End of Ch. 2 quiz - Types of Life Policies

Ashley purchases a $90,000 annuity with a single premium and begins taking payments 2 months after that. What type of annuity does Ashley have? AImmediate BWhole life CDeferred DLevel

A immediate With an immediate annuity, distribution (taking payments) usually starts within 1 year of purchase. (Usually 1 month from purchase)

The three main differences between fixed and variable annuities include all of the following EXCEPT A. Underlying Investment B. License Requirements C. Mortality D. Interest Rate

C mortality Correct! The three main differences between fixed and variable annuities are the interest rate, the underlying investment, and the licensing requirements.

All of the following are true regarding the convertibility option under a term life insurance policy EXCEPT A. Upon conversion, the premium for the permanent policy will be based upon attained age. B. Upon conversion, the death benefit of the permanent policy will be reduced by 50%. C. Evidence of insurability is not required. D. Most term policies contain a convertibility option.

B. Upon, conversion, the death benefit of the permanent policy will be reduced by 50% Convertible term insurance is convertible without proof of insurability up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured's attained age.

When annuity contributions are maintained in the insurer's separate asset account and the annuitant is credited with a certain number of accumulation units to determine the annuity owner's interest in that separate account, the type of contract is AA variable annuity. BA temporary annuity. CA flexible premium deferred annuity. DA fixed annuity.

A. A variable annuity Variable annuity contributions are maintained in the insurer's separate account and credited with a certain number of accumulation units. These accumulation units are a means of determining the annuity owner's interest in the separate account. At payout, these accumulation units are converted into annuity units, which pay a variable income to the annuitant.

All of the following are true regarding a decreasing term policy EXCEPT A. The payable premium amount steadily declines throughout the duration of the contract. B. All other factors being the same, it has a lower premium outlay than level term. C. The contract pays only in the event of death during the term and there is no cash value. D. The face amount of the contract steadily declines throughout the duration of the contract.

A. The payable premium amount steadily declines throughout the duration of the contract Premiums remain level with a decreasing term policy. Only the face amount decreases. The premium does not decline

The main difference between immediate and deferred annuities is AThere is no difference. BThe amount of each payment. CWhen the income payments begin. DHow the annuity is purchased.

C. When the income payment begins Correct! The main difference between immediate and deferred annuities is when the income payments begin. Immediate annuities will begin payments within the first year, while deferred annuities will not begin payments until sometime after the first year.

Who bears all of the investment risk in a fixed annuity? AThe insurance company BThe owner CThe beneficiary DThe annuitant

A. The insurance company Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.

J purchased a $100,000 Joint Life policy that covered his life and the life of his wife. Eight years later, he died in an automobile accident. How much will the wife receive from the policy? A . $100,000 B. $200,000 C. Nothing D. $50,000

A. $100,000 In joint life policies, the death benefit is paid upon the first death only.

An insurance policy that only requires a payment of premium at its inception and no further premiums contributions, and in addition to providing insurance protection for the life of the insured, endows at the insured's age 100, is called A.Single premium whole life B.Minimum deposit whole life C.Enhanced whole life D.Graded premium whole life

A. Single premium whole life Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception.

Which of the following is an example of a limited-pay life policy? AEndowment Maturing at Age 65 BStraight Life CLife Paid-Up at Age 65 DRenewable Term to Age 70

C. Life paid up at age 65 Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.

An individual has just borrowed $10,000 from his bank on a 5-year note. What type of life insurance policy would be best suited to this situation? A. Variable life B. Universal life C. Whole life D. Decreasing term

D. Decreasing term A decreasing term policy's face amount decreases as the amount of debt is reduced.

An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin 2 years after the annuity was purchased. What type of annuity is it? A. Fixed B. Flexible premium C. Immediate D. Deferred

D. Deferred Deferred annuities may be purchased with either a single lump sum or periodic payments, but they DO NOT begin the income payments until sometime AFTER 1 year from the date of purchase.

Why is an equity indexed annuity considered to be a fixed annuity? A. It is not tied to an index like the S&P 500. B. It has a guaranteed minimum interest rate. C. It has modest investment potential. D. It has a fixed rate of return.

B. It has a guaranteed minimum interest rate While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

A Straight Life policy charges AAn increasing annual premium for the life of the insured. BA decreasing annual premium for the life of the insured. CA variable annual premium for the life of the insured. DA level annual premium for the life of the insured.

D. Correct! Straight Life (also referred to as Continuous Premium Whole Life) charges a level annual premium for the lifetime of the insured and provides a level, guaranteed death benefit.

Priscilla won the state lottery. The state will send Priscilla a check each month for the next 25 years. What type of investment are they likely to use to provide these benefits? APure endowment policy BFlexible payment annuity CDeferred interest annuity DImmediate annuity

D. Immediate annuity The investment is likely an annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution.

At the time of annuitization of a variable annuity, which of the following CANNOT fluctuate? A. The performance of the investment B. The monthly benefit C. Both the performance of the investment and the monthly benefit D. The number of annuity units

D. The number of annuity units At the time of annuitization, the number of annuity units becomes fixed; however, the performance of the investment and the amount of the monthly benefit MAY fluctuate.

Unlike the traditional whole life policy, a variable whole life policy does NOT guarantee the A. Endowment date. B. Fixed premium. C. Minimum death benefit. D. Cash value.

D. Cash value Correct! In a variable whole life policy, the cash value is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. This fluctuating cash value provides funds to pay for the varying amounts of death protection. The death benefit generally cannot decrease below the initial face amount of the policy, so variable life insurance still guarantees a minimum death benefit.