Life Insurance - Ch 3

The face amount of insurance is also referred to as the: A The cash value B The limit of liability C The cash surrender value D The maximum loan value

B. The face amount of insurance is the stated death benefit, and is referred to as the insurer's limit of liability—the most the policy will pay in the event of the insured's death.

A $100,000 policy with a waiver of premium rider and $30,000 of cash value is in force. The base policy costs $750 and the rider is $50. What is the total premium annually the policyowner must pay to keep the policy in force if the policyowner decides to cancel the rider? A $50 B $750 C $800 D $700

B. Riders such as the waiver of premium are a provided benefit for an additional cost, therefore if canceled, the annual premium would then become $750 ($800 - $50).

A permanent life policy issued 30 years ago would endow at what age? A 121 B 95 C 65 D 100

D. An ordinary straight whole life policy issued 30 years ago would endow at age 100. Only recently issued policies have an endowment of age of 121.

What type of policy has an endowment date, a face amount, and cash value? A A traditional group life insurance policy B A mortgage life insurance policy C A decreasing term life insurance policy D A permanent life insurance policy

D. Only a permanent life insurance policy would have all three features.

What is the typical time limit on life expectancy for a Viatical Settlement candidate? A 4 years B 3 years C 5 years D 2 years

D. The life expectancy of a Viatical Settlement candidate is normally two years or less.

separation between the cash value and the death benefit is called the

Risk Corridor This corridor of insurance is automatic and does not require insurability. This prevents the policy from maturing too early.

T or F: In a traditional whole life policy, the net amount at risk is the face value minus the cash value

True

T or F: Ordinary whole life insurance provides insurance protection to age 100, cash value accumulation to age 100, and fixed level premium payments.

True

T orF : Convertible- the right to convert the existing term policy to a permanent policy without evidence of insurability during the conversion period specified in the contract. T

True

Index Life, Variable, and Variable Universal all have which of the following characteristics in common? A A securities license is required to sell each policy B The owner chooses the separate account(s) to invest the cash values in C The overall policy performance has something to do with the stock market in general D All have a guaranteed death benefit

c. None of these policies have a guaranteed death benefit. An Index Life policy does not require a securities registration. However, all of them have a death benefit that is somehow tied to the stock market.

T or F: Unlike term insurance, a whole life policy cannot be convertible or renewable.

T

Which policy has the highest total premium outlay? a. Straight life or continuous premium b. single premium

A

is a whole life policy that is written to cover 2 or more lives

Joint Life whole life policy (first to die)

Single Premium characteristics of ordinary whole life insurance-

The entire premium is paid in a lump sum at the time of purchase and creates immediate cash value. The face amount (death benefit) remains level and cash value continues to earn interest and mature at age 100. This policy has the lowest total premium outlay for the life of the policy.

Limited payment characteristics of ordinary whole life insurance-

Premium payments are for a specified time (20-Pay Life or 30-Pay Life) or to a specified age (Life Paid up at 65). The face amount (death benefit) remains level and cash value continues to earn interest and mature at age 100.

The _______ is the death benefit payable on the policy if the insured dies before the policy ends. The death benefit may also be referred to as the limit of liability or the policy proceeds.

face amount

When does the insure receive cash value?

when he/she dies or when the policy matures or endows

A 22 year-old applicant for life insurance has a limited budget for premiums. Which of the following policies would provide for the highest face value, for the lowest premium amount? A 10 Year Term B Annually Renewable Term C 30 year Term D 20 Year Term

B Term insurance does not accumulate cash value. The 'pure premium' purchases the highest amount of insurance compared to the other forms of life insurance. The shortest term period offers the lowest cost per $1,000 of coverage at the outset and in the early years.

If Jon dies with an outstanding policy loan of $10,000 on his $100,000 interest-sensitive whole life policy that has $15,000 of cash value, what will his beneficiary receive at the time of claim? A $115,000 B $90,000 C $105,000 D $100,000

B. Cash values are NOT added onto the death benefit, but outstanding policy loans ARE recovered before the death benefit is paid out. The correct calculation is $100,000 - $10,000 outstanding loan = $90,000.

The face amount of insurance is also referred to as the: A The cash surrender value B The limit of liability C The maximum loan value D The cash value

B. The limit of liability The face amount of insurance is the stated death benefit, and is referred to as the insurer's limit of liability—the most the policy will pay in the event of the insured's death.

