Life Insurance Policies
The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?
$100,000 (The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit)
Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? (A) Option A (B) Option B (C) Corridor option (D) Variable option
(B) Option B (Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value)
All of the following are true about variable products EXCEPT (A) The cash value is not guaranteed. (B) Policyowners bear the investment risk. (C) The premiums are invested in the insurer's general account. (D) The minimum death benefit is guaranteed
(C) The premiums are invested in the insurer's general account. Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a fund. Since there is no guaranteed rate of return, customers must bear the investment risk.
In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?
5 years
Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death? (A) A business partner of the insured (B) The wife of the deceased insured (C) The former wife of the deceased insured (D) A minor son of the insured
A minor son of the insured (Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee)
Which of the following best describes fixed-period settlement option? (A) Both the principal and interest will be liquidated over a selected period of time. (B) Only the principal amount will be paid out within a specified period of time. (C) The death benefit must be paid out in a lump sum within a certain time period. (D) Income is guaranteed for the life of the beneficiary.
Both the principal and interest will be liquidated over a selected period of time
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner? (A) Paid-up options (B) Extended term (C) Cash surrender (D) Reduced paid-up
Cash surrender (Once the cash surrender value is paid, the contract is over)
What limits the amount that a policyowner may borrow from a whole life insurance policy?
Cash value (The amount available to the policyowner for a loan is the policy's cash value. If there are any outstanding loans, that amount will be reduced by the amount of the unpaid loans and interest.)
What happens when a policy is surrendered for its cash value?
Coverage ends and the policy cannot be reinstated. (Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated)
In increasing and decreasing term policies, which policy component fluctuates during the policy term?
Death Benefit (There are three basic types of term policies: level, increasing and decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may change)
An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?
Decreasing term (A decreasing term policy's face amount decreases as the amount of debt is reduced)
What does "level" refer to in level term insurance?
Face amount (Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages)
When an employee terminates coverage under a group insurance policy, coverage continues in force
For 31 days.
Annually renewable term policies provide a level death benefit for a premium that
Increases annually. (Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured)
Which of the following best describes annually renewable term insurance? (A) It requires proof of insurability at each renewal (B) Neither the premium nor the death benefit is affected by the insured's age (C) It provides an annually increasing death benefit (D) It is level term insurance
It is level term insurance. (Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost)
Concerning Juvenile Life insurance, which of the following statements is INCORRECT? (A) Usually a parent or guardian is the applicant for insurance on the life of a minor. (B) It can be a limited premium payment policy. (C) Juvenile Life is classified as any life insurance written on the life of a minor. (D) Juvenile Life is classified as any life insurance purchased by a minor.
Juvenile Life is classified as any life insurance purchased by a minor.
A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?
Level term (A 20-year term policy is written to provide a level death benefit for 20 years)
The premium of a survivorship life policy compared with that of a joint life policy would be
Lower (Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.)
Which Universal Life option has a gradually increasing cash value and a level death benefit?
Option A (Under Option A, the death benefit remains level whole the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures)
In term policies, what happens to the premium throughout the term of the policy?
Premium always remains level (There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy)
Which nonforfeiture option provides coverage for the longest period of time?
Reduced paid-up. (The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy)
A domestic insurer issuing variable contracts must establish one or more:
Separate accounts (Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.)
Which of the following types of insurance policies would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources?
Term (Term insurance provides a death benefit only; cost per $1,000 of coverage is less than other types of policies that create cash values)
If a life insurance policy has an irrevocable beneficiary designation:
The beneficiary can old be changed with written permission of the beneficiary
The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT: (A) Face amount of the policy. (B) The insured's age at death. (C) The beneficiary's life expectancy. (D) Projected interest rates.
The insured's age at death. The insured's age at death will not be considered, but the longer the life expectancy of the recipient, the lower the payments will be.
Which of the following determines the cash value of a variable life policy?
The performance of the policy portfolio (The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer)
What is the purpose of establishing the target premium for a universal life policy?
To keep the policy in force (The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime)
The paid-up addition option uses the dividend to:
To purchase a smaller amount of the same type of insurance as the original policy. (The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy)
Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount?
Universal Life (With universal life policies, the policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium, and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium)
In a survivorship life policy, when does the insurer pay the death benefit?
Upon the last death (Survivorship life pays on the last death rather than upon the first death)
Which of the following is INCORRECT regarding a $100,000 20-year level term policy? (A) At the end of 20 years, the policy's cash value will equal $100,000. (B) The policy premiums will remain level for 20 years. (C) If the insured dies before the policy expired, the beneficiary will receive $100,000. (D) The policy will expire at the end of the 20-year period.
(A) At the end of 20 years, the policy's cash value will equal $100,000 (Term policies do not develop cash values. All the other statements are true)
Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? (A) Reinstatement (B) Reduced paid-up option (C) Automatic premlum loan (D) Extended term
(C) Automatic premium loan (Automatic Premium Load provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium)
Which of the following is true of a children's rider added to an insured's permanent life insurance? (A) The policy covers only the natural children of the insured. (B) Each child covered must show evidence of insurability. (C) It is term coverage that is convertible to permanent insurance at or prior to the child reaching th coverage age. (D) It is permanent insurance.
