Life & Health Chapter 3 Exam

Which of the following is a type of life insurance that provides an amount of coverage that diminishes while the policy is in effect? a. Split Level Term b. Ordinary Term c. Renewable Term d. Decreasing Term

d. Decreasing Term Decreasing Term reduces in death benefit while the policy is in effect.

If Alvin purchases a Variable Life Policy with a face amount of $250,000, upon his death the amount of benefit payable to the beneficiary must be at least: a. $250,000, minus any loans and loan interest. b. There is no guaranteed death benefit. c. Equal to or less than $250,000. d. Exceed $250,000.

a. $250,000, minus any loans and loan interest. The original face amount (death benefit) is guaranteed under a Variable Life Policy. The amount payable to the beneficiary upon Alvin's death must at least equal $250,000, less any loans and loan interest.

Compare 3 contracts, all with the face value of $100,000; put them in order from most expensive to least expensive. a. 10-Pay Life, Life Paid-Up in 20 years, Straight Life b. Endowment at age 75, Endowment at age 65, 10-Pay Life c. Straight Life, Endowment, Limited-Pay Life d. Term, Whole Life, Endowment

a. 10-Pay Life, Life Paid-Up in 20 years, Straight Life The proper order from most expensive to least expensive would be 10 Pay Life (all premiums paid up in 10 years; matures age 100); Life Paid-Up in 20 years (all premiums paid up in 20 years; matures age 100); and Straight Life (premiums paid to age 100; matures age 100). The earlier one pays up the premium on a policy, the greater the cost.

The Double Indemnity Rider expires within ____ days of the accident. a. 90 b. 120 c. 365 d. 180

a. 90 Death must occur within 90 days of the accident for the Accidental Death (Double Indemnity) Rider benefit to be paid.

If a father were to add a Child Rider to a policy to cover his children, how old must a newborn be before coverage is in force? a. At 14 or 15 days of age b. At birth c. At 14 or 15 weeks of age d. At one year of age

a. At 14 or 15 days of age Children born after the rider is issued are covered automatically after 14 or 15 days, depending on the insurer, at no additional premium.

If one purchases a 20-Pay Life Policy, with a face amount of $25,000 and dies 15 years later, what amount will the beneficiary receive? a. $18,750 b. $25,000 c. Total premiums paid plus interest d. $15,000

b. $25,000 All premiums will be paid in 20 years, but the cash value will not be equal to the face amount until age 100. If death occurs at any point prior to age 100, the beneficiary receives the death benefit of $25,000.

Which characteristic is unique to a Graded Premium Whole Life Policy? a. Premiums are flexible throughout the life of the contract. b. In the later years, premiums are the same as a typical Whole Life Policy. c. Premiums increase each of the early years and remain level thereafter. d. Premiums are higher than a typical Whole Life Policy in the early years.

c. Premiums increase each of the early years and remain level thereafter. A Graded Premium Whole Policy increases in premium each year for a specified period, such as five years, with the premiums becoming level thereafter. This feature makes Permanent Insurance affordable when the cost of traditional Whole Life products might be prohibitive.

With joint Life Insurance policies, the age is based on: a. Average age of both insureds. b. The age of the premium payor. c. Age of the oldest insured. d. Age of the youngest insured.

a. Average age of both insured. The premium on a joint Life Policy is calculated on the average age of both insureds.

If an insured has a Life Paid-Up at 75 Policy (a limited-pay life paid-up at age 75), what would the beneficiary receive if the insured died at age 68? a. Face amount b. There would be no death benefit payable for seven additional years c. Cash value d. Face amount minus the cash value

a. Face amount The full-face amount (death benefit) is payable to the beneficiary anytime death occurs while the policy is in force.

All of the following are characteristics of a Family Income Policy, except: a. Family Income is more expensive than Family Maintenance. b. Provides a specified monthly income from the date of the insured's death until a specified future date. c. It is a combination a Whole Life and Decreasing Term insurance. d. At the end of the income period, the Whole Life face amount is payable.

a. Family Income is more expensive than Family Maintenance. Family Income would be less expensive than Family Maintenance for a like amount of insurance because it uses Decreasing Term as opposed to Level Term to accomplish its objective. In addition, the term is payable only until a specified future date as opposed to a selected period of years beginning with the insured's death.

