Chapter 2: Types of Policies
A Universal Life Insurance policy is best described as a/an A. Variable Life with a cash value account. B. Whole Life policy with two premiums: target and minimum. C. Flexible Premium Variable Life policy. D. Annually Renewable Term policy with a cash value account.
D. Annually Renewable Term policy with a cash value account.
A Universal Life Insurance policy is best described as a/an A. Annually Renewable Term policy with a cash value account. B. Variable Life with a cash value account. C. Whole Life policy with two premiums: target and minimum. D. Flexible Premium Variable Life policy.
A. Annually Renewable Term policy with a cash value account.
What characteristic makes whole life permanent protection? A. Coverage until death or age 100 B. Guaranteed death benefit C. Guaranteed level premium D. Living benefits
A. Coverage until death or age 100
What is another name for interest-sensitive whole life insurance? A. Current assumption life B. Variable life C. Term life D. Adjustable life
A. Current assumption life
Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? A. Option B B. Corridor option C. Variable option D. Option A
A. Option B
Who bears all of the investment risk in a fixed annuity? A. The insurance company B. The owner C. The beneficiary D. The annuitant
A. The insurance company
Which of the following types of policies will provide permanent protection? A. Whole life B. Credit life C. Term life D. Group life
A. Whole life
The death protection component of Universal Life Insurance is always A. Decreasing Term B. Annually Renewable Term C. Whole Life D. Adjustable Life
B. Annually Renewable Term
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits? A. Deferred interest annuity B. Immediate annuity C. Variable annuity D. Flexible payment annuity
B. Immediate annuity
Under which installments option does the annuitant select the amount of each payment, and the insurer determines how long they will pay benefits? A. Variable amount B. Fixed period C. Fixed amount D. Variable period
C. Fixed amount
The premium of a survivorship life policy compared with that of a joint life policy would be A. As high. B. Half the amount. C. Lower. D. Higher.
C. Lower.
Which of the following products requires a securities license? A. Equity Indexed annuity B. Deferred annuity C. Variable annuity D. Fixed annuity
C. Variable annuity
Which of the following is NOT a type of whole life insurance? A. Single premium B. Straight life C. Limited payment D. Level term
D. Level term
Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? A. Flexible life B. Variable life C. Adjustable life D. Universal life
D. Universal life
All of the following statements are true regarding installments for a fixed amount EXCEPT A. This option pays a specific amount until the funds are exhausted. B. The annuitant may select how big the payments will be. C. The payments will stop when the annuitant dies. D. Value of the account and future earnings will determine the time period for the benefits.
C. The payments will stop when the annuitant die
Which policy component decreases in decreasing term insurance? A. Face amount B. Cash value C. Dividend D. Premium
A. Face amount
Variable Whole Life insurance is based on what type of premium? A. Increasing B. Flexible C. Graded D. Level fixed
D. Level fixed
Which of the following is NOT a type of whole life insurance? A. Limited payment B. Level term C. Single premium D. Straight life
B. Level term
Which of the following is TRUE regarding variable annuities? A. A person selling variable annuities is required to have only a life agent's license. B. The annuitant assumes the risks on investment. C. The funds are invested in the company's general account. D. The company guarantees a minimum interest rate.
B. The annuitant assumes the risks on investment.
What is the purpose of establishing the target premium for a universal life policy? A. To cover all policy expenses B. To keep the policy in force C. To accumulate cash value faster D. To pay up the policy faster
B. To keep the policy in force
Which of the following best describes a pure life annuity settlement option? A. Pure life guarantees that all the proceeds will be paid out. B. Benefits are paid for a fixed period of time, specified when the policy begins to pay. C. Pure life provides payments for as long as both the annuitant and the spouse are living. D. Pure life provides payments for as long as the annuitant is alive.
D. Pure life provides payments for as long as the annuitant is alive.
Which of the following is NOT one of the three types of term coverage based on what happens to the face amount during the policy term? A. Decreasing B. Level C. Increasing D. Renewable
D. Renewable
What are the two components of a universal policy? A. Insurance and investments B. Mortality cost and interest C. Separate account and policy loans D. Insurance and cash account
D. Insurance and cash account
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium? A. Universal life B. Variable whole life C. Decreasing term D. Straight whole life
A. Universal life
Which of the following types of policies allows for a flexible premium and a variable investment component? A. Variable universal life insurance B. Guaranteed issue variable life insurance C. Variable whole life insurance D. Whole life insurance
A. Variable universal life insurance
Which of the following is INCORRECT regarding a $100,000 20-year level term policy? A. The policy will expire at the end of the 20-year period. B. At the end of 20 years, the policy's cash value will equal $100,000. C. The policy premiums will remain level for 20 years. D. If the insured dies before the policy expired, the beneficiary will receive $100,000.
