Life 2 (Chapters 5 & 6) practice test
All of the following apply to PARTICIPATING policy dividends EXCEPT: A. Taxable as current income like any other dividend B. Considered by the I.R.S. as a return of excess premium C. May be the result of actual expense experience being less than anticipated expense D. Could be increased by the extended longevity of current policyholders
Taxable as current income like any other dividend
When term insurance is renewed, the premium amount rises to reflect the increased mortality risk due to the insured's increased age. What phrase best describes this approach to increasing premiums?
Step rate
Which Policy below, if issued at age 40, has premiums payable for 60 years, insurance protection for 60 years, and endows at age 100?
Straight whole life policy
The delayed payment provision applies to which part of the policy?
cash value
What is not on the face of the contract?
consideration clause
Sue lost her job. Times were hard. She could not afford to pay the premiums on her life insurance policy. Which of the following non-forfeiture options should she elect to maximize her death benefits?
extended term
A $10,000 life insurance policy with a Triple Indemnity clause has been in force for 3 years. Black Cloud, the insured, is injured in a train wreck and dies in a hospital 5 months later. The death proceeds payable under the policy would be:
$10,000
The owner of a business is insured under a $100,000 Key Employee Life policy that contains a Double Indemnity clause and a Suicide clause. The business has paid the annual premium of $2,000. Six months after the inception date of the policy, the insured commits suicide. The insurance company's liability for payment is:
$2,000
Ernest has a life insurance policy with a death benefit of $100,000, consisting of $50,000 whole life and a $50,000 level term rider. His agent has informed him that electing the extended term non-forfeiture option would provide him with a death benefit of how much?
$50,000
Gullible, age 27, is advised by his agent to purchase life insurance to cover a 20-year, $50,000 amortized business-improvement loan. Which of the following plans would adequately protect Gullible at the minimum premium outlay?
$50,000 Decreasing Term policy for 20 years
Maurice takes a $500 loan against a $10,000 whole life policy with a 5% interest rate. Maurice dies one year later and had not repaid the loan. How much will the benefit be?
$9475
The delayed payment provision permits an insurer to postpone payments of cash surrender values after policyowners request payment for a period of:
6 months
A Waiver of Premium rider generally remains in effect until the insured reaches age:
60 or 65
Which of the following statements about the Reinstatement Provision is not true?
A new suicide period begins at reinstatement
Joe the Ragman buys a $100,000 policy. He has a $50,000 mortgage from the bank. He assigns his policy as collateral to the bank, with the remaining balance, if any, to be paid to his wife Josephine. Joe has set up a/an:
Collateral Assignment
Which of the following policies was used to accumulate funds for education?
Endowment
An insured misrepresented a material fact on his application. The policy was issued but the application was not attached to the policy. The insured died shortly after the policy was issued. The company must pay the claim because of which provision?
Entire Contract Provision
Which of the following types of policies' cash may NOT be affected by stock market/mutual funds?
Modified Whole Life
Mr. Ramon purchased a $10,000 10-year limited pay life insurance policy on his ten year old son Luis. A payor rider was added for an additional premium. Should Mr. Ramon die when Luis is 15 when would Luis begin making premium payments?
Never
Where is the insuring clause of a life insurance policy found?
On the cover of the policy
The most common type of insurance sold is
Ordinary
Which of the following policies would have a higher premium?
Participating Policies
The fifth dividend option will purchase:
Term insurance not to exceed the cash value
A Variable Life insurance policy would be regulated by:
The Securities & Exchange Commission and the Office of Insurance Regulation
The insured died during the Grace Period of her life insurance policy and had not paid the required annual premium. The insurance company is obligated to pay which of the following to the beneficiary?
The face amount of the policy less any earned premiums
How is a policy loan repaid if the policy pays a death claim?
The loan, plus any interest due, is deducted from the death benefit.
Which of the following statements is not true about exercising a Guaranteed Insurability option?