If Alvin purchases a Variable Universal Life Policy with a face amount of $250,000, and chooses death benefit Option B, upon his death the amount of the benefit payable to the beneficiary would be _________ if the policy had $25,000 in cash values. A $225,000 B $250,000 C $275,000 D Nothing

C. With an Option B death benefit, the beneficiary will receive the face amount plus the cash value as of the date of death.

Timothy is the insured/owner of a universal life insurance policy and is concerned that in the event of disability, the policy might lapse. Which rider would keep the policy from lapsing if he became disabled? A Waiver of Premium Rider B Return of Premium Rider C Guaranteed Insurability Rider D Waiver of Cost of Insurance

D. Tim has a Universal Life Policy which needs to have enough cash value in it in order to pay the monthly cost of insurance. If he is disabled, the Waiver of Cost of Insurance will keep the policy in force.

This whole life policy is usually written to cover 2 lives, and the death benefit is not paid until the last insured dies.

Joint survivorship (second to die)

Harry's father purchases a life insurance rider with a Payor Benefit Rider on his 12-year old son Harry. If Harry's mother dies, A The Payor Benefit rider will pay the premium as long as Harry lives B The Payor Benefit rider will pay the full premium until Harry reaches the age of adulthood and then only the mortality costs C The Payor Benefit rider will pay nothing D The Payer Benefit rider will pay the premium until Harry reaches the age of adulthood and then stop

c. Harry's father is the policy owner; therefore, the Rider will cover his death or disability. Harry's mother is not covered.

Permanent policies provide_____

cash value

A _______________ policy has a death benefit that will increase or decrease over time based on the performance of the separate account, provides a guaranteed minimum death benefit, offers a choice of subaccounts in which cash value may be allocated, and a has fixed premium. A Variable Universal Life B Indexed Life C Variable Life D Universal Life

A. Only Variable Life has all of these characteristics. Variable Universal Life does not have a guaranteed minimum death benefit. Neither Indexed Life nor Universal life permits allocation of cash value in a separate account.

What is the name of a single policy covering two or more lives that pays benefits upon the death of the first insured? A Accidental Death B Joint Life C Joint Survivorship Life D Universal Life

B. 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.

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 Return of Cash Value C Term to age 100 D Return of Premium

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

A life insurance premium is paid each month. The insurer then subtracts a mortality and expense charge from the policy's cash value. This best describes which of the following life insurance policies? A Whole Life B Variable Whole Life C Adjustable Whole Life D Universal Life

D. 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.

When buying a $25,000 life insurance policy on his daughter, a father wanted to make sure the premium would be paid, even if he became disabled, so he also purchased a: A Long-term Care Rider B Waiver of Cost of Insurance C Waiver of Premium D Payor Rider

D. The payor rider is a special rider that pay the premiums on a minor's policy if the adult who owns the policy dies or becomes disabled while the insured is still a minor. Do not confuse it with the Waiver of Premium, which pays if the insured becomes disabled.

All of the following are true about riders, except: A All riders are available free of charge and can be added at anytime without proof of insurability B Most riders are added at the time of policy issue C Once a rider drops from the policy, the additional premium will also drop D Riders added after the policy has been issued usually require evidence of insurability

Most riders have a charge associated with them and can require providing proof of insurability after the policy has been issued.

True of False: Renewable- A benefit that will renew the contract on the renewal date without evidence of insurability. The policy may be a 1- (annual), 5-, 10-, or 20-year renewable contract up to a specified age, with premiums increasing at the beginning of each renewal period. The renewal premium is based upon attained age.

True

Which rider waives the cost of insurance and expenses if an insured becomes disabled? A Payor Benefit B Accelerated Death Benefit C Return of Premium D Waiver of Monthly Deduction

C. The Waiver of Monthly Deduction will waive the cost of insurance and expenses if the insured becomes disabled. The payor benefit rider will waive premiums if the owner of a policy (not the insured) becomes disabled; a return of premium rider will pay a refund of premiums if the insured is still living when the policy expires, and the accelerated death benefit rider will provide benefits if the insured is terminally ill.

Bess received information in regard to her individual Term Insurance explaining that she could convert the policy by doing which of the following? A Without providing proof of insurability, pay higher premiums based on her attained age B Without providing proof of insurability and pay the same level premium C Prove insurability and pay higher premiums based on her attained age D Prove insurability and pay the same level premium Excellent! Bess does not have to prove insurability to convert her individual Term Policy, but she will pay a higher premium because she is older than when she purchased the Term Policy, and because she is converting to a Permanent Policy.

