Chapter 3 (215) Xcel
Which of these is an element of a Variable Life policy?
A fixed, level premium
D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed?
Level term
Which statement is TRUE regarding a Variable Whole Life policy?
A minimum guaranteed Death benefit is provided
Whole Life insurance policies are contractually guaranteed to provide each of the following, EXCEPT:
partial withdrawal features beyond a surrender charge period
A Universal Life policy is sometimes referred to as an unbundled Life Policy because the owner can see the interest earned, cost of insurance, and the
expense charges
Under a Graded Premium Whole Life policy,
the premium increases each year during the early years of the contract and remains the same after that time
A policy that becomes a Modified Endowment Contract (MEC):
will lose many of its tax advantages
K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this?
Modified Whole Life
Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling?
The correct answer is "Variable Life". Because of the transfer of investment risk from the insurer to the policyowner, variable insurance products are considered securities contracts as well as insurance contracts.
What type of life insurance are credit policies issued as?
The correct answer is "Term". The type of insurance used is decreasing term, with the term matched to the length of the loan period (though usually limited to 10 years or less) and the decreasing insurance amount matched to the declining loan balance.
Under a Graded Premium policy, the premiums
The correct answer is "are lower during the policy's early years". A Graded Premium life policy provides for annual increases in premiums for a constant face amount of insurance during a defined preliminary period, with the purpose of making initial payments more affordable. The premium increases each year during the early years of the contract (usually five years) and remains the same after that time.
A company that owns a life insurance policy on one of its key employees may do all of the following EXCEPT
Change the policy's interest rate
What type of life insurance incorporates flexible premiums and an adjustable death benefit?
Universal Life
Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit?
Variable life
At what point does a Whole Life Insurance policy endow?
When the cash value equals the death benefit
What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time?
Decreasing term
How are surrender charges deducted in a life policy with a rear-end loaded provision?
Deducted when the policy is discontinued
Variable Life products require a producer to
hold a Life Insurance license and a Securities license
What kind of premium does a Whole Life policy have?
level
P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?
Beneficiary will be paid the Death Benefit
The combination of Whole Life and _______ Term insurance is referred to as a Family Income Policy
Decreasing
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?
Decreasing Term
Which of the following types of permanent life insurance policies offers the highest initial cash value?
Single premium
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?
Variable Life
Which of these would be considered a Limited-Pay Life policy?
Life Paid-Up at Age 70
Which of the following provisions guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled?
Payor clause
Which of the following actions is NOT possible with a Universal Life policy?
Premiums may be applied as a credit against income tax
Which of these Nonforfeiture Options continue a build-up of cash value?
Reduced Paid-Up
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
The correct answer is "$20,000 death benefit". If the insured dies before the endowment's maturity, the policy's face value — also known as the "death benefit" — is paid in a lump sum to any beneficiaries.
A life policy that contains a monthly mortality charge as well as self-directed investment choices is called a(n)
Variable Universal Life policy
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?
at future dates specified in the contract with no evidence of insurability required
The investment gains from a Universal Life Policy usually go toward:
the cash value
The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is:
the cost
Which of these statements describe a Modified Endowment Contract (MEC)?
Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract
Which of the following statements is CORRECT about accelerated death benefits?
Must have a terminal illness to qualify
The free-look provision begins
The correct answer is "upon receipt of the policy by the policyowner". When delivering the policy, the agent needs to explain that the free-look provision begins upon receipt of the policy by the policyowner.
How long does the coverage normally remain on a limited-pay life policy?
age 100
All of these are characteristics of an Adjustable Life policy, EXCEPT:
face amount can be adjusted using policy dividends
A(n) _______ _______ Life policy combines investment choices with a form of Term coverage
The correct answer is "Variable Universal". Variable Universal Life combines investment choices with a form of Term coverage.
A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached?
The correct answer is "Waiver of Premium". The Waiver of Premium is a rider on a life insurance policy that guarantees that the premium will be paid if the insured is disabled for a specified period of time.
The incontestable clause allows an insurer to:
The correct answer is "contest a claim during the Contestable Period". The incontestable clause or provision specifies that after a certain period of time (usually two years from the issue date), the insurer no longer has the right to contest the validity of the life insurance policy so long as the contract continues in force.
Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?
The correct answer is "policyowner". The policyowner (investor) benefits upon the death of the insured.
K is shopping for a permanent life insurance policy that will offer her the MOST protection per dollar of annual premium. Which of these policies best fits her needs?
Straight life
An insurer may normally delay the payment of a cash value loan or surrender value for up to
6 months
Credit life insurance is typically issued with which of the following types of coverage?
The correct answer is "Decreasing Term". The type of insurance used for Credit life is typically decreasing term, with the term matched to the length of the loan period.
A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision?
The correct answer is "Payor provision". A payor provision provides that in the event of death or disability of the adult premium payor, the premiums on a juvenile policy will be waived until the insured child reaches a specified age or the maturity date of the contract.
Which is true concerning a Variable Universal Life policy?
The correct answer is "Policyowner controls where the investment will go and selects the amount of the premium payment". With Variable Universal Life, the policyowner controls the investment of cash values and chooses the timing and amount of premium payments.
How are policyowner dividends treated in regards to income tax?
The correct answer is "Interest on accumulations is taxed". If the dividends exceed the total premium payments for the insurance policy, the excess dividends are considered taxable income.
What type of life policy covers two lives and pays the face amount after the first one dies?
Joint Life Policy
S, age 40, is looking to buy a Life Insurance policy that will allow for increases or decreases in coverage as his needs change. The policy best suited for S would be
Universal Life
A Universal Life policy is sometimes referred to as an unbundled Life Policy because the owner can see the interest earned, expense charges, and the
cost of insurance
Additional coverage can be added to a Whole Life policy by adding a(n):
decreasing term rider
N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?
The correct answer is "Claim will be denied". In this situation, the insurance company will deny the claim, as the policy would have lapsed due to nonpayment by September 15.
What kind of life insurance policy pays a specified monthly income to a beneficiary for 30 years and then pays a lump sum benefit at the end of that 30 years?
The correct answer is "Family Maintenance Policy". A Family Maintenance Policy pays a monthly income from the date of death of the insured to the end of the preselected period. The payment of the face amount of the policy is payable at the end of such preselected period.
Which type of policy is considered to be overfunded, as stated by IRS guidelines?
The correct answer is "Modified Endowment Contract". A policy that is overfunded to where it does not meet the 7-pay test is considered a Modified Endowment Contract.
J is issued a Life Insurance policy with a death benefit of $100,000. She pays $600 per year in premium for the first 5 years. The premium then increases to $900 per year in the sixth year, and remains level thereafter. The policy's death benefit also remains at $100,000. Which type of Life Insurance policy is this?
The correct answer is "Modified Premium Life". Modified whole life policies are distinguished by premiums that are lower than typical whole life premiums during the first few years (usually five) and then higher than typical thereafter.
