Chapter 2

All of the following are true about variable products EXCEPT

Incorrect: the premiums are invested in the insurers general account. (*insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk*) Correct: policyowners bear the investment risk. The minimum death benefit is guaranteed. The cash value is not guaranteed.

suitability

a requirement to determine if an insurance product is appropriate for a customer

qualified plan

a retirement plan that meets IRS guidelines for receiving favorable tax treatment

nonforfeiture values

benefits in a life insurance policy that the policy owner cannot lose even if the policy is surrendered or lapses

If an agent wishes to sell variable life policies, what license must the agent obtain?

securities

face amount

the amount of benefit stated in the life insurance policy

endow

the cash value of a whole life policy has reached the contractual face amount

attained age

the insured's age at the time the policy is issued or renewed

level premium

the premium that does not change through the life of a policy

Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?

Correct: Option B (*includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always equal to the face amount of the policy plus the current amount of cash value*) Incorrect: option a, corridor option, variable option

variable life insurance

contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance

A straight life policy has what type of premium?

A level annual premium for the life of the insured.

Which of the following is INCORRECT regarding a $100k, 20-year level term policy

Incorrect: at the end of 20 year, the policy's cash value will equal $100k (*term policies do not develop cash values*) Correct: the policy premiums will remain level for 20 years. If the insured dies before the policy expires, the beneficiary will receive $100k. The policy will expire at the end of the 20-year period

All of the following entities regulate variable life policies EXCEPT

Incorrect: the guaranty association Correct: the SEC, Federal Government, Insurance Department

cash value

a policy's savings element or living benefit

Which one of these types of policies will provide permanent protection?

correct : whole life incorrect : credit life, term life, group life

policy maturity

in life policies, the time when the face value is paid out

A policy will pay the death benefit if the insured dies during the 20-year premium paying period, and nothing if death occurs after the 20-year period. What type of policy is this?

level term

deferred

withheld or postponed until a specified time or event in the future

Which of the following statements is correct regarding the whole life policy?

Correct: the policy owner is entitled to policy loans (*Whole life policies offer a level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans. Incorrect: cash values are not guaranteed. The policy premium is based on the attained age. The death benefit may increase or decrease during the policy period

fixed life insurance

contracts that offer guaranteed minimum or fixed benefits

securities

financial instruments that may trade for value (example: stocks, bonds, options)

An insured purchased a variable life insurance policy with a face amount of $50k. Over the life of the policy, stock performance declined and the cash value fell to $10k. If the insured dies, how much will be paid out?

50k (*the cash value of a variable life insurance policy is not guaranteed. However, even if investments devalue significantly, they cannot be lower than the initial guaranteed benefit amount*)

Which of the following is true regarding the annuity period?

Correct: it may last for the lifetime of the annuitant Incorrect: during this period of time the annuity payments grow interest tax deferred. It is also referred to as the accumulation period. It is the period of time during which the annuitant makes premium payments into the annuity.

A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that?

Joint life policy

liquidation of an estate

converting a person's net worth into cash flow

All of the following are true regarding the convertibility option under a term life insurance policy EXCEPT

Incorrect: upon conversion, the death benefit of the permanent policy will be reduced by 50% Correct: upon conversion, the premium of the permanent policy will be based on the attained age. Evidence of insurability is not required. Most term policies contain a convertibility option.

Which of the following is NOT true regarding the accumulation period of an annuity?

ich of the following is NOT true regarding the accumulation period of an annuity? Incorrect: it would not occur in a deferred annuity (*this period of time during which the payments earn interest and grow tax deferred(which would be the case in a deferred annuity.)) Correct: it is also known as the pay-in period. It is the period during which the annuity payments earn interest. It is the period over which the owner makes payments into an annuity.

The type of policy that can be changed from on that does not accumulate cash value to the one that does is a

Correct: convertible term policy Incorrect: renewable term policy, whole life policy, decreasing term policy.