A. Bess does not have to prove insurability to convert her individual Term Policy, but she will pay a higher premium because she is older than when she purchased the Term Policy, and because she is converting to a Permanent Policy.

If the insured becomes totally disabled, the company waives premiums for the duration of the disability if a _____________ is in force. A Premium payor benefit B Paid up provision C Waiver of premium rider D Disability rider

c.. If a client has a Waiver of Premium rider in effect, and if the insured becomes totally disabled, the company waives premiums for the duration of the disability. Therefore the policy remains in force.

All of the following are risks to the life settlement purchaser, except: A The insurer will not honor the claim based on lack of insurable interest B The third party runs out of funds to pay on-going premiums C The insured dies sooner than expected D The insurer becomes insolvent Nice try! If the insured dies sooner than expected then the purchaser will achieve a greater return than they had planned on.

C. If the insured dies sooner than expected then the purchaser will achieve a greater return than they had planned on.

Term life insurance will not pay out a death claim in which of the following situations? A Death as a result of accident B Death as a result of sickness C Death while at work D Death after the term expires

D.

What policy has the highest total premium outlay? And the face amount remians level throughout the life of the policy? The premium is level and payable to age 100 or death of the insured

Straight life or continuous premium

A mother with a teenage son purchases a life policy on his life. The policy includes an optional rider called the Payor Benefit. What will happen to the policy if the mother dies or is disabled before her son reaches age of majority? A The premiums on the son's policy would be waived until the son reaches a specified age B The premiums would be suspended and later paid back by the son C The policy would pay out a modest lump sum to the beneficiary D The amount of coverage is reduced as the policy is paid up

A. The Payor Benefit Rider is used in third-party policies in which the insured and owner are not the same. The insurer continues the policy as if the owner were still making premium payments.

An insured purchases a 20-Pay Life Policy with a face amount of $25,000 and an annual premium of $1,000. The insured dies 15 years later when the cash value is $5,000. What amount will the beneficiary receive? A $30,000 B $20,000 C $25,000 D $15,000

c. If death occurs at any point prior to age 100, the beneficiary receives the death benefit of $25,000.

T or F Ordinary whole life insurance provides insurance protection to age 100, cash value accumulation to age 100, and fixed level premium payments

T

Variable Whole Life has all of the following features, except: A The premium is determined by the insurer and remains fixed and level throughout the contract B The policy provides for both a general account and a separate account C The owner may select which separate account they want their premium to be invested in D Partial surrender are allowed

D. Partial surrenders are not allowed from a variable whole life policy.

What are 3 characteristics of Interest Sensitive- current Assumption Whole Life Insurance

1. Premiums may fluctuate due to current interest rates 2. Provides guaranteed death benefits 3. Cash value growth may flucturage due to current interest rates To prevent this from happening, the insurer will add a corridor of insurance protection to keep the policy from endowing. This increase is provided without evidence of insurability.

A long-term care rider: A Provides up to 100% of the policy benefits if the insured qualifies for benefits as specified in the rider but will reduce the amount of death benefit protection based on the amount paid under the rider B Provides an amount equal to the death benefit plus any cash value to a terminally ill insured expected to die in the next 6 months C Pays 25% of the death benefit as monthly income for an insured who cannot perform all of the six activities of daily living D Establishes a trust fund for the insured's family so that nursing home care can be paid for with insurance premiums instead of paying premiums directly to the life insurance company

A. A long-term care rider provides up to 100% of the policy benefits if the insured qualifies for long-term care benefits as defined in the rider, such as the inability to perform 2 out of 6 activities of daily living. Any payout is an acceleration of the life insurance death benefit, meaning it will reduce the ultimate death benefit payable to the beneficiary.

A viatical settlement is an agreement between a third party and a(n) ___________. A Policyowner insuring the life of a terminally ill insured with 2 years or less life expectancy B Terminally ill insured's spouse and children who don't want to wait until the insured dies to collect the death benefit C Insurance agent representing the family of the terminally ill insured D Lender who owns the mortgage on a terminally ill insured's home or business property

A. A viatical settlement is an agreement between a third party and a life insurance policyowner insuring the life of an individual with a life-threatening or terminal illness, normally with a life expectancy of 2 years or less.

