CH 3
How is a Variable Universal Life Insurance policy different from a Universal Life Insurance policy?
The ability to invest the cash values in various separate accounts The policy has a variable component, meaning that the cash values can be invested outside of the insurer's general account in various separate accounts.
In order to convert a term policy to a permanent policy as of the original issue age, all of the following must occur, except:
The cash values will have to be paid out first before the conversion can be effected
Which of the following would have the lowest first-year annual premium for a 30-year-old, all other factors being equal?
Term to age 40
All of the following are risks to the life settlement purchaser, except:
The insured dies sooner than expected
All of the following are TRUE regarding a Waiver of Premium Rider, except:
The insured must repay the unpaid premiums To have to repay the unpaid premiums would defeat the purpose of the rider.
C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. What is the insurer's net amount at risk?
The insurer's net amount at risk is the difference between the face amount and the cash surrender values. Here, it is $70,000 ($100,000 - $30,000).
If a client owns an indexed product, what happens if the market falls in value by a large amount?
The policy's values can never decline due to negative index performance When the market declines, the policy is credited with the minimum guaranteed interest rate or zero interest. The policy's values can never be impaired due to negative index performance.
All of the following are correct pertaining to Decreasing Term, except:
The premium declines throughout the term of the policy
Which of the following statements about Annual Renewable Term premiums is TRUE?
The premium increases over time as the insured's age increases
In a viatical settlement transaction, the life insurance policyowner is referred to as the _________.
Viator
What is the 'waiver of premium' called on a Universal Life insurance policy?
Waiver of Cost of Insurance
In the event total disability continues beyond a specified period of time, future premiums will not be required to be sent in to the insurer for the duration of the disability. This optional rider is called the _________ rider.
Waiver of premium
Bess received information in regard to her individual Term Insurance explaining that she could convert the policy by doing which of the following?
Without providing proof of insurability, pay higher premiums based on her attained age
Jason has a Whole Life insurance policy with a face amount of $100,000, an annual premium of $1,000, and a cash value of $10,000. If he wants to borrow money from the insurer, what is the maximum he can obtain?
$10,000
Which of the following term life insurance policies would have the lowest 1st-year annual premium, all other factors being equal?
1-year lower time = lower risk
What is the typical time limit on life expectancy for a Viatical Settlement candidate?
2 years
What type of policy has an endowment date, a face amount, and cash value?
A permanent life insurance policy
When the death of an insured occurs within a specified period, causing the policy to pay double or triple benefits, this policy must have which of the following riders?
Accidental Death Rider Also known as the Double Indemnity Rider, the policy pays the stated multiple of the face amount should the insured die as the result of an accident.
Which type of rider pays out a capital sum in case an insured loses a limb or their eyesight?
Accidental Death and Dismemberment
All of the following are true about riders, except:
All riders are available free of charge and can be added at anytime without proof of insurability
A permanent life policy issued 30 years ago would endow at what age?
An ordinary straight whole life policy issued 30 years ago would endow at age 100. Only recently issued policies have an endowment of age of 121.
A married couple wants to have funds available so that the heirs to their estate have the funds necessary to pay the estate taxes. Which of the following would be the most economical and effective way to accomplish this?
Buy a Joint Survivorship Life policy
The value within a permanent life insurance policy that the policyowner can access through a policy loan or policy surrender is known as the ___________.
Cash Value
Universal Life provides for an increasing death benefit only if the applicant chooses:
Death Benefit Option B
Even though this rider can pay out upon death, it also pays out a benefit if the insured loses a limb, eyesight, or hearing as a result of an accident. What is this rider benefit called?
Dismemberment
All of the following about Universal Life are true, except:
Increases in face amount do not require proof of insurability if under $100,000
Which of the following is TRUE of a term rider when attached to a permanent life policy?
It can provide additional temporary coverage on the insured or on other members of the family
A participating life insurance policy has a long-term care rider. The insured qualifies for the benefit. Where does the initial benefit money come from?
It is an advance of the face amount of the policy The Long-Term Care Rider's initial benefit is from an advance of the death benefit, after which additional dollars are paid out by the insurer. The amount the insurer is responsible to pay out maximum is determined at the time the rider is acquired. The bigger the benefit the more the rider costs.
An insured owns a whole life policy that ends at age 100 and lives to be 100 years of age. Why does the insurer pay the face value to the insured?
Older Whole Life policies are structured to endow (i.e. mature) at age 100. At endowment, the cash value equals the death benefit. Policies written under the 2001 CSO Mortality tables endow at age 121.
In a STOLI/IOLI transaction, what are the insureds basically doing?
Selling their mortality to another for up-front cash Stranger-originated life insurance ("STOLI") generally means any act, practice, or arrangement, at or prior to policy issuance, to initiate or facilitate the issuance of a life insurance policy for the intended benefit of a person who, at the time of policy origination, does not have an insurable interest in the life Investor-owned life insurance (IOLI) is where an investor pays a person to take out a large life insurance policy for the person. Some people may want to enter into a STOLI or IOLI transaction because they will receive an upfront payment in exchange for their life insurance benefits.
