Chapter 5

How long do most states allow an insurance company to delay the payment of a cash surrender under the Delayed Payment provision

6 months

The highest mortality rate belongs to which group?

Age 70 males

Which would be described as a beneficiary designation by class?

Children of the insured

Al surrenders his life insurance policy for its cash value. The total of the premiums paid into the policy minus total dividends received in cash or used to offset premiums is referred to as the

Cost basis

Which tax is normally associated with an individual's death?

Federal estate tax

When premiums are determined, one factor would be the expenses of the

Insurer

When a policy loan is requested by a policyowner and it requires the consent of the beneficiary, what kind of beneficiary designation is this?

Irrevocable beneficiary

What is considered a valid reason for an insurer's refusal to pay policy proceeds directly to a minor?

Minors are normally not capable of handling money in a reasonable manner

Life insurance premiums are computed on what three factors?

Mortality, interest, expenses

Wyatt is shopping for life insurance and is mainly concerned with the policy's death benefit. Which index should he be looking at when making comparisons?

Net payment cost index

The beneficiary of a life insurance policy is normally selected by whom?

Policyowner

What kind of arrangement gives the policyowner the right to change the beneficiary?

Revocable designation

Switching Life insurance policies without tax consequence is permitted under

Section 1035 rules

Which statement regarding a fixed period settlement option is correct?

The installment payment amount is determined by the total number of installments

Who is the beneficiary in a life insurance policy?

The stated person or entity who is designated to receive the death proceeds

A policyowner with a terminal illness who sells his life insurance policy to a third party is called a

Viator

Which of these is an accurate statement regarding the fixed period settlement option on a life insurance policy?

a portion of the payments paid to the beneficiary comes from interest calculated on the proceeds of the policy

When there is a named beneficiary on a life insurance policy, the death benefits

are paid directly to the beneficiary without interference from the insured's creditors

Kevin has an existing life insurance policy and assigns it to another insurer for a new contract. How would this transaction be treated for tax purposes?

as a Section 1035 exchange

What effect does interest income have upon insurance premiums?

decreases premium

Death benefits from a life insurance policy are normally considered to be

exempt from federal income tax

A policyowner fell behind on the premium payments of a whole life policy and is now in the grace period. How much will the beneficiary receive if the insured dies during this grace period and the policy also contains an outstanding policy loan?

face amount minus the loan balance and past-due premium

Which tax cost is normally associated with death?

federal estate tax

Which life insurance settlement option pays a stated monthly benefit until both principal and interest are exhausted?

fixed amount installment option

Which settlement option makes minimum guaranteed dollar payments over a stated number of years?

fixed-period

Death proceeds from a life insurance policy are typically included in a deceased insured's gross estate

for federal income tax reasons

Where will a life insurance policy's proceeds be directed to if all the beneficiaries die before the insured?

insured's estate

Which statement is INCORRECT about the interest-only settlement option in a life insurance policy?

interest on proceeds must be paid by the beneficiary

Which life insurance settlement option pays lifetime benefits to two or more people?

joint and survivor

A life insurance beneficiary died after receiving only six payments under the policy's life income settlement option. What happens with the remaining balance of the death proceeds?

kept by the insurance company

How much is normally paid to a policyowner in a life (viatical) settlement?

less than the death benefit

During the early years of a whole life insurance policy, the cash value will normally be

less than the total premiums paid

A life policy's spendthrift clause would have no effect if the beneficiary is paid the proceeds as a

lump-sum payment

What would be a valid reason for naming a trust as the beneficiary of a life insurance policy as opposed to naming an individual?

management of proceeds would be provided

A life insurance company just paid a $100,000 death benefit to a beneficiary. When the insured died, the cash value was $15,000 and the total premiums-paid equaled $10,000. How much of the proceeds will be added to the beneficiary's gross income for federal income tax purposes?

nothing Exempt from federal income tax

Which statement best describes a single premium whole life policy?

paid-up policy that offers lifetime protection

A life insurance policy's contingent beneficiary is the

person who receives the death benefits if the primary beneficiary dies before the insured

Which of these factors does NOT affect life insurance premium rates?

producer certification

Which of these occurrences could improve an insurer's ability to reduce premiums?

rate of earnings on investments increase

T is covered by an Accidental Death and Dismemberment (AD&D) policy that has an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?

request of the change will be refused may not be changed without the written consent of the beneficiary

Which life insurance policy provision prohibits a beneficiary from "commuting, encumbering, withdrawing, or assigning" any portion of the proceeds prior to actual receipt from the company?

spendthrift clause

Which statement regarding the joint and survivor life insurance settlement option is NOT true?

the amount of each installment is larger than the single life income option

Which of the following statements about the installments for a fixed period settlement option in life insurance policies is NOT true?

the periodic payment amount is determined by the beneficiary's age

What would be the disadvantage of naming a trust as beneficiary of a life insurance policy?

trust administration fees would reduce policy proceeds

A terminally ill policyowner decides to sell his life insurance policy at a discount to help support his family. This sale is called a(n)

viatical settlement