The new insurance is available at the original issue age rate
The following statements about UNIVERSAL LIFE are true, except:
The policy reserves may be invested in mutual funds
Rusty buys a 20-pay whole life policy on his ten year old daughter with a payor provision. Rusty dies in year 10. What happens to the policy?
The premiums are paid up until the daughter is 25.
Which of the following features applies to decreasing term insurance?
The premiums do not decrease as the protection decreases
The insuring clause is typically undersigned by:
The president and the secretary of the company
Dividend projections may be included in a proposal for a life insurance policy when which of the following is true?
There is a clear statement that payment of future dividends is not guaranteed.
What is the purpose of policy exclusions?
To keep the premiums lower
A UNIVERSAL Life Insurance policy has all the following features EXCEPT: A. It is considered a form of Permanent Life Insurance. B. Without its adjustable features it resembles an Endowment policy. C. Contributions (premiums) may be increased or decreased by the policy payer. D. The face amount may be increased (subject to evidence of insurability), or decreased (subject to the I.R.S. corridor).
Without its adjustable features it resembles an Endowment policy.
All of the following are true about JUVENILE Policies EXCEPT: A. The policy is usually owned by the applying adult(s). B. The policy may be an Ordinary or Industrial type. C. Evidence of insurability is not required D. A special form of JUVENILE policy may multiply the face amount 5 times when the child reaches age 21
C. Evidence of insurability is not required
An insured commits suicide within the first two years of the life insurance policy, which course of action will the insurance take?
Deny the claim and return the premium
The party to whom the life insurance policy cash value belongs is:
the policyowner.
JOINT LIFE insurance policies insure two lives for a single death benefit on one policy. They may be written in which of the following ways? 1. Joint Life pays the face at the first death 2. Joint Life pays the face at the SECOND death.
1 and 2
Cash values must be present in life policies: 1) Ordinary 3 year 2) Industrial 3 year 3) Ordinary 5 year 4) Industrial 5 year
1 and 4
An applicant for reinstatement may have to do all of the following EXCEPT: A. pay all back premiums B. provide evidence of insurability C. agree to a new suicide provision D. agree to a new incontestable provision
C. agree to a new suicide provision
Which of the following statements concerning an insurance company's separate account is not true? A. Separate account funds are free from the claims of the insurance company's creditors B. In the event of insolvency of the insurance company, the separate account funds are protected for the policyowner C. Indexed annuities may be set up with separate accounts but are usually invested the company's general account D. Separate account funds are guaranteed
D. Separate account funds are guaranteed
he applicant chooses the length of the premium-paying period when selecting the type of policy that should best meet his/her objectives. Which type of policy has the highest initial premium and shortest pay period?
Single premium life policy
The entire contract provision contains all of the following except: A. policy document B. application C. any attached riders D. medical exam
D. medical exam
A policy that is sold in proportioned units to cover the insured, spouse and children is called a:
Family plan
Which is true concerning a VARIABLE LIFE insurance policy?.
It provides a minimum guaranteed death benefit.
Which of the following statements is true about a policy assignment?
It transfers the owner's rights under the policy to the extent expressed in the assignment form
An applicant with heart problems denied this material fact and died within the 2-year incontestable period. However, the death was the result of a traffic accident. The insurance company will take which course of action?
It will deny the death benefit and return all premiums.
Which of the following is a non-forfeiture option that provides continuing cash value buildup?
Reduced Paid-Up
Max has a $100,000 life insurance policy with cash value totaling $20,000. The loan rate is a fixed 8%. The agent suggests that Max strip his policy of the cash value and invest this money in a high yielding single premium annuity. This could be called:
Replacement
The increase in an increasing term policy is tied to which of the following?
Specific amounts or a percentage of the face value
Which is the only type of rider added at no additional cost to the policyowner?
The automatic premium loan rider
When does the time period covered by the 14-day Free Look provision of a life insurance contract start?
