Test: Chapters 5-6
Which of the following policies was used to accumulate funds for education? a) endowment b) term c) life paid-up at age 65 d) 20-pay life
a) endowment
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: a) $30,000 b) $20,000 c) $10,000 d) $0
c) $10,000
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 a) 1 only b) 2 only c) both 1 and 2 d) neither 1 or 2
a) 1 only
The increase in an increasing term policy is tied to which of the following? a) specific amounts or a percentage of the face value b) specific amounts or a percentage of the premium c) standard amounts d) random amounts
a) specific amount or a percentage of the face value
Which of the following must exist before a non-forfeiture option can be elected? a) dividends b) cash value c) interest d) expenses
b) cash values
Which of the following policies allow for withdrawals? a) universal life and variable life b) universal life and variable universal life c) whole life, universal life, and variable universal life d) all policies allow for withdrawals
b) universal life and variable universal life
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 an 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 59.5 d) it is the responsibility of the insured to make sure the policy does not become an MEC
d) it is the responsibility of the insured to make sure the policy does not become an MEC
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: a) 60 b) 65 c) 70 d) 100
d) 100
Patches owns a 30-pay life policy that he purchased at the age of 30. The policy will endow at age: a) 60 b) 65 c) 70 d) 100
d) 100
Ordinary life insurance 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
The purpose of the grace period is to: a) protect the insurance company against adverse selection b) protect the policyowner against unintentional lapses c) permit the beneficiary to establish an insurable interest d) permit the insurance company to determine the cause of death
b) protect the policyowner against unintentional lapses
Which of the following statements is true about a policy assignment? a) it permits the beneficiary to designate the person or persons to receive the benefits b) it is valid during the insured's lifetime only, because the death benefit is payable to the named beneficiary c) it transfers the owner's rights under the policy to the extent expressed in the assignment form d) it is the same as a beneficiary designation
c) it transfers the owner's rights under the policy to the extent expressed in the assignment form
Which of the following types of policies' cash may NOT be affected by stock market/mutual funds? a) variable life b) equity indexed universal life c) modified whole life d) variable universal life
c) modified whole life
What is the maximum interest rate an insurance company can charge the policyowner for a fixed or adjustable rate? a) 10% for a fixed rate, for an adjustable the rate will be tied to Moody's Bond Index b) 12% for a fixed rate, for an adjustable the rate will be tied to the Consumer Price Index c) a maximum of 10% for fixed or adjustable rates d) there are no maximums by law
a) 10% for a fixed rate, for an adjustable the rate will be tied to Moody's Bond Index
Which of the following policies would have a higher premium? a) par policies b) non-par policies c) mixed plan policies d) should be the same
a) par policies
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? a) pay the full death benefit as the death was unrelated to the fraudulent statement b) deny the death benefit and return all premiums c) pay whatever the premium would have purchased at the time of death d) subrogate the driver of the automobile
b) deny the death benefit and return all premiums
The most common type of insurance sold is: a) ordinary b) industrial c) group d) mass marketing
a) ordinary
A variable life insurance policy would be regulated by: a) the SEC and the OIR b) the SEC and the Dept of Insurance c) FINRA and the Dept of Insurance d) the NASD and the Dept of Financial Services
a) the SEC and the OIR
Which of the following statements is not true about exercising a guaranteed insurability option? a) the new insurance is available at the original issue age rate b) evidence of insurability is not required c) expiration of one option does not affect future options d) the maximum purchase amount is specified in the contract
a) the new insurance is available at the original issue age rate
The party to whom the life insurance policy cash value belongs is: a) the policyowner b) the insured c) the insurer d) the beneficiary
a) the policyowner
Which of the following features applies to decreasing term insurance? a) the premiums do not decrease as the protection decreases b) the contract may be converted for the original amount but only at the original age method c) a portion of the premium is returned at the end of the contract d) the premiums decrease as the protection decreases
a) the premiums do not decrease as the protection decreases
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 b) universal life, option 2 c) variable life d) equity indexed whole life
a) universal life, option 1
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? a) $100,000 b) $50,000 c) $25,000 d) nothing
b) $50,000
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? a) straight life will accumulate cash value faster b) 20-pay life will accumulate cash value faster c) both plans will accumulate cash value at the same rate d) the rate of cash value accumulation depends on the profitability of the insurance company
b) 20-pay life will accumulate cash value faster