All of the following are characteristics of Ordinary Whole Life Insurance, except: a. If insured lives to age 100 the lifetime total of all premiums are returned. b. Premiums remain uniform. c. Premiums are designed to be paid throughout the life of the insured. d. The policy pays the face value if insured dies before age 100.

a. If insured lives to age 100 the lifetime total of all premiums are returned. If the insured lives to age 100, the face amount of the policy is paid to the owner of the policy. At age 100 the cash value equals the face value.

What type of policy is a single policy covering two or more lives, resulting in premium savings, that pays benefits upon the death of the first insured? a. Joint Life b. Modified Whole Life c. Joint Survivorship Life d. First Death Policy

a. Joint Life A Joint Life Policy covers two or more lives under a single policy, resulting in a reduction in premium, with the death benefit payable upon the death of the first to die.

Mary decides to convert her Term Policy to permanent protection. Which of the following statements is true regarding the conversion? a. She may convert without evidence of insurability. b. She may convert after proof of insurability. c. She may convert if her health has not deteriorated. d. Premiums and the amount of coverage remain the same.

a. She may convert without evidence of insurability. The Conversion Option of a Term Policy allows conversion to a Permanent Policy without evidence of insurability.

Which of the following is not a characteristic of a Universal Life policy? a. The owner receives a biannual statement detailing expenses, mortality, and earnings. b. The policyowner may determine the amount and mode of premium payments and adjust the face amount to reflect needs as they change. c. Each month a mortality charge is deducted from the policy's cash value for the cost of the insurance protection and expenses. d. It is a combination of life insurance and a current interest savings plan.

a. The owner receives a biannual statement detailing expenses, mortality, and earnings. The owner of the policy receives an annual statement detailing, expenses, mortality, and interest earnings.

A life insurance premium is paid each month; the insurer subtracts a mortality charge and expenses from the policy's cash value. This describes a: a. Universal Life b. Variable Life c. Adjustable Whole Life d. Whole Life

a. Universal Life All premiums paid to a Universal Life Policy are placed in the policy's cash value account. The mortality charge (cost of protection) and expenses are then deducted from the cash value account.

What is the time limit on life expectancy for a Viatical Trust candidate? a. 3 years b. 2 years c. 5 years d. 4 years

b. 2 years The time limit of life expectancy for a Viatical Trust candidate is normally a life expectancy of two years or less.

Which statement is false? a. When separate account(s) are used in a Life Insurane Policy, a securities license is required in addition to a life license. b. A Joint Survivorship Life Policy pays the death benefit upon the first insured's death. c. Under Variable Life policies, the policyowner assumes the investment risk. d. Juvenile Insurance is any policy written on the life of a minor.

b. A Joint Survivorship Life Policy pays the death benefit upon the first insured's death. A Joint Survivorship Life Policy pays the death benefit upon the death of the last insured to die.

Albert purchased an Adjustable Life Policy that has all of the following characteristics, except: a. Changes and adjustments may be made without adding or converting the existing policy. b. An increase in death benefit does not require evidence of insurability. c. Cash value develops when the premiums paid exceed the cost of the policy. d. Increased premiums may lengthen the protection period if the policy is in term range.

b. An increase in death benefit does not require evidence of insurability. An increase in death benefit usually requires evidence of insurability.

The premium charged for exercising the Guaranteed Insurability Rider is based upon: a. Issue age b. Attained age c. Original age d. Assumed age

b. Attained age Anytime the Guaranteed Insurability Rider is exercised, the premium charged for the additional amount of insurance is based on the attained age of the insured.

All members of a family are covered by this contract with Whole Life Coverage on the wage earner and Level Term Coverage on the spouse and children. Which policy has these characteristics? a. Family Income Rider b. Family Policy c. Multiple Protection Plan d. Family Maintenance

b. Family Policy The Family Policy (Family Protection Plan) 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.