When the insured receives the contract and makes the first premium payment, if needed
The incontestable clause permits insurers to contest a death claim:
for material misrepresentations if under 2 years.
The Waiver of Premium:
is an option that may be rated or denied.
Which of the following dividend options would have a cash value?
paid-up addition
If the insured understated his/her age and the error is discovered after the insured's death, the insurance company will:
pay an amount equal to that which the premium would have purchased at the correct age
The purpose of the grace period is to:
protect the policyholder against unintentional lapses.
Which of the following nonforfeiture options has a cash value?
reduced paid-up
A Universal Life insurance policy "unbundles" several components of a typical life insurance policy. Which of the following is NOT one of these components?
the interest element
Which of the following would provide more death benefit for your premium dollar while still accumulating cash value, assuming issue age 25?
whole life
An insured has a life insurance policy with a Long Term Rider. He attempted suicide and failed, leaving him incapable of performing two activities of daily living (ADLs). Which of the following course of action would the insurance company take?
. The company would pay nothing
Features that may be included in most Term policies include which of the following? 1. Convertibility 2. Renewability 3. Waiver of Premium provision
1 2 and 3
Universal life has 2 optional death benefits. They are: 1. Death benefits include the cash value and the pure amount at risk (level death benefit). 2. Death benefits remain a constant amount at risk plus any cash value (increasing death benefit). 3. Death benefits are tied to the market value of the mutual funds.
1 and 2
A standard risk male is insured under a WHOLE LIFE Policy with an ACCIDENTAL DEATH RIDER. Which of the following is/are true? 1. The accidental death benefit is often equal to, or may be twice, the face value of the policy, depending on the contract. 2. If the insured died at age 72, the Accidental Death rider would still be in effect. 1 only 2 only Both 1 and 2 Neither 1 or 2
1 only
What is the maximum interest rate an insurance company can charge the policyowner for a fixed or adjustable rate?
10% for a fixed rate, for an adjustable the rate will be tied to Moody's Bond Index
Forrest owns a 30-Pay Life policy that he purchased at the age of 30. The cash value will equal the face amount of the policy when he reaches the age of:
100
Patches owns a 30-Pay Life policy that he purchased at the age of 30. The policy will endow at age:
100
An agent who holds a securities license is called
A Registered Representative
A life insurance policy provides a straight coverage of $100,000 for a period of five years. Which of the following terms correctly apply to this policy? 1. Permanent 2. Term 3. Level 4. Variable1
2 and 3
At age 30, OohJay wishes to purchase a Whole Life policy. His agent explains that he can pay for the policy in several ways. One method is called 20-Pay Life, and another Straight Life. OohJay wishes to know which plan will accumulate cash value at a faster rate in the early years of the policy. Which of the following would be the agent's most appropriate response?
20-Pay Life will accumulate cash value faster.
All of the following are true about an ENDOWMENT policy EXCEPT: A. It is a form of Whole Life insurance. B. It has a high premium cost per dollar of face value. C. It is an Insured Savings Plan. D. The cash value and the face value are equal at the endowment date.
A. It is a form of Whole Life insurance.
If the growing cash value-to-total death benefit ratio exceeds a certain percentage fixed by federal law, an additional amount of pure insurance, called the "corridor", is added to maintain the minimum death benefit. This statement pertains to which of the following:
A. Universal Life, Option 1
Double Indemnity applies to which of the following?
