Course 2: Module 3

Decreasing term life insurance

A client just purchased a house and took out a $300,000 mortgage with a repayment term of 15 years. She wants to purchase a life insurance policy that will provide a death benefit equal to the unpaid mortgage balance if she dies with a mortgage. She wants a level premium and does not feel she will need life insurance once the mortgage is paid off. Which of the following life insurance policies best meets the client's needs?

a modified premium whole life policy.

A life insurance contract with low fixed premiums during the first three to five years and higher fixed premiums for the remainder of the policy period is called

they are taxable as earned.

All of the following are true for dividends left to accumulate at interest except

term life insurance is a good choice for people who need permanent life insurance protection.

All of the following statements concerning the methods of providing life insurance protection are correct except

I and IV

Charles was the beneficiary of his mother's life insurance policy. The face amount of the policy was $500,000, and there was an outstanding policy loan of $25,000 when Charles's mother died earlier this year. The settlement option for the policy was interest only, payable annually. This year, Charles receives his first payment of $14,250 from the insurance company. Which of the following statements regarding this arrangement is CORRECT? I. The death benefit payable under the policy was $475,000. II. The payment of $14,250 consists partly of interest and partly of principal. III. Charles must include $475,000 in this year's gross income. IV . Charles must include $14,250 in this year's gross income.

$725,000

Daniele has a universal life insurance policy with the Option B death benefit. The face amount is $500,000, and the current cash value is $225,000. The beneficiary is her son, Richard. If Daniele dies today, what amount will Richard receive as a death benefit?

Permanent insurance policies have more variable investment choices available to them than are available in noninsurance investment vehicles.

Edith plans to purchase a permanent life insurance policy rather than buying term and investing the difference. Which of the following does NOT support her decision?

Human life value

In calculating life insurance needs, which of the following can be defined as the present value of the family's share of the decedent breadwinner's future earnings?

$107,568

In the event of his death, Jim wants to provide funding for his daughter Lauren, 4, to attend four years of college, starting at age 18. The current annual cost of tuition is $25,000. Assume inflation of 6.5% and after-tax earnings of 6%. If Jim wants to have enough life insurance to assure adequate funds for Lauren when she begins college (should he die today), approximately how much insurance should he purchase for this need alone? (Round your answer to the nearest dollar.)

The insurance company would return all premiums without interest to the beneficiary.

Jalen purchased a term life insurance contract with a death benefit of $200,000 and a two-year suicide clause. He committed suicide less than six months after he purchased the policy. What is the required payment from the insurance company to the beneficiary?

I, II, and III

Limited-pay whole life insurance policies I. require the owner to pay premiums for a shorter period than traditional whole life insurance policies. II. provide lifetime coverage. III. have cash value accumulation. IV. require premiums to be paid for the entire life of the insured.

$5,000.

Michelle purchased a $100,000 life insurance policy on her life. To date, she has paid $50,000 in total premiums and received $10,000 in dividends. The policy currently has a net cash value of $15,000 and is subject to a $30,000 outstanding loan. If Michelle decides to surrender the policy, she will realize a gain of

$333.33

Miguel purchased a $100,000 annuity and, based on his life expectancy, the insurance company determines he could anticipate 20 years of payments of $750 per monthly. What part of each monthly payment is taxable?

Both I and II

Norberto and Maria are considering purchasing an annuity to provide additional retirement income, but they are concerned about needing to withdraw funds from the annuity before they retire. Which of the followings statements regarding withdrawals from their annuity is CORRECT? I. Withdrawals will consist of taxable earnings until all the earnings have been withdrawn (LIFO rule). II. Withdrawals may be subject to a 10% penalty tax if taken before age 59½.

I, II, III, and IV

Personal risk exposures that can be covered by life insurance include I. premature death before a debt is repaid. II. premature death before children's education is paid. III. the spouse without a retirement benefit outliving the spouse who is receiving a straight life annuity pension payout. IV. premature death prior to funding the family's financial goals.

II only

Reginald is the beneficiary of his father's life insurance policy. The face amount of the policy is $250,000, and Reginald selects the single life annuity settlement option. His life expectancy is 20 years. Assuming Reginald lives for only 12 years after payments begin, which of the following statements regarding payments to him under this settlement option is CORRECT? I. Payments will continue to Reginald's designee for an additional eight years. II. A portion of each payment Reginald receives is includible in his gross income. III. Any unrecovered tax basis in the settlement option that remained at Reginald's death is deductible on his final income tax return.

II only

The Goldens are considering the purchase of an annuity to help fund their retirement. They want an annuity that will allow them to participate in the equities market, and because of their long-term investment horizon, they are not particularly concerned about safety of principal. Which of the following annuity products meet their needs? I. Fixed annuity II. Variable annuity

the decedent's investments.

