Insurance 104

Which of the following is a dividend option? A. Extended term B. Fixed period C. One-year term D. Reduced paid-up insurance

The correct answer is: C

Which of the following is not a correct statement concerning Universal Life insurance? A. It provides lifetime protection as long as sufficient premium is paid. B. It has a guaranteed cash value. C. It has a flexible premium. D. It separates the protection and savings components.

The correct answer is: B UL has a guaranteed minimum interest rate but not a guaranteed cash value.

A client wants to stop paying the premiums on his whole life policy. What are his options? I. Cash it in II. Take a reduced amount of paid-up whole life III. Take a paid-up term (extended term) insurance policy IV. Use APL to cover the premium (if elected by policyholder) V. Annuitize the cash value A. All of the above B. I, II, III C. II, III, V D. IV

The correct answer is: A All the options are available. The APL option is elected by the policyholder at issue or any time by the policyholder. It creates a loan to pay the premium. The loan is not a demand loan.

ohn and Jody Thomas are married. They are both in their 60s and need $1,000,000 to pay estate taxes. John has blood pressure problems, is overweight, and has just been told by his doctor that he is a borderline diabetic. Choose the best life insurance policy considering John and Jody's situation. A. Adjustable life on Jody B. Level term on Jody C. First-to-die on John and Jody using variable universal D. Survivorship life using universal life E. Whole life on Jody

The correct answer is: D Because the protection is for estate tax liability, survivorship life makes the most sense. Survivorship life means second-to-die. The premium of the survivorship policy would normally be less than a premium on insurance for Jody alone. John does not appear to be totally uninsurable. Having two life expectancies will lower the second-to-die premium since 2 deaths must occur for the death benefit to pay out.

A first-to-die (joint life) policy makes sense in which of the following situations? I. As mortgage protection (husband and wife) II. As protection against family debt (husband and wife) III. As money to fund a buy-sell arrangement IV. As a key person's policy A. All of the above B. I, II, III C. I, III D. II, IV

The correct answer is: B If first-to-die can be used for mortgage protection, then it also can be used to cover other debts. It can fund a buy-sell. A first-to-die policy covers more than one person. It is not a key person policy. A key person policy covers a single life. Answer IV choice refers only to a key person (singular).

Which of the following is a nonforfeiture option? A. Paid up additional insurance B. One-year term insurance C. Extended term insurance D. 5th dividend E. Interest only

The correct answer is: C Answers A, B, and D are dividend options. Interest only is a settlement option.

Which of the following is not a dividend option? I. Cash II. Paid-up reduced amount III. One-year term insurance IV. Extended term insurance V. Accumulated with interest A. I, III, V B. I, II, IV C. II, IV D. III, V E. IV, V

The correct answer is: C Answers II and IV are nonforfeiture options.

Lillian purchases a level premium term policy. After returning from a long vacation, she finds a lapse notice on the term policy from her insurance carrier. What can she do? A. Send the premium in and see if the carrier will accept it (explain she was out of the country) B. Exercise her guaranteed renewable option C. Contest the notice D. Obtain the policy reinstatement paperwork E. Exercise her guaranteed purchase option provision

The correct answer is: D She can reinstate the policy. That is the best answer. Of course, if enough time has expired, she can just obtain a new policy. That way, she will not have to pay back premiums and interest.

A CFP® professional sells a 73 year elderly client a $1 million dollar variable annuity. He closed out all of the client's investment accounts to purchase the annuity. The annuity has a 9-year surrender charge with a high commission. The professional knew the following facts: - The 73-year-old client lived with his daughter. - The client's only expenses were covered by his Social Security checks. The professional justified the sale by telling the client that this would simplify his investment decisions and he would only get one simple statement. What rules has he violated? I. 1.2b (compensation) II. 6.5 (conduct affecting integrity and fairness) III. 2.1 (information disclosed) IV. 4.5 (suitability) A. All of the above B. I, II, IV C. II, III D. I E. There are no violations

The correct answer is: A 2.1 is violated. What is 2.1? You must read the Rules of Conduct - no shortcut to learn the rules. There was no mention of a prospectus being provided.

A client has the following needs: lifetime death benefits estate tax liquidity guaranteed premiums Which type of policy would be most suitable? A. First to die B. Joint life C. Whole life D. Universal E. Variable universal

The correct answer is: C The best answer is whole life. It is the only policy that fulfills all three parameters. The joint life does not spell out the type of policy (whole life, universal, or variable).

When Andy purchased a whole life contract, he wanted the death benefit to increase from year to year. Which dividend option did he elect? A. Paid up insurance B. Extended term C. One-year term D. Pure life E. Accumulated with interest

The correct answer is: C The one-year term dividend option pays a death benefit equal to the guaranteed cash value (which is increasing). Since the death benefit is based on the cash value, it increases yearly. This is true even if the client borrows against the policy. Paid-up insurance is a nonforfeiture option, not a dividend option. It does not increase; the death benefit is fixed. Accumulated with interest is not truly a death benefit. (Dividends are paid in addition to the face amount of the policy.) Paid up additions would be a correct answer, but it is not a choice.

Continuing with Jack from the previous question: When Jack retires, should he convert his group term? The Question 14 facts remain unchanged except Jack is now age 65. A. Convert to decreasing term B. Convert to a whole life policy C. No, terminate the coverage at age 65 D. Convert to a variable annuity

The correct answer is: C The question says he does not need much life insurance at age 50. The $60,000 of group term is not a large policy. He cannot convert to an annuity. This is a group term policy insurance. He wants to maximize his retirement.