B. At the end of 20 years, the policy's cash value will equal $100,000.
Variable Whole Life insurance is based on what type of premium? A. Graded B. Level fixed C. Increasing D. Flexible
B. Level fixed
An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it? A. Graded Premium Life B. Limited-pay Life C. Variable Life D. Adjustable Life
B. Limited-pay Life
The annuitant dies while the annuity is still in the accumulation stage. Which of the following is TRUE? A. The money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary. B. The beneficiary will receive the greater of the money paid into the annuity or the cash value. C. The owner's estate will receive the money paid into the annuity. D. The insurance company will retain the cash value and pay back the premiums to the owner's estate.
B. The beneficiary will receive the greater of the money paid into the annuity or the cash value.
Which of the following best defines target premium in a universal life policy? A. The corridor of insurance B. The recommended amount to keep the policy in force throughout its lifetime C. The maximum amount the policyowner may pay on a policy D. The minimum amount to make sure the policy is annually renewable
B. The recommended amount to keep the policy in force throughout its lifetime
For variable products, underlying assets must be kept in A. A money market account. B. A general account. C. A separate account. D. A revenue account.
C. A separate account.
When an annuity is written, whose life expectancy is taken into account? A. Life expectancy is not a factor when writing an annuity. B. Owner C. Annuitant D. Beneficiary
C. Annuitant
Which of the following products will protect an individual from outliving their money? A. Adjustable life policy B. Permanent life insurance C. Annuity D. Joint and survivor policy
C. Annuity
Which of the following is a feature of a variable annuity? A. Interest rate is guaranteed. B. Securities license is not required. C. Benefit payment amounts are not guaranteed. D. Payments into the annuity are kept in the company's general account.
C. Benefit payment amounts are not guaranteed.
The term "fixed" in a fixed annuity refers to all of the following EXCEPT A. Equal annuity payments B. Amount and length of payments C. Death benefit D. Guaranteed rate of interest
C. Death benefit
An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n) A. Flexible Annuity. B. Immediate Annuity. C. Equity Indexed Annuity. D. Variable Annuity.
C. Equity Indexed Annuity.
An agent selling variable annuities must be registered with A. The Guaranty Association. B. SEC. C. FINRA. D. Department of Insurance.
C. FINRA.
What type of premium do both Universal Life and Variable Universal Life policies have? A. Decreasing B. Increasing C. Flexible D. Level fixed
C. Flexible
Fixed annuities provide all of the following EXCEPT A. Minimum guaranteed rate of interest. B. Future income payments. C. Hedge against inflation. D. Equal monthly payments for life.
C. Hedge against inflation.
Which of the following best describes annually renewable term insurance? A. Neither the premium nor the death benefit is affected by the insured's age. B. It provides an annually increasing death benefit. C. It is level term insurance. D. It requires proof of insurability at each renewal.
C. It is level term insurance.
Which of the following is NOT true about a joint and survivor annuity benefit option? A. This option guarantees income for two or more recipients. B. The surviving annuitant may receive reduced payments. C. Payments stop after the first death among the annuitants. D. A period certain option may be included.
C. Payments stop after the first death among the annuitants.
Which type of life insurance policy generates immediate cash value? A. Decreasing Term B. Continuous Premium C. Single Premium D. Level Term
C. Single Premium
The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true? A. A corporation can be an annuitant as long as the beneficiary is a natural person. B. The contract can be issued without an annuitant. C. The annuitant must be a natural person. D. A corporation can be an annuitant as long as it is also the owner.
C. The annuitant must be a natural person.
All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT A. Most term policies contain a convertibility option. B. Upon conversion, the premium for the permanent policy will be based upon attained age. C. Upon conversion, the death benefit of the permanent policy will be reduced by 50%. D. Evidence of insurability is not required.
C. Upon conversion, the death benefit of the permanent policy will be reduced by 50%.
Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income? A. Annuitization period B. Pay-out period C. Liquidation period D. Depreciation period
D. Depreciation period
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid A. Until the policyowner reaches age 65. B. For at least 20 years. C. Until the policyowner's age 100, when the policy matures. D. For 20 years or until death, whichever occurs first.
