4 - Life Insurance Premiums, Proceeds and Beneficiaries
On a life insurance policy, who is qualified to change the beneficiary designation?
Policyowner
M purchased an Accidental Death and Dismemberment (AD&D) policy and named his son as beneficiary. M has the right to change the beneficiary designation at anytime. What type of beneficiary is his son?
Revocable With a revocable beneficiary designation, the policyowner may change the beneficiary at any time without notifying or getting permission from the beneficiary.
Which statement regarding the Change of Beneficiary provision is true?
The policyowner can change the beneficiary. A policyowner may change a beneficiary at any time. However, consent may be needed by the current beneficiary if designated as irrevocable.
K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?
The correct answer is "Proceeds will be payable to K's estate if P dies within a specified time". Under the Common Disaster provision, proceeds will be payable to K's estate if P dies within a specified time.
An insured covered by life insurance has just died. What will happen if the primary beneficiary had already died before the insured and contingent beneficiary?
Proceeds will go to the contingent beneficiary
Which of the following best describes a contingent beneficiary?
Person designated by the insured to receive policy proceeds in the event that the primary beneficiary dies before the insured A contingent beneficiary is named by the insured to receive the policy proceeds if the primary beneficiary dies before the insured.
Quarterly premium payments increase the annual cost of insurance because
interest to the insurer is decreased while the administrative costs are increased The higher the frequency of payments, the higher the premiums.
What percent of personal life insurance premiums is usually deductible for federal income tax purposes?
0% In general, personal life insurance premiums are NOT deductible for federal income tax purposes.
A policyowner is allowed to pay premiums more than once a year under which provision?
Mode of Premium The Mode of Premium provision permits an insured to pay premiums more than once every year.
A policyowner is able to choose the frequency of premium payments through what policy feature?
Premium Mode Premium Mode is the feature that allows the policyowner to select the timing of premium payment, such as monthly, quarterly, annually etc.
If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the Uniform Simultaneous Death Act?
Insured's contingent beneficiary Under the Uniform Simultaneous Death Act, if both insured and primary beneficiary are killed in the same accident and there is insufficient evidence to show who died first, policy proceeds will be paid as if the insured died last. In other words, the proceeds will be paid to the secondary or contingent beneficiary.
A policyowner's rights are limited under which beneficiary designation?
Irrevocable An irrevocable beneficiary designation requires the consent and signature of that named beneficiary before a change of beneficiary occurs.
J would like to maintain the right to change beneficiaries. Which beneficiary designation should be used?
Revocable With a revocable beneficiary designation, the policyowner may change the beneficiary at any time without notifying or getting permission from the beneficiary.
Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?
The Life Income settlement option pays a specified amount to the annuitant with no residual value payable to a beneficiary.
Which of these statements is INCORRECT regarding the federal income tax treatment of life insurance?
The total cash surrender value is NOT taxable. The interest gained is taxable.
P and Q are married and have three children. P is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the contingent beneficiary. P, Q, and R are involved in a car accident and Q and R are killed instantly. The Accidental Death benefits will be paid to
benefits will be paid to P because P survived the accident and is the primary beneficiary.
Which premium schedule results in the lowest cost to the policyowner?
Annual If the policyowner chooses to pay the premium more than once per year (example monthly, quarterly, semi-annually) there normally will be an additional charge because the company will have additional charges in billing and collecting the premium payments.
When can a policyowner change a revocable beneficiary?
Anytime With a revocable beneficiary designation, the policyowner may change the beneficiary at any time without notifying or getting permission from the beneficiary.
K has a life insurance policy where her husband is beneficiary and her daughter is contingent beneficiary. Under the Common Disaster clause, if K and her husband are both killed in an automobile accident, where would the death proceeds be directed?
Daughter with a common disaster provision, a policyowner can be sure that if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary.
A whole life insurance policyowner does not wish to continue making premium payments. Which of the following enables the policyowner to sell the policy for more than its cash value?
Life settlement contract
T is covered by an Accidental Death and Dismemberment (AD&D) policy that has an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?
Request of the change will be refused. An irrevocable designation may not be changed without the written consent of the beneficiary.
What kind of life insurance beneficiary requires his/her consent when a change of beneficiary is made?
Irrevocable beneficiary
A level premium indicates
the premium is fixed for the entire duration of the contract
J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct?
The gross premium is higher on a monthly payment mode as compared to being paid annually. A premium payment mode that is more frequent than an annual payment will result in a higher gross premium.
A policyowner would like to change the beneficiary on a Life insurance policy and make the change permanent. Which type of designation would fulfill this need?
Irrevocable. An irrevocable designation may not be changed without the written consent of the beneficiary.
Which of the following statements is CORRECT regarding the tax treatment of a lump-sum payment paid to a life insurance policy's primary beneficiary?
The correct answer is "All proceeds are income tax free in the year they are received". If a life insurance policy has a stated beneficiary, all the proceeds are income tax free in the year which they are received.
C is trying to determine whether to convert her convertible term life policy to whole life insurance using her original age or attained age. What factor would affect her decision the most?
The cost In this situation, the cost of insurance is most important when an insured owner is trying to decide whether to convert term insurance at the insured's original age or the insured's attained age.
How would a contingent beneficiary receive the policy proceeds in an Accidental Death and Dismemberment (AD&D) policy?
If the primary beneficiary dies before the insured A contingent beneficiary will receive the policy proceeds if the primary beneficiary dies before the insured's death.
Which statement is true regarding a minor beneficiary?
Normally, a guardian is required to be appointed in the Beneficiary clause of the contract. In most cases, insurers require that a guardian be appointed in the Beneficiary clause of the policy or that a guardian be designated in the will.
What is the underlying concept regarding level premiums?
The early years are charged more than what is needed
The Common Disaster clause provides that if both the insured and the named beneficiary were to die in a common accident, which of the following is true?
The estate taxes in the beneficiary's estate may be reduced Under the Common Disaster clause, the estate taxes in the beneficiary's estate may be reduced.
T and S are named co-primary beneficiaries on a $500,000 Accidental Death and Dismemberment policy insuring their father. Their mother was named contingent beneficiary. Five years later, S dies of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit will the mother receive?
The mother receives $0 because T is still alive and the sole primary beneficiary, while the mother is still the contingent beneficiary.