Ed purchased policies on behalf of his grandchildren. He wanted to be certain they could purchase additional policies at specified ages. He was able to do this by adding which rider? a. Waiver of Premium Rider b. Guaranteed Insurability Rider c. Cost of Living Rider d. Children's Rider

b. Guaranteed Insurability Rider The Guaranteed Insurability Rider would allow his grandchildren at future specified dates, ages, or events to purchase additional amounts of insurance without evidence of insurability.

Ned insures his grandchild with a Variable Life Policy that will increase in value as the child gets older. This policy has all of the following traits, except: a. It is designed to provide a hedge against inflation. b. Policy has a guaranteed minimum cash value. c. Premiums are paid into separate investment accounts. d. Policy has a guaranteed minimum face amount.

b. Policy has a guaranteed minimum cash value. Under a Variable Life Policy, the policyowner has no control over the investment fluctuations, but asumes the investment risk.

Bess received information in regard to her individual Term Insurance explaining that she could convert the policy by agreeing to which of the following conditions? a. Prove insurability and pay the same level premium. b. Sign the conversion application agreeing to pay premiums computed at her attained age. c. Prove insurability and pay premiums based on her current health status. d. Proof of insurability is not required and pay premiums computed at a higher rate class.

b. Sign the conversion application agreeing to pay premiums computed at her attained age. Bess does not have to prove insurability to convert her individual Term Policy, but she will pay a higher premium with the conversion application because she is older than when she purchased the Term Policy, and is converting to a Permanent Policy.

Which statement is correct? a. Term Insurance is permanent protection. b. Term rates are based on the insured's age. c. Term insurance must be used to protect a home mortgage. d. Term Insurance is always used with another type of coverage.

b. Term rates are based on the insured's age. Term Insurance provides temporary, not permanent, protection. Term insurance may (not must) be used to protect a home mortgage. Term Insurance can be written stand-alone as well as with another type of coverage.

All of the following statements regarding the Living Need Rider are true, except: a. At death, the early payment is deducted from the beneficiary's benefit. b. The annual report must include the amount of benefit remaining. c. It could also include nursing home benefits and dreaded disease benefits. d. Allows a partial payment of the face amount before death if the insured becomes terminally ill.

b. The annual report must include the amount of benefit remaining. A monthly report details the benefit amount remaining, not an annual report.

What is the main difference between a Whole Life Policy and a Universal Life Policy? a. Whole Life is rated by age and gender and Universal Life is not rated by gender. b. Universal Life premium is flexible and a Whole Life premium is fixed. c. There is not any difference. d. Whole Life is purchased by units and a Universal Life policy is purchased by multiple units.

b. Universal Life premium is flexible and a Whole Life premium is fixed. Universal Life offers a flexible premium feature, whereas with Whole Life the premium is level and fixed.

Which of the following are types of Whole Life policies? a. Level, Straight, Limited pay b. Level, Adjustable, Flexible c. Continuous, Limited pay, Single premium d. Straight, Limited Pay, Universal

c. Continuous, Limited pay, Single premium Since all Whole Life policies mature at age 100, Continuous, Limited Pay, and Single Premium simply describe how long premiums will be paid.

Frieda wants coverage until she has paid back her business loan in ten years. The ideal contract with the least expense would be: a. 10-pay Life b. 10-year Endowment c. Decreasing Term d. Graded Premium

c. Decreasing Term Decreasing Term reduces in death benefit as the loan obligation reduces in balance. It is the least expensive form of term insurance as the insurer's obligation, in the way of death benefit, reduces over the period of the note or loan.

Which of the following are types of Term Policies? a. Single Premium, Level Premium, Decreasing Premium b. Straight, Level, Increasing, Decreasing c. Increasing, Decreasing, Re-entry, Level and Life-Expectancy d. Renewable, Convertible

c. Increasing, Decreasing, Re-entry, Level and Life-Expectancy The question asks about types of Term Policies, not options available to Term Policies. Straight is a type of permanent insurance, not term insurance.

Which policy could be used when a married couple wants to defer the estate taxes until both are deceased? a. Modified Whole Life b. Family Maintenance Policy c. Joint Survivorship Life d. Medicare Supplement

c. Joint Survivorship Life Joint Survivorship Life pays upon the death of the last to die, and for this reason is a popular policy with couples who want to defer estate taxes until both are deceased.