Accident
Variable Life insurance is considered:
An insurance and securities contract
The provision in a life insurance policy that provides protection against unintentional policy lapse is known as the:
Automatic Premium Loan provision
All of the following are a parts of a life insurance policy EXCEPT: A. Insuring clause B. Conditional receipt C. Copy of the application D. Waiver of premium rider
B. Conditional receipt
When someone other than the insured is the owner of a life insurance policy, the owner may do all of the following without the insured's consent EXCEPT: A. Surrender the policy for its cash value B. Increase the amount of insurance C. Make a policy loan D. Change the beneficiary
B. Increase the amount of insurance
Signing over ALL rights of ownership in a policy by the owner is:
B. an absolute assignment.
Increasing term insurance will automatically increases the death benefit based on all of the following except: A. Consumer Price Index B. long-term care costs C. flat dollar amount D. flat percentage amount
B. long-term care costs
All the below are true about GUARANTEED RENEWABLE TERM insurance EXCEPT: A. No medical evidence of insurability is required at renewal. B. The incontestability clause is not renewed. C. The premium cost cannot be increased at renewal. D. The face value of the policy normally remains the same.
C. The premium cost cannot be increased at renewal.
All of the below are true features of VARIABLE LIFE Insurance EXCEPT: A. Variable life is regulated by the state & the S.E.C. B. The owner may balance the risk of loss with the desire for gain. C. Variable Life compensates for inflation by having the face value indexed to the CONSUMER PRICE INDEX D. The face and reserve values are determined by the value of underlying Mutual Funds selected by the owner.
C. Variable Life compensates for inflation by having the face value indexed to the CONSUMER PRICE INDEX
Which of the following must exist before a non-forfeiture option can be elected?
Cash Value
Ordinary Life policies must include all of the following provisions EXCEPT: A. Entire Contract Clause (application included) B. Consideration Clause C. Suicide Clause D. Accidental Death Rider
D. Accidental Death Rider
All of the following statements regarding Modified Endowment Contracts are true except? A. It is the responsibility of the insurance company to make sure the policy does not become a MEC. B. Loans will first be taxed as ordinary income, then a return of premium C. A 10% penalty may be imposed on any money borrowed before age 59 1/2 D. It is the responsibility of the insured to make sure the policy does not become a MEC.
D. It is the responsibility of the insured to make sure the policy does not become a MEC.
Industrial life insurance is known as all the following types of insurance except: A. Debit Insurance B. Burial Insurance C. Home Service Insurance D. Ordinary Insurance
D. Ordinary Insurance
The NON-FORFEITURE OPTIONS include all of the following EXCEPT: A. Cash surrender payment B. Reduced paid-up insurance C. Extended term insurance D. Purchasing one-year term equal to the cash value
D. Purchasing one-year term equal to the cash value
The form of insurance designed to cover the liability of a borrower with an amortized loan is a/an:
Decreasing Term
The incontestable clause applies to:
Fraud
Ibey Broke, age 62, has been paying premiums for many years on his Whole Life policy, which now has a cash value of $9,850. If Ibey decided to drop the policy, which of the following would apply?
Ibey could elect to surrender his policy for a lump-sum cash payment of $9,850, less any policy indebtedness.
Which of the following is provided by a PAYOR rider on a policy with a minor child as the insured?
If the premium payor dies, premiums are waived until the insured child reaches age 21 or 25, as stated in the policy.
Which of the following is an example of a Limited-Pay Life policy?
Life Paid-Up at Age 65
A person who desires protection permanently but does not want to pay premiums indefinitely would purchase which of the following?
Limited Pay Life
In what respect do LIMITED PAY Life policies differ from STRAIGHT WHOLE Life policies?
Limited pay life policies have a shorter premium paying period.
Which is correct concerning a GRADED PREMIUM WHOLE LIFE policy?
Premiums start low, increasing each year during the early years
An insured has a life insurance policy with a Long Term Rider. He attempted suicide and failed, leaving him incapable of performing two activities of daily living (ADLs). Which of the following course of action would the insurance company take?
The company would pay nothing
The amount and frequency of premium payments are contained in which clause of a life insurance policy?
The consideration clause
Which of the following is not true concerning the waiver of premium rider?
The definition of disability may change from any occupation to own occupation after two years of the disability
Which of the following statements about the reinstatement provision is true?
There is no new suicide exclusion with a reinstated policy
Which of the following policies allow for withdrawals:
Universal Life and Variable Universal Life
