FINN 3272 Exam 2 Study Guide

What is the net cost of the policy after 10 years? 20,010 21,526 1,516 -1,516

-1,516

Based on a $100,000 permanent life policy, what is the Extended Term Death Benefit and Length of the Term Period at the end of year 10?? $34,300, 11 years and 50 days $100,000, 11 years and 50 days $100,000 to age 65

$100,000, 11 years and 50 days

Judy has a $50,000 LI policy with CV of $5,500. She has an outstanding policy loan of $3,000. Current loan interest is $150 and dividend is $500. What amount of taxable income, if any, must Judy report as a result of the LI transactions? $3,000 $2,850 $500 $0

0

Mark's grandfather has a $50,000 life insurance policy with $28,000 in CV. If Mark's grandfather dies during the current year, what amount of the $50,000 death benefit is taxable income? 50,000 28,000 22,000 0

0

Greg, age 45, has Whole Life Insurance with $100,000 DB, $35,000 CV, 2,000 annual premium. What total death benefit will the beneficiary receive if Greg should die at age 45? 135,000 100,000 70,000 65,000

100,000

Sam has $75,000 WL with $8,000 CV. Policy has minimum guaranteed rate of 3%, current rate of 4% and loan rate of 5%. If Sam borrows $6,000 from the policy, what is net annual interest cost. 300 180 120 60

120 (6,000x.05) = 300 - (6,000x.03= 180) = 120

Stanley's $150,000 LI policy premium due date is October 1. Stanley fails to pay the premium and dies on October 29. What death benefit if any will be paid? 0 150,000 150,000 - premium due 1/12 x 150 000

150,000 - premium due

Length in years of Incontestable and Suicide Clauses is: 1 2 3 4

2

What fees (mortality and expense) have been deducted from CV in year 1? 252 940 1,192 2,001

252 (refer to UL slide 15)

NC Guaranty Fund limit per claim is: 200,000 250,000 300,000 350,000

300,000

Sarah Purchases $50,000 of LI at age 20 with a GPO with six future options dates ending at age 40. The aggregate death benefit at age 40 is: 300,000 350,000 250,000

350,000

Greg, age 45, has a whole life policy with a $100,000 DB, $35,000 CV, 2,000 annual premium. What is the amount of the pure LI protection element at age 45? 135,000 100,000 70,000 65,000

65,000

What is surrender charge at end of year one? 252 940 1,192 2,001

940 (refer to UL slide 15)

What is the total charge (load) for mortality and expenses during the second policy year? 943 975 1058 2001

943

Primary LI Financial Rating Agency is: S&P Moody's A.M. Best Fitch

A.M. Best

Insurance Company Expenses

Acquisition expenses - commissions State premium taxes Federal income tax General operating expenses Underwriting expenses Claims expenses

Viatical Settlement Involves: Death benefit to insured's personal beneficiary Assignment of LI policy to a third party Tax free Advance Death Benefit to the insured Loan to insured with residual death benefit paid to insured's beneficiary at death

Assignment of LI policy to a third party

The Accidental Death Benefit will apply in case of: Stroke Heart attack Mysterious disappearance Automobile accident

Automobile accident

Life Insurance Company assets are invested primarily in: Stocks Bonds Mortgage Loans Real Estate

Bonds

Which Cost Index includes time value of money? Net payment cost Surrender cost Both of the above None of the above

Both of the above

All UL premiums flow first into the: Protection element Expense, taxes, fees Cash value account Mortality charge

Cash value account

Jim has a $500,000 LI policy on his life. He owns a $400,000 home with a $250,000 mortgage with Bank of America. BofA requires LI on Jim's life. What is the best way for Jim to use his current policy to satisfy the BofA requirement? Collateral assignment Absolute assignment Name B of A as primary beneficiary Name B of A as contingent beneficiary

Collateral assignment

UL mortality charge is based on: Current age Original issue age Level charge based on life expectancy Level charge based on average premium to age 65

Current age

Level Term

Death benefit is level for the term period

Decreasing Term

Death benefit reduces over time Reduction usually tracks a mortgage amortization schedule

Stanley reports his age on the LI application as 32; however his correct age is 33. In the event of death, the amount paid by the policy will be: Increased Decreased Original face amount Zero

Decreased

Policies to Avoid

Decreasing Term Credit Life Limited Benefit Policies

Why does the total death benefit increase each year? Term rider Dividends Interest on cash value Increased mortality cost

Dividends

Life Insurance Advantages

Face amount paid immediately at death Death benefit is income tax free Not part of probate estate - No delay in payment, no probate fees Policy proceeds protected from creditors