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? a) Ibey would forfeit a major part of the $9,850 to pay for the cost of protection under the policy b) Ibey could elect to surrender his policy for a lump-sum cash payment of $9,850, less any policy indebtedness c) Ibey would forfeit the entire $9,850, if the policy is surrendered d) Ibey will have to take a reduced paid-up policy
b) Ibey could elect to surrender his policy for a lump-cash payment of $9,850, less any policy indebtedness
Which of the following statements about the reinstatement provision is not true? a) a new incontestable period begins at reinstatement b) a new suicide period begins at reinstatement c) all loans must be repaid d) evidence of insurability is required
b) a new suicide period begins at reinstatement
Double indemnity applies to which of the following? a) sickness b) accident c) sickness or accident d) death before age 55
b) accident
Signing over ALL rights of ownership in a policy by the owner is: a) policy owner privilege b) an absolute assignment c) a policyowner amendment d) a transfer of rights
b) an absolute assignment
All of the following are 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
A policy that is sold in proportioned units to cover the insured, spouse and children is called a: a) family income policy b) family plan c) family maintenance policy d) multi-faceted policy
b) family plan
The incontestable clause applies to: a) impersonation b) fraud c) misrepresentation d) intent to murder
b) fraud
Which of the following is provided by a payor rider on a policy with a minor child as the insured? a) if the child is disabled 6 months or longer the premiums are waived b) if the premium payor dies, premiums are waived until the insured child reaches age 21 or 25, as stated in the policy c) if the minor child dies the benefit is doubled d) if the premium payor is unemployed benefits are waived
b) if the premium payor dies, premiums are waived until the insured child reaches age 21 or 25, as stated in the policy
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
Which of the following is an example of a limited-pay life policy? a) whole life b) life paid-up at age 65 c) renewable term to age 70 d) endowment maturing at age 65
b) life paid-up at age 65
Increasing term insurance will automatically increase 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
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? a) $10,000 b) $9,500 c) $9,450 d) $9,475
d) $9,475
Features that may be included in most term policies include which of the following? 1. convertibility 2. renewability 3. waiver of premium provision a) 1 and 2 only b) 1 and 3 only c) 2 and 3 only d) 1, 2, and 3
d) 1, 2, and 3
The delayed payment provision permits an insurer to postpone payments of cash surrender values after policyowners request payment for a period of: a) 30 days b) 60 days c) 90 days d) 6 months
d) 6 months
Variable life insurance is considered: a) an insurance contract only b) a securities contract only c) an insurance and general contract d) an insurance and securities contract
d) an insurance and securities contract
The provision in a life insurance policy that provides protection against unintentional policy lapse is known as the: a) reduction of premium option b) waiver of premium benefit c) payor clause d) automatic premium loan provision
d) automatic premium loan provision
An insured commits suicide within the first two years of the life insurance policy, which course of action will the insurance company take? a) pay full benefits b) pay the death benefit but subtract the premium c) deny the claim d) deny the claim and return the premium
d) deny the claim and return the premium
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? a) reduced paid-up b) 1-year term c) cash surrender d) extended term
d) extended term
The Waiver of Premium: a) has a normal waiting period of 30 days b) is removed at age 70 c) covers accidental disability on the first day d) is an option that may be rated or denied
d) is an option that may be rated or denied
A person who desires protection permanently but does not want to pay premiums indefinitely would purchase which of the following? a) indeterminate whole life b) modified whole life c) whole life d) limited pay life
d) limited pay life
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
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? a) age 25 b) age 21 c) age 15 d) never
d) never
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
If the insured understated his/her age and the error is discovered after the insured's death, the insurance company will: a) refuse to pay the death claim b) refund all past premiums paid with any accumulated interest c) pay the face amount of the policy with a deduction for the amount of the underpayment premium d) pay an amount equal to that which the premium would have purchased at the correct age
d) pay an amount equal to that which the premium would have purchased at the correct age
Which is correct concerning a graded premium whole life policy? a) it is a form of term insurance b) premiums are reduced each year during the early policy years and then remain level c) premiums are payable to age 65 d) premiums start low, increasing each year during the early years of the contract and then remain constant for life
d) premiums start low, increasing each year during the early years of the contract and then remain constant for life
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
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 in the company's general account d) separate account funds are not guaranteed
d) separate account funds are not guaranteed
Which policy below, if issued at age 40, has premiums payable for 60 years, insurance protection for 60 years, and endows at age 100? a) endowment at age 60 policy b) 20-pay endowment at age 65 policy c) 20-pay life policy d) straight whole life policy
