Chapter Exam 1 - Life Policies
A nonparticipating whole life insurance policy was surrendered for its $20,000 cash value. The total premiums paid had totaled $16,000. What were the federal income tax consequences to the policyowner on receipt of the cash value?
$16,000 was received tax-free and $4,000 as ordinary income.
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was worth $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?
100%
Which of these is NOT an advantage of term life insurance?
a cash benefit will be provided if the insured is alive at the end of the policy period
Which of the following combinations best describe a universal life insurance policy?
a flexible premium deposit fund and a monthly renewable term insurance policy
Which of these must be disclosed in a universal life policy?
a policy's surrender charges
An advantage of owning a flexible premium life insurance policy would be
a policyowner can make policy changes without difficulty
Which statement regarding a single premium life insurance policy is NOT correct?
additional premiums may be required under certain conditions
Who normally pays the premiums for group credit life insurance?
borrower
What kind of life policy typically offers mortgage protection?
decreasing term
Group credit life insurance is typically a form of
decreasing term insurance
Which of these life insurance policies does NOT contain a cash value provision?
decreasing term life
A policyowner has just borrowed from a life insurance policy's cash value. Which of these statements is true?
in the event of death, the loan amount is deducted from the policy proceeds.
All of these are considered features of whole life insurance EXCEPT
initial premium is lower than for an equivalent amount of term insurance
Which statement regarding whole life insurance is accurate?
insurance coverage can continue for life
The insurance coverage in a variable life insurance policy may vary based on the value of
its underlying investments
What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?
joint life
These are all accurate statements regarding universal life insurance EXCEPT
policy loans are not permitted
Straight whole life insurance can be accurately described in all of these statements EXCEPT
policy protection normally expires at age 65
Assets that back the non-guaranteed values of variable life insurance products are held in which account?
separate account set up by the insurer
How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies?
survivorship life policy is lower
When can a life insurance policy be issued WITHOUT the insured's consent?
when a parent purchases a policy on the life of a minor child
When would evidence of insurability be required for a person already covered with a variable universal life policy?
when the death benefit is increased
