CHAPTER 3 CHECK QUESTIONS

Which of the following term life insurance policies would have the highest 1st-year annual premium, all other factors being equal? A 15-year B 5-year C 1-year D 10-year

A The 15-year term life insurance policy would have the highest first-year premium of the choices provided. In essence, there is a slight overcharge in the early years, to be able to level out the premium for the balance of the years.

Which of the following products requires a producer to obtain a securities registration in addition to an insurance license to solicit? A Variable Universal B Universal Life C Current Assumption Whole Life D Indexed Life

A All variable products are subject to SEC regulation and can only be sold by individuals with a life insurance license and a FINRA (securities) registration.

How would a term policy normally be used to pay off a mortgage upon death? A Using the death proceeds after the insured has died B By using the policy's cash values C By using the policy as collateral for a policy loan D Through a viatical or life settlement

A Term can be used as mortgage insurance which typically provides a decreasing term benefit.

The face amount of insurance is also referred to as the: A The cash value B The limit of liability C The cash surrender value D The maximum loan value

B The face amount of insurance is the stated death benefit, and is referred to as the insurer's limit of liability—the most the policy will pay in the event of the insured's death.

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? A Increasing Term Rider B Decreasing Term Rider C Level Term Rider D Family Rider

B Decreasing Term Riders are ideally suited to cover the balance of an outstanding mortgage.

What is required to add a nonfamily member to a life insurance policy under a term rider? A Permission of the producer B Insurable interest C The nonfamily members commitment to pay the premium for the rider D The insured must be under the age of 40

B Nonfamily riders can cover insured who are not family members such as business partners.

A client wants coverage for himself as well as coverage for his wife and children all under one policy at an affordable price. Which of the following would best meet the need? A Multiple Protection Rider B Family Income Rider C Family Rider D Family Maintenance Rider

C The Family Rider covers all members of the family with Whole Life Coverage on the head (wage earner) of the family and Level Term Coverage in the form of a rider on the spouse and children.

Which of the following term policies costs the most, all other factors being equal? A Nonrenewable and convertible B Renewable and non-convertible C Renewable and convertible D Nonrenewable and non-convertible

C The more features a policy has, the more it will cost the consumer.

Increases in insurance protection to keep a Current Assumption policy from endowing is provided: A With limited underwriting B With simply part 1 of the application completed C With full underwriting D Without evidence of insurability

D It is possible that the cash value will increase too quickly and could cause the policy to mature prior to age 100. To prevent this from happening, the insurer will add a corridor of insurance protection without requiring evidence of insurability to keep the policy from endowing.

Which of the following is a type of life insurance that provides an amount of coverage that diminishes while the policy is in effect and is most often used to pay an outstanding loan or mortgage balance upon the death of the insured? A Ordinary Term B Decreasing Term C Split Level Term D Renewable Term

B Decreasing Term reduces in death benefit while the policy is in effect. It is most often used to cover the balance of an outstanding loan, for example, a mortgage.

A viatical settlement is an agreement between a third party and a(n) ___________. A Terminally ill insured's spouse and children who don't want to wait until the insured dies to collect the death benefit B Insurance agent representing the family of the terminally ill insured C Policyowner insuring the life of a terminally ill insured with 2 years or less life expectancy D Lender who owns the mortgage on a terminally ill insured's home or business property

C A viatical settlement is an agreement between a third party and a life insurance policyowner insuring the life of an individual with a life-threatening or terminal illness, normally with a life expectancy of 2 years or less.

All of the following riders will waive the premiums in the event of a disability, except: A Waiver of Premium B Waiver of Monthly Deduction C Guaranteed Insurability D Payor Benefit

C Guaranteed insurability provides the insured with the right to buy coverage at specified times in the future.

With a Variable Life Policy, which of the following is guaranteed? A Investment returns B Cash value C Death benefit D Dividends

C In a VL policy a death benefit is guaranteed as long as all premiums are paid on time. There is both a guaranteed minimum death benefit and a higher stated face amount. The face amount and cash value are not guaranteed and could be higher or lower than expected.

A producer is explaining the concept of limited-pay life insurance to a 40-year-old client. When comparing a straight life policy with a 10-pay life policy, which of the following statements is correct? A A straight life policy has immediate cash value B A policy fully paid up in 10 years will endow at the client's age of 50 C A 10-pay life policy will have a lower annual premium than a straight life D The cash value in a straight life policy will accumulate at a slower rate than the cash value in a 10-pay life

D The actual amount of premium per year in a 10-pay life policy will be higher than straight life since the number of payments is reduced. Because of this, the cash value will accumulate faster in a 10-pay life and slower in a straight life policy. Both policies will endow at age 100. Neither a straight life or 10-pay life policy has immediate cash value.