A $100,000 policy with a waiver of premium rider and $30,000 of cash value is in force when the insured dies at age 65. The beneficiary receives how much of the policy's values?
$100,000
Which of the following traditional whole life policies has the lowest first-year annual premium?
40-pay life
nducing insureds who do not need and cannot afford life insurance to buy a policy and sell it for cash
A STOLI/IOLI transaction is best defined as which of the following? Investors, producers, or brokers with absolutely no personal or business connection with a person, who induce a purchase of a life insurance policy with the sole intent of selling that policy to institutional investors for an amount less than the death benefit, but greater than the policy's cash value is a STOLI/IOLI transaction.
To purchase the greatest amount of coverage, for the least amount of initial premium, a client would purchase which of the following?
A term policy
All of the following are riders that can provide for additional temporary coverage on a new or existing policy, except:
Neighbor insurable interest must take place
Which of the following term policies costs the most, all other factors being equal?
Renewable and convertible
An insured dies within the time limit of an Increasing Term Rider and the beneficiary receives the face amount plus the value of all paid premiums. Which rider is attached to the policy?
Return of Premium
A(n)________ is an added benefit attached to a life insurance policy for which an additional premium is generally paid.
Rider
In all cases upon the insured's death, the beneficiary receives which of the following?
The face amount of the policy
All of the following are reasons why a new policy issued through a term conversion costs more, except:
The insured's health has changed for the worse
How is a life settlement transaction similar to a viatical settlement transaction?
A third party buys a life insurance policy for less than its face amount A Life Settlement is similar to a viatical settlement in that it is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its death benefit. There is no requirement for the insured to be terminally ill in order for a life settlement to occur. A policyowner may choose to sell their policy because the premiums are too high or they want to purchase a different policy. Note: If your state has particular Viatical or Life Settlement licensing and solicitation laws, they will be addressed in the state law chapter.
Timothy is the insured/owner of a universal life insurance policy and is concerned that in the event of disability, the policy might lapse. Which rider would keep the policy from lapsing if he became disabled?
Waiver of Cost of Insurance Tim has a Universal Life Policy which needs to have enough cash value in it in order to pay the monthly cost of insurance. If he is disabled, the Waiver of Cost of Insurance will keep the policy in force.
What is required to add a nonfamily member to a life insurance policy under a term rider?
Insurable interest
The net amount at risk in an Ordinary Whole Life Insurance Policy _________ over the life of the policy.
Decreases
Sean has a home with a mortgage. He needs life insurance to protect his family but also wants to leave them without a mortgage payment if he dies. Ideally which of the following riders should he acquire?
Decreasing Term Rider Decreasing Term Riders are ideally suited to cover the balance of an outstanding mortgage.
This rider allows for the insured to obtain additional insurance in between the specified ages including marriage and the birth or adoption of a child, when the need for insurance coverage may increase without having to prove insurability. It is called the ________ rider:
Guaranteed Insurability The guaranteed insurability rider covers events that will allow for the insured to obtain additional insurance in between the specified ages include marriage and the birth or adoption of a child, when the need for insurance coverage may increase. It normally limits the insured to acquire additional amounts of the same type of coverage already in force.
What happens to the overall policy premium when most riders on a life insurance policy expire?
It goes down Most life insurance policy riders have a premium associated with it. Once the rider expires so too does the obligation to continue paying its premium.
Which of the following life insurance policies is ideally suited for estate planning purposes?
Joint Survivorship If owned by an irrevocable trust, a Joint Survivorship policy can keep the value of the policy out of the estate and create much needed cash to pay for estate taxes, which come due 9 months after the second spouse dies.
Which of the following term policies cost the least all other factors being the same?
Nonrenewable and non-convertible
Which of the following Whole Life insurance policies has the lowest annual premium payment per $1,000 of coverage for a 35-year-old, all other factors being equal?
Ordinary Straight Whole Life The longer the premium-paying period, the lower the annual premium. A $100,000 Ordinary Straight Whole Life Policy spreads the payments out over a longer period of time than a limited premium payment policy.
Variable Whole Life has all of the following features, except:
Partial surrender are allowed
In a Universal Life policy, the minimum separation between the cash value and the death benefit is called the _______
Risk corridor A universal life policy must include an amount at risk. If the cash value approaches the face amount, the death benefit must increase so as to provide for this amount at risk. This minimum separation between the cash value and the death benefit is called the 'risk corridor.'
Each of the following are characteristics of a Current Assumption Whole Life insurance policy, except:
The death benefit is not guaranteed Current Assumption Whole Life guarantees a death benefit just like any other whole life insurance product. However based on interest rates premiums can be reduced or increased and cash values can be credited with a higher or lower interest rate.
Which of the following statements is correct regarding a Waiver of Premium Rider on a participating whole life policy?
The premiums are waived until either the insured recovers from the disability, the policy achieves paid-up status, or the insured dies The policy continues as it would have had the premiums been paid: dividends are paid, cash values accumulate and the death benefit is not reduced. However, the owner/insured must resume premium payments when they are no longer disabled. Once the policy achieves paid-up status, no further premiums are due.