Life Insurance Policies - Provisions, Options and Riders Exam 1 - Type of Insurance Policies

Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be

$500,000

Which policy feature makes a universal life policy different from a whole life policy?

A flexible premium schedule

A Modified Endowment Contract (MEC) is best described as

A life insurance contract which accumulates cash values higher than the IRS will allow

All of these are valid options for an Adjustable Life Policy EXCEPT

A nonforfeiture option can be used to increase the death benefit

A policyowner may change two policy features on what type of life insurance?

Adjustable Life

Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider?

Can be converted to permanent coverage without evidence of insurability

Jonas is a whole life insurance policyowner and would like to add coverage for his two children. Which of the following products would allow him to accomplish this?

Child term rider

What happens to the coverage under a children's term rider when that child reaches a certain specified age?

Coverage is eliminated

When a child reaches a certain specified age under a children's term rider, he or she is eliminated from coverage.

Coverage is eliminated

Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)?

Death benefit

Julie has a $100,000 30-year mortgage on her new home. What type of life insurance could she purchase that is designed to pay off the loan balance if she dies within the 30-year period?

Decreasing term insurance

Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive?

Endowment policy

Peter has a policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index. What kind of policy is this?

Equity index whole life

A spouse and child can be added to the primary insured's coverage as what kind of rider?

Family term

Which of these riders will pay a death benefit if the insured's spouse dies?

Family term insurance rider

All of these are characteristics of a universal life insurance policy EXCEPT

Fixed surrender value

A business will typically use which type of life insurance to cover their employees?

Group policy

A life insurance policy written on one contract for two people in which it is payable upon the first death is called

Joint

Which type of life insurance is normally associated with a Payor Benefit rider?

Juvenile insurance

Coverage of two or more individuals with the death benefit payable upon the last person's death is a feature of last survivor insurance.

Last Survivor Life insurance

What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death?

Last Survivor Life insurance

A Modified Endowment Contract (MEC) can be described as a life insurance contract that has accumulated cash values higher than the IRS allows.

Modified Endowment Contract (MEC)

Shirley has a $500,000 10-year non-renewable level term life policy. If she dies 15 years after the policy's inception date, how much will her beneficiary receive?

Nothing

An interest-sensitive life insurance policyowner may be able to withdraw the policy's cash value interest free. The provision that allows this is called

Partial Surrender

Variable life insurance and Universal life insurance are very similar. Which of these features are held exclusively by variable universal life insurance?

Policyowner has the right to select the investment which will provide the greatest return

Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test?

Pre-death distributions are typically taxable

Under a Modified Endowment Contract, what are the likely tax consequences?

Pre-death distributions will become taxable

Which of the following are the premium payments for a Universal life policy NOT used for?

Separate account investments

Which of the following policies does NOT build cash value?

Term life insurance does not build cash value.

What is a corridor in relation to a Universal Life insurance policy?

The corridor is the gap between a Universal Life policy's total death benefit and the policy's cash value.

What does the word "level" in Level Term describe?

The face amount

Krissa purchases a 10-year level term life insurance policy that has a death benefit of $200,000. Which of these statements is true?

The face amount and premium will remain constant over the 10-year period

The statement which best describes the relationship between the premiums of a whole life policy and the premium payment period is

The shorter the payment period, the higher the premium

Joe has a life insurance policy that has a face amount of $300,000. After a number of years, the policy's cash value accumulates to $50,000 and the face amount becomes $350,000. What kind of policy is this?

Universal Life policy

A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called

Universal life

A partial surrender is allowed in which of the following life policies?

Universal life

A universal life policy pays a death claim in the amount of the death benefit plus the savings element.

Universal life

The least expensive option to pay off a 30-year mortgage balance would be

decreasing term life

Level premium permanent insurance accumulates a reserve that will eventually

equal the face amount of the policy

Index whole life insurance contains a securities component that acts as a(n)

hedge against inflation

When a decreasing term policy is purchased, it contains a decreasing death benefit and

level premiums

A limited payment whole life policy provides

lifetime protection

A permanent life insurance policy where the policyowner pays premiums for a specified number of years is called a(n)

limited pay policy

A life insurance policy that has premiums fully paid up within a stated time period is called

limited payment insurance

The premium for a Modified whole life policy is

lower than the typical whole life policy during the first few years and then higher than typical for the remainder

Decreasing term life insurance is often used to

provide coverage for a home mortgage

What is the automatic continuance of insurance coverage referred to as?

renewal

Term insurance is appropriate for someone who

seeks temporary protection and lower premiums

The type of policy which pays on the death of the last person is called

survivorship life

What types of life insurance are normally used for key employee indemnification?

term, whole, and universal life insurance

A securities license is required for a life insurance producer to sell

variable life insurance

A renewable Term Life insurance policy allows the policyowner the right to renew the policy

without producing proof of insurability

A life insurance policy which contains cash values that vary according to its investment performance of stocks is called

Variable Whole Life

The right to select the investment which will provide the greatest return pertains only to variable universal life insurance.

Variable life insurance

Which type of policy combines the flexibility of a universal life policy with investment choices?

Variable universal life policy

Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested?

Variable universal policy

All of these statements concerning whole life insurance are false EXCEPT

When a whole life policy is surrendered, income taxes may be owed

Which of these would be the best example of a limited pay life insurance policy?

Whole life policy with premiums paid up after 20 years

A single premium cash value policy can be described as

a policy that is paid up after only one payment

A Renewable Term Life insurance policy can be renewed

at a predetermined date or age, regardless of the insured's health

Shawn, Mike, and Dave are brothers who have a $100,000 "first to die" joint life policy covering all three of their lives. If Mike dies first, the policy proceeds

will no longer provide insurance protection

How are survivorship life insurance policies helpful in estate planning? Provide funds to help fund retirement Provide funds to help pay taxes Provide funds for funeral expenses Provide tax deductions for premium payments

Provide funds to help pay taxes

The type of multiple protection coverage that pays on the death of the last person is called a(n)

Survivorship

Which type of multiple protection policy pays on the death of the last person?

Survivorship life policy

Reggie purchased a life insurance policy with a face amount of $500,000. After 15 years, the cash value has accumulated to $100,000 and the policy's face amount has become $600,000. Which type of life insurance policy is this?

Universal life

Pre-death distributions from a modified endowment contract (MEC) receive different tax treatment than other life insurance policies because

the MEC tends to be an investment vehicle

A life insurance policy that is subject to a contract interest rate is referred to as

universal life