If the cash value of a permanent life policy equals the face amount, what is that referred to? A The policy's expiration date B The premium refund provision C The cash payout feature D The policy's endowment

D When the cash values equal the face amount, the policy endows.

A Second to Die policy would be the most appropriate recommendation for which of the following? A A husband and wife concerned about paying estate taxes after they have died B Two business partners who are concerned about the future success of the business and want to provide funds to purchase the business from the decedent's family C A business owner who wants to make sure his wife has enough money to buy the business from his partner if he should die before his partner does D A corporation concerned that its CEO might die before the end of his employment contract

A Married couples worried about estate taxes would be best served in most cases by a Second to Die, or Joint Survivorship, Life policy.

Which rider waives the cost of insurance and expenses if an insured becomes disabled? A Waiver of Monthly Deduction B Accelerated Death Benefit C Return of Premium D Payor Benefit

A The Waiver of Monthly Deduction will waive the cost of insurance and expenses if the insured becomes disabled. The payor benefit rider will waive premiums if the owner of a policy (not the insured) becomes disabled; a return of premium rider will pay a refund of premiums if the insured is still living when the policy expires; and the accelerated death benefit rider will provide benefits if the insured is terminally ill.

A "level term" policy means that the _________ remains the same throughout the entire policy period. A Face amount B Beneficiary C Cash value D Loan value

A The death benefit or face amount of insurance remains level throughout the term of the policy. Term policies do not have cash value or loan value.

Level, decreasing and increasing term refer to which policy feature? A Death benefit B Premium C Cash value D Renewable and Convertible

A The words level, decreasing and increasing as they apply to term insurance describe the death benefit, rather than the premium. Term life insurance has no cash value. Term life premiums can be level or increase, then never decrease.

All of the following regarding convertible term life insurance is true, except: A The new premium will be higher on the conversion policy compared to the original policy B The conversion can take place at any time C Conversion can be based on either the attained or original issue age of the insured D Conversion is without evidence of insurability

B The right to convert the existing term policy to a permanent policy without evidence of insurability is only available during the conversion period specified in the contract.

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? A $100,000 B $10,000 C The sum of the premiums paid up to that point in time D $90,000

B When using a whole life policy for collateral for a loan from the insurer, the maximum amount of that loan is the amount of cash value in the policy.

A long-term care rider: A Provides an amount equal to the death benefit plus any cash value to a terminally ill insured expected to die in the next 6 months B Pays 25% of the death benefit as monthly income for an insured who cannot perform all of the six activities of daily living C Provides up to 100% of the policy benefits if the insured qualifies for benefits as specified in the rider but will reduce the amount of death benefit protection based on the amount paid under the rider D Establishes a trust fund for the insured's family so that nursing home care can be paid for with insurance premiums instead of paying premiums directly to the life insurance company

C A long-term care rider provides up to 100% of the policy benefits if the insured qualifies for long-term care benefits as defined in the rider, such as the inability to perform 2 out of 6 activities of daily living. Any payout is an acceleration of the life insurance death benefit, meaning it will reduce the ultimate death benefit payable to the beneficiary.

A _______________ policy has a death benefit that will increase or decrease over time based on the performance of the separate account, provides a guaranteed minimum death benefit, offers a choice of subaccounts in which cash value may be allocated, and a has fixed premium. A Variable Universal Life B Indexed Life C Variable Life D Universal Life

C Only Variable Life has all of these characteristics. Variable Universal Life does not have a guaranteed minimum death benefit. Neither Indexed Life nor Universal life permits allocation of cash value in a separate account.

If the insured of a Whole Life policy is on claim with a Waiver of Premium rider, what happens to the cash values? A They are reduced by the total cost of the policy B The cash value is frozen until regular premium payments resume C Cash value and dividends are not affected D They are reduced by the cost of the rider

C Under a Waiver of Premium rider, cash value and dividends continue as if normal premium payments have been made.

Which of the following is not a feature of term life insurance? A Limited duration B Lower initial cost C Pure protection D Cash value

D Term life insurance has no cash value and is often referred to as providing pure protection. Compared to the same face amount of whole life insurance, term will cost less.