d) straight whole life policy
Which of the following is not true concerning the waiver of premium rider? a) it may contain one of two different definitions of disability b) the waiting period is usually 90 days to six months c) the benefit usually drops off at age 65 d) the definition of disability may change from any occupation to own occupation after two years of the disability
d) the definition of disability may change from any occupation to own occupation after two years of the disability
A universal life insurance policy "unbundles" several components of a typical life insurance policy. Which of the following is not one of these components? a) the protection element b) the savings element c) the loading element d) the interest element
d) the interest element
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: a) collateral assignment b) bilateral assignment c) absolute assignment d) irrevocable assignment
a) collateral assignment
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 and the face value are equal at the endowment date
a) it is a form of whole life insurance
Which is true concerning a variable life insurance policy? a) it provides a minimum guaranteed death benefit b) benefits vary and are linked to the Dow-Jones stock averages c) it has a guaranteed minimum cash value d) premiums and benefits are both variable
a) it provides a minimum guaranteed death benefit
Where is the insuring clause of a life insurance policy found? a) on the cover of the policy b) with all riders and endorsements c) on file in the company's home office d) all of the above
a) on the cover of the policy
The 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? a) single premium life policy b) 10 pay life policy c) variable life policy d) endowment policy
a) single premium life policy
All of the following apply to par policy dividends EXCEPT: a) taxable as current income like any other dividend b) considered by the IRS 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
a) taxable as current income like any other dividend
The delayed payment provision applies to which part of the policy? a) premiums b) interest c) benefit d) cash value
d) cash value
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 courses of action would the insurance company take? a) pay a percentage of the face amount each month for a long-term care facility b) pay nothing c) pay a % of the face amount for the accelerated death benefit d) pay the full face amount for the accelerated death benefit
b) pay nothing
Which of the following non-forfeiture options has a cash value? a) cash surrender b) reduced paid-up c) extended term d) one-year term
b) reduced paid-up
An agent who holds a securities license is called a: a) registered investment advisor b) registered representative c) registered investment counselor d) registered financial representative
b) registered representative
Max has a $100,000 life insurance policy with a 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: a) leveraging b) replacement c) a good business move d) rebating
b) replacement
Which is the only type of rider added at no additional cost to the policyowner? a) the waiver of premium rider b) the automatic premium loan rider c) the payor rider d) the cost of living rider
b) the automatic premium loan rider
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 courses of action would the insurance company take? a) the company would pay a percentage of the face amount each month for a long-term care facility b) the company would pay nothing c) the company would pay a % of the face amount for the accelerated death benefit d) the company would pay the full face amount for the accelerated death benefit
b) the company would pay nothing
How is a policy loan repaid if the policy pays a death claim? a) because the policyowner, not the beneficiary, made the loan, it does not have to be repaid at the insured's death b) the loan, plus any interest due, is deducted from the overall death benefit c) the beneficiary takes over the loan, plus any interest due d) the loan, plus any interest due, is paid through the insured's estate, just as with any other debts
b) the loan, plus any interest due, is deducted from the overall death benefit
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? a) the policy is paid-up for life b) the premiums are paid-up until the daughter is 25 c) the premiums are paid until the daughter is 25, then she must pay the next 10 years d) the policy would endow immediately
b) the premiums are paid-up until the daughter is 25
Dividend projections may be included in a proposal for a life insurance policy when which of the following is true? a) the applicant has requested that they be included b) there is a clear statement that payment of future dividends is not guaranteed c) the projected amounts are calculated on the basis of the Commissioners Standard Ordinary Mortality Tables d) the projected amounts do not exceed the dividends previously paid by the same insurance company
b) there is a clear statement that payment of future dividends is not guaranteed
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 IRS corridor)
b) without its adjustable features it resembles an endowment policy
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: a) $200,000 b) $100,000 c) $2,000 d) $0
c) $2,000
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 a) 1 only b) 2 only c) 1 & 2 d) none of the above
c) 1 & 2
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 a) 1 only b) 2 only c) 1 & 2 d) 3
c) 1 & 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 a) 1 and 2 b) 3 and 4 c) 1 and 4 d) 2 and 4
c) 1 and 4
