Chap 4 - Premiums, Proceeds, and Beneficiaries

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? $1,000,000 $500,000 $250,000 $0

$0

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 proceeds which exceed the amount paid in premiums are taxable The proceeds are taxable only if the beneficiary's tax bracket has changed from the payout All proceeds are considered taxable income in the year they are received All proceeds are income tax free in the year they are received

All proceeds are income tax free in the year they are received

Which premium schedule results in the lowest cost to the policyowner? Semi-annual Monthly Quarterly Annual

Annual

When can a policyowner change a revocable beneficiary? Anytime After the consent of the current beneficiary Never Only if primary beneficiary dies

Anytime

How would a contingent beneficiary receive the policy proceeds in an Accidental Death and Dismemberment (AD&D) policy? If the primary beneficiary is a minor at the time of the insured's death If the primary beneficiary dies before the insured If the insured died of accidental causes If the insured died of natural causes

If the primary beneficiary dies before the insured

Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary? Interest only Fixed Period Fixed amount Life income

Life income

P and Q are married and have 3 children. P is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the cotingent beneficiary. P, Q, and R are involved in a car accident and Q and R are killed instantly. The Accident Death benefits will be paid to who? R's estate Q's estate P and Q's estate P only

P only

Quarterly premium payments increase the annual cost of insurance because insurer risk exposure is greater interest to the insurer is increased while administrative costs are decreased mortality costs are greater interest to the insurer is decreased while the administrative costs are increased

interest to the insurer is decreased while the administrative costs are increased

A(n) ____ beneficiary may be changed by the policyowner WITHOUT the consent of the beneficiary. revocable Irrevocable Tertiary Replacement

revocable

_____ of personal life insurance premiums is usually deductible for federal income tax purposes. 100% 75% 50% 0%

0%

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 Husband's Estate K's estate Trust fund

Daughter

Which of these statements is INCORRECT regarding the federal income tax treatment of life insurance? Premiums are normally not tax deductible Cash dividends are normally not taxed Entire cash surrender value is taxable Proceeds are received tax-free if there is a named beneficiary

Entire cash surrender value is taxable

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? Primary beneficiary's estate Primary beneficiary's next of kin Insured's estate Insured's contingent beneficiary

Insured's contingent beneficiary

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? Revocable Contingent Irrevocable Primary

Irrevocable

A policyowner's rights are limited under which beneficiary designated? Revocable Tertiary Contingent Irrevocable

Irrevocable

Which type of life insurance beneficiary requires his/her consent when a change of beneficiary is attempted by the policyowner? Irrevocable beneficiary Tertiary beneficiary Primary beneficiary Revocable beneficiary

Irrevocable 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? Cash surrender Life settlement contract Buy-sell arrangement 1031 Exchange

Life settlement contract

A policyowner is allowed to pay premiums more than once a year under which provision? Insuring consideration Payor Mode of Premium

Mode of Premium

Which of these is NOT an element of Life Insurance premiums? Mortality rate Insurer's expenses Interest credit Morbidity rate

Morbidity rate

Which statement is true regarding a minor beneficiary? Normally, the death proceeds are required to be held in trust until the beneficiary reaches the age of 21 Normally, a guardian is required to be appointed in the beneficiary clause of the contract The minor must pay the debts of the insured's estate before receiving any of the proceeds The minor is entitled to receive the death proceeds immediately.

Normally, a guardian is required to be appointed in the beneficiary clause of the contract

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 Person designated by the primary beneficiary's executor to receive policy proceeds Person designated by the state to receive policy proceeds in the event that the primary beneficiary dies Person designated by the insurance company to receive policy proceeds in the event that the primary beneficiary dies

Person designated by the insured to receive policy proceeds in the event that the primary beneficiary dies before the insured

On a life insurance policy, who is qualified to change the beneficiary designation? Payor Primary beneficiary Policyowner Insurer

Policyowner

Who has the right to change a revocable beneficiary? Beneficiary Agent Insurance agency Policyowner

Policyowner

A policyowner is able to choose the frequency of premium payments through what policy feature? Consideration Payor benefit Premium Mode Assignment provision

Premium Mode

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? Proceeds will be paid to K's estate Proceeds will be divided equally between K's and P's estate Proceeds will be payable to K's estate if P dies within a specified time The courts will decide who will receive death benefits

Proceeds will be payable to K's estate if P dies within a specified time

A primary beneficiary has died before the insured in a life insurance policy. A contingent beneficiary is also named in the policy. Which of the following will occur when the insured dies? Proceeds will go to the primary beneficiary's estate Probate will decide who receives proceeds Proceeds will go to the contingent beneficiary Proceeds will go to the insured's estate.

Proceeds will go to the contingent beneficiary

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 will be accepted only if in writing by the insured Change will be made only if premiums are paid current Change will be made immediately Request of the change will be refused

Request of the change will be refused

J would like to maintain the right to change beneficiaries. Which beneficiary designation should be used? Irrevocable Contingent Primary Revocable

Revocable

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? Tertiary Irrevocable Revocable Contingent

Revocable

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 The nonforfeiture options The contestable period The assignment of ownership

The cost

What is the underlying concept regarding level premiums? Level premiums build cash value quicker in the early years The early years are charged more than what is needed The early years are charged less that what is needed Level premiums can only be paid annually

The early years are charged more than what is needed

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 The gross premium is lower on a monthly payment mode as compared to being paid annually The cash value from a life policy paid on a monthly basic builds quicker than the one paid on an annual bases The face amount of a life policy paid on a monthly basis is higher than one paid on an annual basis

The gross premium is higher on a monthly payment mode as compared to being paid annually

Which statement regarding the Charge of Beneficiary provision is true? The beneficiary can only be changed with the consent of the insurer The policyowner can change the beneficiary The insured can change the beneficiary A beneficiary change is subject to underwriting procedures

The policyowner can change the beneficiary

The Common Disaster clause provides that if both the insured and the sole named beneficiary were to die in a common accident, which of the following is true? This clause provides the payment of proceeds to the insured's estate The clause provides the payments of proceeds to the beneficiary's estate The estate taxes in the insured's estate may be reduced The estate taxes in the beneficiary's estate may be reduced

This clause provides the payment of proceeds to the insured's estate

T is the policyowner for a Life Insurance policy with an Irrevocable beneficiary designation. If T wishes to change the beneficiary, T must obtain permission from the payor agent beneficiary Commissioner of Insurance

beneficiary

A level premium indicates the premium is fixed for a period stated in the contract, then becomes variable the premium can only be changed with the consent of the insurer the premium stays level until the policy's renewal date the premium is fixed for the entire duration of the contract

the premium is fixed for the entire duration of the contract