Which of the following are characteristics of universal life insurance policies? A Fixed death benefit for life with premiums that may be increased or decreased B Adjustable death benefit with premiums that are fixed for life C Two death benefit options with premiums fixed for life D Two death benefit options, an adjustable death benefit and flexible premiums

D Two death benefits options are a key characteristic of all forms of universal life insurance. All UL policies permit the policyowner to make changes in both the amount and timing of premium payments, including making no payments at all providing flexible premiums, and the death benefit may be increased or decreased in accordance with the terms and provisions of the policy.

Match the following riders with the correct description Riders Waiver of Premium Payor Benefit Waiver of Monthly Deduction Accidental Death Benefit Description In the event of a claim, the policy normally pays double or triple the face amount only if the insured's death was a result of an accident. If the payor (policyowner) dies or becomes disabled and is unable to make the premium payments, the insurer will waive the premiums payments for a specified period of time Waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled,usually after 6 months of continuous disability. If the insured becomes totally disabled, the insurer will waive premiums for the duration of the disability or the end of the policy, whichever occurs first

Description Accidental Death Benefit In the event of a claim, the policy normally pays double or triple the face amount only if the insured's death was a result of an accident. Payor Benefit If the payor (policyowner) dies or becomes disabled and is unable to make the premium payments, the insurer will waive the premiums payments for a specified period of time Waiver of Monthly Deduction Waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled,usually after 6 months of continuous disability. Waiver of Premium If the insured becomes totally disabled, the insurer will waive premiums for the duration of the disability or the end of the policy, whichever occurs first

Match the following riders with the correct description Riders Return of Premium Guaranteed Insurability Long-Term Care Accidental Death and Dismemberment Description An increasing term insurance rider that provides additional coverage equal to the amount of premiums paid. Pays the principal sum of the rider (100% of the face amount) upon accidental death or double dismemberment and the capital sum (50% of the face amount) for accidental single dismemberment Provides up to 100% of the policy benefits if the insured qualifies for benefits as defined in the rider, such as the inability to perform 2 out of 6 activities of daily living. Allows the insured to purchase stated amounts of additional insurance every 3 years based on certain ages, events, or specified dates without evidence of insurability up to a maximum age.

Description Return of Premium An increasing term insurance rider that provides additional coverage equal to the amount of premiums paid. Accidental Death and Dismemberment Pays the principal sum of the rider (100% of the face amount) upon accidental death or double dismemberment and the capital sum (50% of the face amount) for accidental single dismemberment Long-Term Care Provides up to 100% of the policy benefits if the insured qualifies for benefits as defined in the rider, such as the inability to perform 2 out of 6 activities of daily living. Guaranteed Insurability Allows the insured to purchase stated amounts of additional insurance every 3 years based on certain ages, events, or specified dates without evidence of insurability up to a maximum age.

Classify the following characteristics as either Term Insurance or Permanent Insurance. Characteristics Policy matures or endows when cash value equals the face amount Premium builds a reserve known as cash value Pure insurance Policy loans available Temporary protection Designed to provide coverage for a lifetime Premiums may be payable for life, a limited period, or as a lump sum Written for a specified time period or to a specified age Death benefits may be level, decreasing, or increasing Coverage may be convertible Coverage may be renewable Issued with a level face amount

Term Insurance Coverage may be renewable Coverage may be convertible Death benefits may be level, decreasing, or increasing Written for a specified time period or to a specified age Temporary protection Pure insurance Permanent Insurance Issued with a level face amount Premiums may be payable for life, a limited period, or as a lump sum Policy loans available Premium builds a reserve known as cash value Policy matures or endows when cash value equals the face amount Designed to provide coverage for a lifetime

Classify the following characteristics as either Universal Life or Variable Life. characteristics Fixed premium Partial withdrawal or surrender available Adjustable face amount No guaranteed minimum return on cash value Death benefit varies along with performance in separate account Guaranteed minimum rate of return on cash value Flexible premium 2 death benefit options to choose from Sold by individuals with a life license and securities (FINRA) registration Mortality charge for cost of pure insurance is deducted monthly Policyowner bears all investment risk Cash value in separate account fluctuates based on market conditions

Universal Life Partial withdrawal or surrender available Adjustable face amount Guaranteed minimum rate of return on cash value Flexible premium 2 death benefit options to choose from Mortality charge for cost of pure insurance is deducted monthly Variable Life Fixed premium No guaranteed minimum return on cash value Death benefit varies along with performance in separate account Sold by individuals with a life license and securities (FINRA) registration Policyowner bears all investment risk Cash value in separate account fluctuates based on market conditions