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. variable a) 1 and 3 b) 1 and 4 c) 2 and 3 d) 2 and 4
c) 2 and 3
A waiver of premium rider generally remains in effect until the insured reaches age: a) 55 or 60 b) 59.5 c) 60 or 65 d) 70.5
c) 60 or 65
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
What is not on the face of the contract? a) free look b) insuring clause c) consideration clause d) beneficiary's instructions
c) consideration clause
The form of insurance designed to cover the liability of a borrower with an amortized loan is a/an: a) increasing term b) level term c) decreasing term d) convertible term
c) decreasing term
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? a) insuring provision b) incontestable provision c) entire contract provision d) legal payment provision
c) entire contract provision
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
The incontestable clause permits insurers to contest a death claim: a) for any misrepresentations, regardless of the elapsed time b) for material misrepresentation beyond 2 years c) for material misrepresentation if under 2 years d) whenever there is a question of self-destruction
c) for material misrepresentation if under 2 years
In what respect do LIMITED PAY life policies differ from STRAIGHT WHOLE life policies? a) limited pay life policies do not give insurance protection to age 100 b) limited pay life policies endow before age 100 c) limited pay life policies have a shorter premium paying period d) limited pay life policies can provide protection for a limited time, typically to age 65
c) limited pay life policies have a shorter premium paying period
Which of the following dividend options would have a cash value? a) reduced premium b) accumulate c) paid-up addition d) one-year term
c) paid-up addition
Which of the following is a non-forfeiture option that provides continuing cash value build-up? a) extended term b) cash surrender c) reduced paid-up d) fixed period option
c) reduced paid-up
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? a) variable rate b) targeted rate c) step-rate d) seniority rate
c) step-rate
The fifth dividend option will purchase: a) term insurance equal to the face amount b) paid-up insurance not to exceed the face amount c) term insurance not to exceed the cash value d) paid-up insurance not to exceed the cash value
c) term insurance not to exceed the cash value
The amount and frequency of premium payments are contained in which clause of a life insurance policy? a) the entire contract provision b) the insuring clause c) the consideration clause d) the premium provision
c) the consideration clause
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? a) the cash value of the policy, if any b) the full face amount of the policy c) the face amount of the policy less any earned premiums d) a refund of an premiums paid
c) the face amount of the policy less any earned premiums
The following statements about universal life are true, except: a) it is a contract containing a cash reserve account, from which current mortality costs are dawn monthly by the insurer b) the max mortality charges against the reserve permitted by the insurer are disclosed in the policy and are based upon industry tables c) the policy reserves may be invested in mutual funds d) the interest rate credited to the reserve is variable, and responds to the fluctuating market rates, but usually is guaranteed for an initial period
c) the policy reserves may be invested in mutual funds
All of 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
The insuring clause is typically undersigned by: a) the president of the insurance agency and the agent b) the general agent and the career agent c) the president and secretary of the company d) the president of the company and the general agent
c) the president and secretary of the company
Which of the following statements about the reinstatement provision is true? a) it provides for reinstatement of a policy regardless of the insured's health b) it guarantees the reinstatement of a policy that has been surrendered for cash c) there is no new suicide exclusion with a reinstated policy d) it permits reinstatement within 10 years after a policy has lapsed
c) there is no new suicide exclusion with a reinstated policy
What is the purpose of policy exclusions? a) to protect the insurance company from adverse selection b) to protect the company from frivolous claims c) to keep the premiums lower d) to exclude as much as possible
c) to keep the premiums lower
All of the below are true features of variable life insurance except: a) variable life is regulated by the state and the SEC 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
When does the time period covered by the 14-day free look provision of a life insurance contract start? a) when the contract is issued and mailed to the agency office from the home office of the insurance company b) when the contract is received in the agency office and given to the agent c) when the insured receives the contract and makes the first premium payment, if needed d) when the insured receives the contract and a right to look receipt
c) when the insured receives the contract and makes the first premium payment, if needed
Which of the following would provide more death benefit for your premium dollar while still accumulating cash value, assuming issue age of 25? a) 20-pay life b) 10-year term c) whole life d) endowment at 65
c) whole life
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? a) $50,000 whole life policy b) $50,000 20-year endowment policy c) $50,000 level term policy for 20 years d) $50,000 decreasing term policy for 20 years
d) $50,000 decreasing term policy for 20 years