Chapter 4a Exam: Life Insurance - Types of Policies

In a modified endowment contract, the penalty tax imposed on premature withdrawals is a. 10% b. 20% c. 30% d. 40%

a. 10% The penalty tax imposed on amount received from a modified endowment contract is 10%

Tom is shopping for a policy that covers two people and would pay he face amount ONLY when the first person dies. The type of life policy he is looking for is called a a. joint life policy b. family income policy c. survivorship life policy d. Modified endowment contract

a. joint life policy a joint life policy covers two or more people and pays the face amount at the first insured's death.

A life insurance policy that pays the face amount if the insured survives to a specific period of time is called a. Universal life b. endowment insurance c. modified life d. whole life

b. endowment insurance an endowment policy pays the face amount if the insured survives to a specific period of time.

Scott has just purchased a new house. He is now shopping for a life insurance policy that provides a death benefit that matches the projected outstanding debt of his mortgage. Which life policy would best suit his needs? a. Variable b. Universal c. Adjustable d. Mortgage redemption

d. Mortgage redemption Mortgage redemption insurance is a decreasing term life policy taken by a debtor to repay the balance on a mortgage loan if he or she dies before repayment.

Which of the following is NOT true regarding a family policy that covers children? a. Additional children can be added at no cost b. Adopted children can be covered c. conversion of child's coverage to permanent insurance requires evidence of insurability d. Term insurance is used for the children's rider

c. conversion of child's coverage to permanent insurance requires evidence of insurability conversion of child's coverage to permanent insurance does NOT require evidence of insurability

An insurance policy written after 1988 that fails to pass the seven-pay test is known as a. An endowment policy b. A modified life policy c. A single premium contract d. a modified endowment contract

d. a modified endowment contract An insurance policy written after 1988 that fails to pass the seven-pay test is known as a modified endowment contract.

Which of the following is a life insurance policy that does NOT require a physical exam? a. Non-medical b. Graded c. Substandard d. Noncancelable

a. Non-medical Non-medical life insurance policies are written without a physical exam.

In a renewable term life insurance policy, the contract will usually a. require a higher premium payable at each renewal b. require a lower premium payable at each renewal c. keep the same premium level at each renewal d. Stipulate a higher cash value at each renewal

a. require a higher premium payable at each renewal If a term life insurance policy is renewable, the renewal period usually states that a higher premium is payable at each renewal.

Mark, age 45, has a Modified Endowment Contract (MEC). What is the tax penalty for taking a loan against this policy prior to age 59 1/2? a. 5% b. 10% c. 15% d. 25%

b. 10% Penalty taxes (10%) on premature distributions prior to age 59 1/2 from a modified endowment contract (MEC) normally apply to policy loans.

What is the proper order of initial life insurance premiums, from lowest to highest? a. Ordinary life, single premium, modified premium b. Modified premium, ordinary life, single premium c. Single premium, modified premium, ordinary life d. Ordinary life, modified premium, single life

b. Modified premium, ordinary life, single premium The order of initial premiums for life insurance policies, from lowest to highest, is the following: modified premium, ordinary life, single premium.

A life insurance policy's limit of liability would be a. determined by the Department of Insurance b. the policy's face amount c. the total premium paid d. determined by insurance company's reinsurer

b. the policy's face amount The face amount of the policy is the limit of liability in a life insurance policy.

Which of the following is NOT a true description of non-medical life insurance? a. quicker processing of life insurance application b. Less cost involved with underwriting the application c. Applicants are not required to answer medical questions on the application d. Demand on the medical profession reduced.

c. Applicants are not required to answer medical questions on the application Medical questions can still be asked on an application of non-medical life insurance.

Lynn owns a life policy that guarantees the right to renew the policy each year, regardless of health, but at an increased premium. What kind of policy is this? a. Universal life b. Renewable whole c. Renewable term d. Endowment

c. Renewable term A renewable term life insurance policy guarantees a policyowner the right to renew the policy, without evidence of insurability, but at an increased premium.

John and Mary have a handicapped child that is financially dependent upon them. The death of one of the parents would not be financially disastrous, however the death of both likely would be. Which policy would be best suited for them? a. payor protection policy b. family income policy c. Second-to-die policy d. first-to-die policy

c. Second-to-die policy A second-to-die policy covers two lives, but the benefit is paid upon the death of the last surviving insured.

Which of the following types of life insurance combines a saving element along with a flexible premium option? a. joint life b. whole life c. Universal life d. endowment

c. Universal life Universal life combines a saving element along with a flexible premium option.

Which of the following statement do NOT apply to child coverage in a family policy? a. child coverage is convertible to permanent insurance b. child coverage comes in the form of term insurance c. children are covered up to an age stated in the policy d. Only children born prior to policy's issue date may be included

d. Only children born prior to policy's issue date may be included children born AFTER the policy's issue date may be covered in a family policy.

Reggie purchased a life insurance policy with a face amount of $500,000. After 15 years, the cash value has accumulated to $100,000 and the policy's face amount has become $600,000. Which type of life insurance policy is this? a. adjustable life b. credit life c. Modified life d. Universal life

d. Universal life A universal life policy pays a death claim in the amount of the death benefit plus the savings element.

How are survivorship life insurance policies helpful in estate planning? a. Provide funds to help fund retirement b. Provide funds to help pay taxes c. Provide funds for funeral expenses d. Provide tax deductions for premium payments

b. Provide funds to help pay taxes The correct answer is "Provide funds to help pay taxes." Survivorship life insurance policies are useful in estate planning because they can provide money to pay taxes on assets.

A life insurance policy where the insured can choose where the cash value can be invested is called a. Whole life b. variable life c. modified life d. universal life

b. variable life Variable life allows the insured to choose where the assets backing the cash value are invested.

Which of the following types of life insurance is normally associated with a mortgage loan? a. Adjustable term b. Level term c. Increasing term d. Decreasing term

d. Decreasing term Decreasing term insurance is commonly used to protect an insured's mortgage.