D. For 20 years or until death, whichever occurs first.
A Return of Premium term life policy is written as what type of term coverage? A. Decreasing B. Renewable C. Level D. Increasing
D. Increasing
During partial withdrawal from a universal life policy, which portion will be taxed? A. Cash value B. Principal C. Loan D. Interest
D. Interest
Which two terms are associated directly with the way an annuity is funded? A. Increasing or decreasing B. Immediate or deferred C. Renewable or convertible D. Single payment or periodic payments
D. Single payment or periodic payments
Which of the following statements is correct regarding a whole life policy? A. Cash values are not guaranteed. B. The policy premium is based on the attained age. C. The death benefit may increase or decrease during the policy period. D. The policyowner is entitled to policy loans.
D. The policyowner is entitled to policy loans.
All of the following statements about equity index annuities are correct EXCEPT A. The annuitant receives a fixed amount of return. B. They have a guaranteed minimum interest rate. C. The interest rate is tied to an index such as the Standard & Poor's 500. D. They invest on a more aggressive basis aiming for higher returns.
A. The annuitant receives a fixed amount of return.
An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term? A. The insured may renew the policy for another 10 years, but at a higher premium rate. B. The insured must provide evidence of insurability to renew the policy. C. The insured may only convert the policy to another term policy. D. The insured may renew the policy for another 10 years at the same premium rate.
A. The insured may renew the policy for another 10 years, but at a higher premium rate.
A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy? A. Joint limited annuity B. Joint life C. Joint and survivor D. Life with period certain
B. Joint life
Which of the following is another term for the accumulation period of an annuity? A. Annuity period B. Pay-in period C. Premium period D. Liquidation period
B. Pay-in period
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? A. Joint and survivor B. Pure life C. Life with guaranteed minimum D. Installment refund
B. Pure life
Which of the following statements is correct regarding a whole life policy? A. The policy premium is based on the attained age. B. The death benefit may increase or decrease during the policy period. C. The policyowner is entitled to policy loans. D. Cash values are not guaranteed.
C. The policyowner is entitled to policy loans.
Which of the following is NOT true regarding Equity Indexed Annuities? A. They have guaranteed minimum interest rates. B. They are less risky than variable annuities. C. They earn lower interest rates than fixed annuities. D. The insurance company keeps a percentage of the returns.
C. They earn lower interest rates than fixed annuities.
A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select? A. Joint annuity B. Cash refund annuity C. Straight life D. Joint and survivor
D. Joint and survivor
The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called A. Life income with refund. B. Joint and survivorship. C. Joint life annuity. D. Life income with period certain.
D. Life income with period certain.
Which of the following best describes what the annuity period is? A. The period of time from the accumulation period to the annuitization period B. The period of time during which money is accumulated in an annuity C. The period of time from the effective date of the contract to the date of its termination D. The period of time during which accumulated money is converted into income payments
D. The period of time during which accumulated money is converted into income payments
Which of the following is NOT a type of whole life insurance? A. Level term B. Single premium C. Straight life D. Limited payment
A. Level term
All of the following are true regarding a decreasing term policy EXCEPT A. The payable premium amount steadily declines throughout the duration of the contract. B. The death benefit is $0 at the end of the policy term. C. The contract pays only in the event of death during the term and there is no cash value. D. The face amount steadily declines throughout the duration of the contract.
A. The payable premium amount steadily declines throughout the duration of the contract.
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? A. Universal Life - Option A B. Universal Life - Option B C. Equity Indexed Universal Life D. Variable Universal Life
A. Universal Life - Option A
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? A. Universal life B. Adjustable life C. Term life D. Limited pay
A. Universal life
An individual purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy? A. Nothing B. $50,000 C. $100,000 D. $200,000
C. $100,000
An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined, and the cash value fell to $10,000. If the insured dies, how much will be paid out? A. $10,000 B. $40,000 C. $50,000 D. $60,000
C. $50,000
The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as A. The policyowner cannot skip premiums without the policy lapsing. B. The next month's premium is sufficient to cover both the current premium amount and the skipped amount. C. The policy contains sufficient cash value to cover the cost of insurance. D. The previous premium payments were high enough to create an excess of premium.
C. The policy contains sufficient cash value to cover the cost of insurance.
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? A. Equity Indexed Universal Life B. Variable Universal Life C. Universal Life - Option A D. Universal Life - Option B
C. Universal Life - Option A
The death protection component of Universal Life Insurance is always A. Whole Life B. Adjustable Life C. Decreasing Term D. Annually Renewable Term
D. Annually Renewable Term
All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT A. It will pay the benefit only for a designated period of time. B. The payments are not guaranteed for life. C. The insurer determines the amount for each payment. D. It is a life contingency option.