Which of the following is not a trait of an Endowment Policy? a. The shorter the premium-paying period, the higher the premium. b. Normally, premiums are higher than the premium for other types of life insurance. c. Places more emphasis on death benefit than the savings element. d. Policy builds cash, loan, and nonforfeiture values prior to age 100.

c. Places more emphasis on death benefit than the savings element. Endowment policies place greater emphasis on savings than on the death benefit.

This policy's premium and death benefits are flexible, the excess cash is placed in a separate account(s), and the insurer allows the policyowner to switch from one account to another during the life of the policy. This describes a/an: a. Adjustable Life b. Universal Life c. Variable Universal Life d. Modified Variable Universal Life

c. Variable Universal Life The characteristics as stated in the question are descriptive of Variable Universal Life, offering the ultimate in flexibility of the flexible design policies.

Which best describes a Renewable Term Policy? a. A policy with an increased face value at each renewal. b. A policy with increasing cash value at each renewal. c. A policy with decreasing premium at each renewal. d. A policy with increased premium at each renewal.

d. A policy with increased premium at each renewal. Whether the policy period is one year, five years, ten years, etc., the premium will increase at each renewal to sustain the same specified death benefit that was purchased when the policy was written. The Renewability Option is based upon attained age.

An insured dies within the time limit of an Increasing Term Rider and the beneficiary receives the face amount plus the value of all paid premiums. Which rider is attached to the policy? a. Waiver of Premium b. Not allowed, insurers do not return premiums in this manner. c. Return of Cash Value d. Return of Premium

d. Return of Premium With a Return of Premium Rider, if the insured dies within the period of the term, the beneficiary receives the death of the Whole Life Policy and, through an increasing term rider, the equivalent of the premiums paid on the Whole Life Policy.

Individual Term policies are generally stand-alone policies, but may be written with other types of policies as a/an: a. Endorsement b. Group Contract c. Accidental Death Benefit d. Rider

d. Rider Through a rider, term coverage may be added to a Permanent Policy. A Term Rider cannot be added to a Term Policy.

What is a characteristics of both Whole Life and Endowment policies? a. They are straight continuous coverage. b. Both mature at age 100. c. Both place more emphasis on savings rather than benefits. d. The shorter the payment period is, the higher the premium is.

d. The shorter the payment period is, the higher the premium is. Endowments and Whole Life policies have the common characteristics that the shorter the premium-paying period is, the higher the premium is.

Your client wants a policy that provides good coverage, but lets her choose where she might invest her excess premiums. Which of the following policies is best for her situation? a. Family Income Policy b. Reentry Term Plan c. Level Term d. Variable Universal Life

d. Variable Universal Life The concern is for the owner to be in control of where she might invest the excess premiums. Of the choices given, the only one that allows this flexibility is Variable Universal Life through the separate account(s).

Under which rider are the insured and owner two different individuals? a. Waiver of Premium b. Accelerated Death Benefit c. Waiver of Premium/Disability Income d. Waiver of Payors Premium

d. Waiver of Payors Premium Under the Waiver of Payors Premium Rider, the insured is typically a child and the owner is the adult parent. If the adult owner and premium payor becomes disabled, the premiums are waived, sparing the policy from lapse.

Which rider allows a disabled insured policyowner to forgo future premiums while continuing to enjoy policy benefits? a. Return of Cash Vslue b. Accidental Death c. Cost of Living Benefit d. Waiver of Premium

d. Waiver of Premium If the insured policyowner were to become totally disabled, the Waiver of Premium Rider would waive future premiums for the duration of the disability and still allow the cash value and dividends to continue ad though the premiums were being paid.

If an insured becomes totally disabled, normally after s six-month elimination period, premiums are waived for the duration of the disability if the ____ Rider is attached. a. Living Need b. Waiver of Premium/Disability Income c. Waiver of Payors Premium d. Waiver of Premium

d. Waiver of Premium The Waiver of Premium Rider would waive premiums for a disabled insured. If the insured also wanted to replace income due to disability, then they would purchase the Waiver of Premium/Disability Income Rider.