(C) It is term coverage that is convertible to permanent insurance at or prior to the child reaching thi maximum coverage age (Children's rider is term insur&nce covering all of the children in the family, including newly born children, and is tible to permanent insurance upon a child reaching the maximum age without evidence of insurability)
All of the following are types of term policies based on what happens to the face amount during the policy term EXCEPT (A) Level. (B) Increasing. (C) Renewable. (D) Decreasing.
(C) Renewable (There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may fluctuate)
Which of the following is a key distinction between variable whole life and variable universal life products? (A) Variable whole life allows policy loans from the cash value. (B) Variable universal life has a fixed premium. (C) Variable whole life has a guaranteed death benefit. (D) Variable universal life is regulated solely through FINRA
(C) Variable whole life has a guaranteed death benefit. (Variable universal life insurance may or may not have a minimum death benefit, unlike variable whole life insurance which guarantees a minimum death benefit)
The death benefit under the Universal Life Option B: (A) Decreases by the amount that the cash value increases. (B) Increases for the first few years of the policy, and then levels off. (C) Remains level. (D) Gradually increases each year by the amount that the cash value increases.
(D) Gradually increases each year by the amount that the cash value increases.
An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? (A) The insured would not need to prove insurability for a conversion policy (B) The insured may convert coverage to an individual policy within 31 days (C) The premium for individual coverage will be based upon the insured's attained age (D) The insured may choose to convert to term or permanent individual coverage
(D) The insured may choose to convert to term or permanent individual coverage (When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance)
An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? (A) The insured would not need to prove insurability for a conversion policy (B) The insured may convert coverage to an individual policy within 31 days (C) The premium for individual coverage will be based upon the insured's attained age (D) The insured may choose to convert to term or permanent individual coverage
(D) The insured may choose to convert to term or permanent individual coverage.
An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his:
Attained age (If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability. The insurer will determine what type(s) of policy an employee may convert to, but it must be issued at a standard rate, based on the individual's attained age)
Which of the following best describes fixed-period settlement option?
Both the principal and interest will be liquidated over a selected period of time. (Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time)
The death benefit in a variable universal life policy:
Depends on the performance of a separate account. (The death benefit is not fixed, and may increase or decrease over the life of the policy depending on the investment performance of the underlying sub-account. It cannot, however, decrease below the initial face amount of the policy)
Which of the following terms best describe the coverage provided by term policies, as compared to any other form of protection?
Greatest (Term policies provide for the greatest amount of coverage for the lowest premium, as compared to any other form of protection)
All of the following are Nonforfeiture options EXCEPT (A) Cash surrender (B) Extended Term (C) Reduced paid-up (D) Interest Only
Interest only (Nonforfeiture values include cash surrender, extended term and reduced paid-up. Interest only is a settlement option)
What is the benefit of choosing extended term as a nonforfeiture option?
It has the highest amount of insurance protection (has the same face amount as the original policy, but for a shorter period of time. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase)
Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy? (A) The Consideration Clause (B) Assignment Rights (C) Owner's Rights (D) The Entire Contract Provision
Owner's rights (Policyowners can learn about their ownership rights by referring to the policy.)
Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?
Payor Benefit (If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21)
An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called:
Single premium whole life. (Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception)
Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option? (A) Length of income period (B) Amount of interest (C) Size of eich installment (D) Predetermined length of time stated in the contract
Size of each installment (The size of each installment determines the length of time that benefits are received under the Fixed Amount settlement option)
When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments?
Spendthrift provision (When a life insurance policy contains a spendthrift provision, all rights of the beneficiary to change time of payment or amount of installments, surrender for cash, borrow against, or assign for any purpose, are withdrawn and those parts of the policy that may give the beneficiary such rights are declared inoperative and void)
An Adjustable Life policyowner can change which of the following policy features?
The Coverage Period (Typically, the policyowner of an adjustable life policy has the following privileges; increasing or decreasing the premium; changing the premium paying period; increasing or decreasing the face amount coverage or changing the period of protection)
Which of the following is NOT true regarding a Variable Universal Life policy? (A) The minimum death benefit is guaranteed. (B) The cash values are not guaranteed. (C) The death benefit is fixed. (D) The policyowner can participate in some of the investment decisions.
The death benefit is fixed. (In a variable universal life policy, the death benefit is adjustable, and the cash values are not guaranteed. While the death benefit may decrease and increase, it cannot go below a guaranteed minimum face amount.)
If the owner of a whole life policy who is also the insured dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary?
The full death benefit (Whole life insurance policies guarantee the death benefit. If the insured lives to the age of 100, the insurance company pay the owner the face amount (equal the cash value). However, if the insured dies prior to the policy maturity date, the death benefit is paid to the beneficiary)
When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit? (A) The Insured's contingent beneficiary (B) The insurance company (C) The Insured's estate (D) The primary beneficiary's estate
The insured's contingent beneficiary. (Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated)
A 40-year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarries and dies at age 61, leaving 2 grown-up children. Assuming he never changed the beneficiary, the policy proceeds will go to
The insured's estate. (Because there is no viable beneficiary at the time of death, proceeds are paid to the insured's estate)