The final expenses of an estate include all of the following except

I, II, and III

Under a Section 1035 exchange, which of the following policies may be exchanged on a tax-free basis? I. An endowment policy exchanged for another endowment policy, in which the beginning date for regular payments is no later than the original contract qualified long-term care contract, or annuity contract II. One annuity contract exchanged for another annuity contract III. A life insurance policy exchanged for another life insurance policy(on the same insured), annuity, or endowment contract IV. An annuity contract exchanged for a life insurance policy

I, II, and III

Universal life insurance gives policyowners the ability to adjust I. the premiums. II. the death benefit. III. the cash values. IV. the policy expenses.

Decreasing term life insurance

What of the following types of life insurance have historically been used as mortgage protection?

Riders

Which feature of most life insurance policies can be used to customize the policy to meet the client's needs?

Equity-indexed

Which of the following annuities includes a participation rate feature?

I, II, and III

Which of the following characteristics of life insurance contracts create favorable tax treatment? I. Death benefits paid to a beneficiary are not usually taxable as income. II. Income taxes on investment gains are tax-deferred. III. The earnings on the cash value are not taxed during the accumulation period.

To allow the business to purchase a deceased owner's share of the business from the estate

Which of the following correctly identifies the primary purpose of a buy-sell agreement funded with life insurance?

A benefit rider that pays a portion of the death benefit to an individual deemed terminally ill, usually with a life expectancy of 24 months or less

Which of the following definitions describes an accelerated death benefit rider found in insurance policies?

Paid-up additions

Which of the following dividend options allows for acquiring additional insurance with no underwriting?

I, II, and III

Which of the following factors should be analyzed when assessing the cost of a universal life insurance policy? I. The actual interest rate credited to the policy II. The actual mortality charge assessed to the policy III. The guaranteed interest rate specified in the policy

I, II, III, and IV

Which of the following factors should be considered when determining the most appropriate type of life insurance (temporary or permanent)? I. The duration of the need II. The amount of disposable income available to the proposed policyowner III. The financial discipline of the proposed policyowner IV. The risk tolerance level of the proposed policyowner

I, III, and IV

Which of the following factors should be considered when utilizing the financial needs analysis method in determining the required amount of life insurance? I. The family expenses that will remain after the wage earner dies II. The value of the wage earner's life III. The income that can be generated by the surviving spouse IV. The number of dependents

Disability waiver of premium

Which of the following insurance policy riders prevents the policy from lapsing as a result of nonpayment of premiums during the insured's disability?

Life income option

Which of the following is NOT a whole life insurance policy dividend option?

Cash

Which of the following is a life insurance dividend option?

The present value of the family's share of the breadwinner's future earnings

Which of the following is the definition of human life value in life insurance planning?

Grace period

Which of the following is the period during which the owner of a life insurance policy is allowed to pay an overdue premium?

I, II, and III

Which of the following items are covered, but are subject to a specific dollar limit, under the personal property provision of a homeowners policy? I. Furs II. Jewelry III. Coin collections

I, II, III, and IV

Which of the following items should be considered when reviewing an existing life insurance policy for possible replacement? I. The client's risk tolerance level II. The existing policy's relative value III. The companies' A.M. Best, Inc., and other ratings IV. Any possible changes in the client's insurability

First-to-die life

Which of the following life insurance policies is commonly used in business continuation agreements?

I only

Which of the following questions regarding policy replacements is CORRECT? I. Replacing a cash value policy with another cash value policy usually is not advantageous. II. The new policy will have the same contestable and suicide clause periods as the existing policy.

Both I and II

Which of the following statements concerning federal income tax and annuities is CORRECT? I. The premium invested in the annuity accumulates on a tax-deferred basis. II. Generally, amounts received as withdrawals during an annuity's accumulation period are taxable, to the extent the withdrawal represents gains earned by the contract.

I and II

Which of the following statements regarding the accidental death benefit (ADB) rider is CORRECT? I. The ADB rider is no longer synonymous with the term double indemnity. II. For large amounts of life insurance, the maximum amount of ADB rider offered by an insurance company is usually substantially less than the face amount.

No insurance coverage will have been in place from the date of the lapse to the date all reinstatement requirements are submitted.

Which of the following statements regarding the reinstatement clause in a life insurance policy is true?

I, II, and III

Which of the following statements regarding variable universal life insurance is CORRECT? I. This policy contains investment options and no minimum guaranteed rate of return. II. Planners must have state variable insurance and securities licenses to sell variable universal life insurance. III. Cash values can decline to zero, causing the policy to lapse unless additional premium payments are made. IV. Variable universal life insurance policies are suited for individuals with lower risk tolerances and investment experience.

Decreasing term life insurance

Which of the following term life insurance policies is designed to protect the insured's mortgage?

I only

Which of the following universal life options pay a level death benefit? I. Option A II. Option B