D. It is a life contingency option.
Which of the following best describes annually renewable term insurance? A. It is level term insurance. B. It requires proof of insurability at each renewal. C. Neither the premium nor the death benefit is affected by the insured's age. D. It provides an annually increasing death benefit.
A. It is level term insurance.
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? A. Level term B. Term to specified age C. Ordinary life policy D. Limited pay whole life
A. Level term
An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin after 1 year since the annuity was purchased. What type of annuity is it? A. Fixed B. Flexible premium C. Immediate D. Deferred
D. Deferred
Fixed annuities provide all of the following EXCEPT A. Hedge against inflation. B. Equal monthly payments for life. C. Minimum guaranteed rate of interest. D. Future income payments.
A. Hedge against inflation.
An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an A. Interest-sensitive Whole Life. B. Credit Life. C. Annual Renewable Term. D. Adjustable Life.
A. Interest-sensitive Whole Life.
An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium? A. It will increase each year during the next 5 years as the face amount increases each year. B. It will increase because the insured will be 5 years older than when the policy was originally purchased. C. It will remain the same for the new 5-year term. D. It will decrease for the new 5-year term since the insured is now a lesser risk to the company.
B. It will increase because the insured will be 5 years older than when the policy was originally purchased.
Which of the following is NOT true regarding the Life with Guaranteed Minimum annuity settlement option? A. It is a life contingency option. B. The beneficiary receives the remainder of the principal amount upon the annuitant's death. C. Payments can be made in installments and as a single cash refund. D. It does not guarantee that the entire principal amount will be paid out.
D. It does not guarantee that the entire principal amount will be paid out.
Which of the following best describes what the annuity period is? A. The period of time during which accumulated money is converted into income payments B. The period of time from the accumulation period to the annuitization period C. The period of time during which money is accumulated in an annuity D. The period of time from the effective date of the contract to the date of its termination
A. The period of time during which accumulated money is converted into income payments
Under a pure life annuity, an income is payable by the company A. Only for the life of the annuitant. B. Until the principal and interest are exhausted. C. For a guaranteed period of time, whether or not the annuitant survives to the end of that period. D. For as long as either the annuitant or a named beneficiary is alive.
A. Only for the life of the annuitant.
What kind of policy allows withdrawals or partial surrenders? A. Variable whole life B. Universal life C. 20-pay life D. Term policy
B. Universal life
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium? A. Straight whole life B. Universal life C. Variable whole life D. Decreasing term
B. Universal life
In a survivorship life policy, when does the insurer pay the death benefit? A. Upon the last death B. Upon the first death C. Half at the first death, and half at the second death D. If the insured survives to age 100
A. Upon the last death
An individual buys a flexible premium deferred life annuity with 20 year period certain. What would his beneficiary receive if he died 5 years after beginning the annuity phase? A. Payments for life B. Nothing C. Payments for 15 years D. Payments for 20 years
C. Payments for 15 years
If the owner of a whole life policy who is also the insured dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary? A. A death benefit equal to the cash value of the policy B. 50% of the death benefit C. The face amount minus the premiums that would have been collected until the insured reached the age of 100 D. A full death benefit
D. A full death benefit
If an annuitant dies before annuitization occurs, what will the beneficiary receive? A. Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount B. Amount paid into the plan C. Cash value of the plan D. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount
D. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount
What does "level" refer to in level term insurance? A. Cash value B. Interest rate C. Face amount D. Premium
C. Face amount
Annually renewable term policies provide a level death benefit for a premium that A. Fluctuates. B. Increases annually. C. Decreases annually. D. Remains level.
B. Increases annually.
Which of the following life insurance policies allows a policyowner to take out a loan from the policy's cash value? A. Increasing term life B. Credit term life C. Decreasing term life D. Variable universal life
D. Variable universal life
An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n) A. Variable Annuity. B. Flexible Annuity. C. Immediate Annuity. D. Equity Indexed Annuity.
D. Equity Indexed Annuity.
Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits? A. $50,000 B. $62,500 C. $75,000 D. Nothing
A. $50,000
An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called A. Modified Endowment Contract (MEC). B. Level term life. C. Graded premium whole life. D. Single premium whole life.
D. Single premium whole life.
Which of the following is NOT true regarding the annuitant? A. The annuitant's life expectancy is taken into consideration for the annuity. B. The annuitant receives the annuity benefits. C. The annuitant must be a natural person. D. The annuitant cannot be the same person as the annuity owner.
D. The annuitant cannot be the same person as the annuity owner.