A reducing term policy can always be converted to permanent life insurance based on the original issue amount True False

False

The beneficiary on a Credit Life Policy is: Designated personal beneficiary Named insured Financial institution that extended credit Insured's estate

Financial institution that extended credit

A unique feature of VUL as compared to VL is: Level premium Flexible premium Investment flexibility Guaranteed minimum death benefit

Flexible premium

A difference between UL and WL is: Permanent Insurance Current assumption premiums Flexible premiums Tax free death benefit

Flexible premiums

Variable Life Includes: Guaranteed CV account Guaranteed loan account Guaranteed minimum death benefit CV based on investments in insurance company's

Guaranteed minimum death benefit

State Guaranty Funds are financed primarily by: State Insurance Department State Legislature Policyholders Insurance Companies

Insurance Companies

Advantages of Term

Largest death benefit for lowest premium at initial issue Funding specific needs on a short-term basis Renewable and convertible

When is Term Insurance Indicated?

Maximum death benefit at minimum premium Creating an instant estate to cover specific needs

Which of the following is a normal VL death benefit? Multiple of CV Decreasing Level CV Level but no minimum guarantee

Multiple of CV

Disadvantages of Term

No cash value accumulation No loan value Premiums increase with age (may be averaged over policy term) Coverage expires at end of term Stricter underwriting than permanent life insurance

The premium to add the Accelerated Death Benefit to the LI policy is: Based on a percentage of the annual premium rate Based on the policy loan rate No premium applies Only applies to term life policies

No premium applies

Is the policy death benefit option A or B? A B

Option B (Increasing Death benefit)

Withdrawals from a MEC are taxed as: Capital gains Ordinary income plus 10% penalty Ordinary income No tax unless withdrawal exceeds premiums paid

Ordinary income plus 10% penalty

What Dividend Option Applies Cash Paid Up Additions Term Life Additions Reduce Premium Accumulate at Interest

Paid up Additions

Which dividend option is most favorable to the policy owner? Cash Reduce premium Accumulate at interest Paid up additions Purchase one year term

Paid up additions

Accelerated Death Benefit Involves: Advance payment of death benefit to insured's personal beneficiary Assignment of LI policy to a third party Portion of policy limit to the insured in case of terminal or chronic illness Surrender of policy for cash value

Portion of policy limit to the insured in case of terminal or chronic illness

What is Term Life Insurance?

Pure life insurance Death benefit if insured dies during term period Policy expires at the end of the term period No cash value accumulation Typical term periods: 5, 10, 20, 30 year, To Age 65

David, age 59 is disabled and unable work. The waiver of premium rider will waive the LI premium until : Age 65 Age 70 Recovery from disability , death or policy paid up Waiver does not apply after age 55

Recovery from disability , death or policy paid up

Decreasing Term Disadvantages

Reduction in death benefit and reduction in the conversion amount . Premium may be level with decreasing insurance coverage which means higher cost per $1,000 of insurance. Need adequate Life Insurance to match comprehensive financial plan

Under re-entry rating, if adverse change in insured's insurability, renewal premium will: Decrease Increase Remain the same

Remain the same

The primary safety net for policyholders in event of LI Company insolvency is: Federal Deposit Insurance Corp. State Guaranty Fund Pension Benefit Guaranty Corp. Federal Reserve

State Guaranty Fund

Which cost index includes the policy cash value? Surrender cost Net payment cost

Surrender cost

Accelerated Death Benefit is available for both term and permanent policies. True False

True

Waiver of Premium

Waives Life insurance premium in event of total disability from sickness or accident

In what year is the surrender charge 0? 5 10 15 20

Year 10 (refer to UL slide 15)

In what year does the annual net policy load equal $0? Year 2 Year 3 Year 4 Year 5

Year 4

During what year does the aggregate net cost reach $0 Year 7 Year 8 Year 9 Year 10

Year 9 (total premiums minus Total cash value)

Jim stated in his LI application that he had not visited a doctor in the past three years; although he had visited a doctor one month before and was diagnosed with heart disease. Jim died 28 months later of a heart attack. Will the Company pay the claim? Yes No

Yes

Tim is having serious financial problems, and his business is near bankruptcy. He purchased $500,000 in LI three years ago. He leaves a note and commits suicide. Will Tim's death claim be paid? Yes No

Yes

Wife is owner and beneficiary of $500,000 LI on her husband. Policy purchased in 2006. Couple divorced in 2013, husband dies in 2015. Will the wife receive the policy death benefit? Yes No

Yes

Current premiums

reflect current mortality, insurance company expenses and investment income; not guaranteed

Guaranteed maximum premiums

reflect maximum mortality and insurance company expenses.