy - A flexible premium deposit fund and a monthly renewable term insurance policy
A flexible premium deposit fund and a monthly renewable term insurance policy
Which of these statements accurately portrays an adjustable life insurance policy? - Policy can alternate between forms of term and whole life insurance - Evidence of insurability required for conversion - Settlement options are limited
Policy can alternate between forms of term and whole life insurance
Which of the following is a TRUE statement regarding universal life insurance? - Death benefits are normally taxable - Policy loans are not permitted - Premiums or face amount cannot be changed - Policy indicates how much of each premium is used toward company expenses
Policy indicates how much of each premium is used toward company expenses
If an insured dies during the grace period without having a paid the premium, how much will the insurer pay? - Policy's face amount - Total premiums paid will be returned - Policy's face amount minus any premiums due - Nothing
Policy's face amount minus any premiums due
Which statement regarding the life insurance premium for a children's rider is true? - Decreasing premium as each child becomes an adult - Premium remains the same no matter how many children - Increasing premium as additional children are born - No premium is normally charged for a children's rider
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? - Trust account set up by the insured - Separate account set up by the insurer - General account of the insurer - Money market account
Separate account set up by the insurer
If an employer pays for accidental death and dismemberment insurance for its employees, the amount paid by the employer is generally.... - Tax deductible to the business - Non-deductible to the business - Partially deductible to the business - Considered taxable income to each employee
Tax deductible to the business
What is payable to the policyowner of a whole life policy is surrendered prior to its maturity date? - The loan value - The cash value - The face amount minus any past due premiums and outstanding loans - Nothing
The cash value
Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes? - The gain is treated as taxable income and a penalty tax is imposed on the gain - The gain is treated as taxable income but no additional penalties are applied - The gain is not taxable but a penalty is assessed - Surrendering an MEC is considered a tax and penalty-free transaction
The gain is treated as taxable income and a penalty tax is imposed on the gain
What would be considered an advantage of purchasing term life insurance? - Cash value can be borrowed against - The coverage is permanent - Nonforfeiture values are available - The initial premium is lower compared to an equivalent amount of whole life coverage
The initial premium is lower compared to an equivalent amount of whole life coverage
Under an adjustable life insurance policy, which of the following may NOT be changed without further underwriting? - The person insured - The period of coverage - The payment period - The plan of coverage
The person insured
Taxable income may by the result from all of these modified endowment contract (MEC) transactions EXCEPT for... - A cash value loan is taken out - Automatic premium loan provision is utilized - The policy is surrendered for less than what was paid into it - Dividend is issued
The policy is surrendered for less than what was paid into it
Which of the following statements about universal life insurance is NOT true? - Death benefit can be increased - Premiums are flexible - Universal life insurance normally has a minimum guaranteed cash value for duration of the policy - The cash value interest rate must be equal or exceed a guaranteed minimum value
Universal life insurance normally has a minimum guaranteed cash value for duration of the policy
What minimum percentage of all eligible employees must participate in a group life insurance plan if the premiums are completely paid for by the employer? - 0% - 50% - 75% - 100%
100%
The insurance coverage in a variable life insurance policy may vary based on the value of..... - the AM Best rating the company has received - Its underlying investments - The consumer price index - The total premiums paid
Its underlying investments
Which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)? - Policy loans - Claim on a death benefit - Extended term settlement options - Policyowners reaching the age of 70 1/2
Policy loans
How are level term policies able to provide level premiums? - Policy dividends - Yearly policy fees - Yearly reductions in face amount - Premiums are averaged over the term of the policy
Premiums are averaged over the term of the policy
What happens when a policyowner borrows against the cash value of his life insurance policy? - The policy proceeds would be reduced by the outstanding loan balance - No additional loans can be taken out in the future - The amount borrowed is added to the policyowner's gross income for tax purposes - The interest on the loan is tax- deductible
The policy proceeds would be reduced by the outstanding loan balance
What is considered the collateral on a life insurance policy loan? - No collateral is needed - The policy's cash value - The policy's face value - The equity in a policyowner's home
The policy's cash value
Which of these must be disclosed in a universal life policy? - Maximum coverage that can be purchased - The policy's surrender charges - The commissions earned from the sale of the policy - The producer's license expiration date
The policy's surrender charges
How does a continuous premium whole life policy differ from a limited payment whole life policy? - The time period in which premiums will be paid - The availability of cash value loans - The availability of nonforfeiture options - The settlement options
The time period in which premiums will be paid
Which of these is NOT reason to buy a term life policy? - To pay a mortgage balance if an insured dies - To offer temporary protection - To offer low-cost insurance coverage - To accumulate savings
To accumulate savings
A life insurance policy that includes a return of premium rider will pay the beneficiary how much upon the insured's death? - Total premiums paid plus the policy face amount - Face amount plus interest accrued - Interest accrued plus total premiums paid - Face amount minus any outstanding loan balances
Total premiums paid plus the policy face amount
How is a collateral assignment used in a life insurance contract? - Transfers permanent ownership rights to a creditor - Assigns complete ownership rights to a creditor - Transfers specific ownership rights to a creditor - Assigns ownership rights to the primary beneficiary
Transfers specific ownership rights to a creditor
A life insurance policeyowner would like a dividend option that results in a limited current outlay of funds. Which dividend option would be chosen? - Paid-up additions - Accumulation at interest - 1-year term - Reduction of premium payment
Reduction of premium payment