A married couple wants to have funds available so that the heirs to their estate have the funds necessary to pay the estate taxes. Which of the following would be the most economical and effective way to accomplish this? A Buy a Joint Survivorship Life policy B Buy a Whole Life policy on each spouse C Have one spouse buy a whole life policy and the other one a Universal Life policy D Buy a Joint Life policy

A. Joint Survivorship Life pays upon the death of the last to die, and for this reason it is a popular policy with couples who want to defer estate taxes until both are deceased. It is also more economical to buy this one policy than to buy two separate policies.

A Second to Die policy would be the most appropriate recommendation for which of the following? A A husband and wife concerned about paying estate taxes after they have died B Two business partners who are concerned about the future success of the business and want to provide funds to purchase the business from the decedent's family C A business owner who wants to make sure his wife has enough money to buy the business from his partner if he should die before his partner does D A corporation concerned that its CEO might die before the end of his employment contract

A. Married couples worried about estate taxes would be best served in most cases by a Second to Die, or Joint Survivorship, Life policy.

Which of the following are characteristics of universal life insurance policies? A Two death benefit options with premiums fixed for life B Two death benefit options, an adjustable death benefit and flexible premiums C Adjustable death benefit with premiums that are fixed for life D Fixed death benefit for life with premiums that may be increased or decreased

B. Two death benefits options are a key characteristic of all forms of universal life insurance. All UL policies permit the policyowner to make changes in both the amount and timing of premium payments, including making no payments at all providing flexible premiums, and the death benefit may be increased or decreased in accordance with the terms and provisions of the policy.

What is the net amount at risk in a Whole Life Insurance policy? A The face amount of the policy B The face amount less the cash values C The face amount plus the cash values D The face amount minus any dividends paid

B. The net amount at risk to the insurer is the difference between the face amount and the cash values.

Q has an ordinary straight whole life insurance policy for $100,000. Due to a change in circumstances, Q finds that there is now a need for more coverage, but the budget is not sufficient for another similar policy. What can Q do to satisfy the need for additional coverage at a low price? A Ask for an increase in the existing policy's face amount B Add an accidental death rider C Add a term rider D Use the cash values of the policy to cover the difference

C. Add a term rider, term insurancer

The net amount at risk in an Ordinary Whole Life Insurance Policy _________ over the life of the policy. A Increases B Remains the same C Decreases D Varies

C. As the cash values build, the net amount at risk for the insurer declines since the face amount is the benefit paid out upon the death of the insured. It is a way to keep the premiums affordable as the insured ages and the risk of death increases.

C has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. What is the insurer's net amount at risk? A $30,000 B $130,000 C $70,000 D $100,000

C. The insurer's net amount at risk is the difference between the face amount and the cash surrender values. Here, it is $70,000 ($100,000 - $30,000).

This rider allows for the insured to obtain additional insurance in between the specified ages including marriage and the birth or adoption of a child, when the need for insurance coverage may increase without having to prove insurability. It is called the ________ rider: A Additional Insurance Protection B Waiver of Insurability C Family D Guaranteed Insurability

D. The guaranteed insurability rider covers events that will allow for the insured to obtain additional insurance in between the specified ages include marriage and the birth or adoption of a child, when the need for insurance coverage may increase. It normally limits the insured to acquire additional amounts of the same type of coverage already in force.

____________ sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its death benefit

Life Settlement

____ payment -Premium payments are for a specified time (20-Pay Life or 30-Pay Life) or to a specified age (Life Paid up at 65). The face amount (death benefit) remains level and cash value continues to earn interest and mature at age 100. While the annual premium is higher than Straight Life, it is paid for a shorter period of time and will have a lower total premium outlay.

Limited

This type of Insurance features insurance protection and a savings element (cash value) that grows on a tax-deferred basis.

Universal Life insurance (UL)

_______________ agreement between a third party (specializing in such transactions—viatical settlement provider) and a life insurance policyowner (viator) ins1uring the life of an individual with a life-threatening or terminal illness, normally with a life expectancy of 2 years or less.

Viatical Settlement

A producer is explaining the concept of limited-pay life insurance to a 40-year-old client. When comparing a straight life policy with a 10-pay life policy, which of the following statements is correct? A A 10-pay life policy will have a lower annual premium than a straight life B A policy fully paid up in 10 years will endow at the client's age of 50 C The cash value in a straight life policy will accumulate at a slower rate than the cash value in a 10-pay life D A straight life policy has immediate cash value

c. The actual amount of premium per year in a 10-pay life policy will be higher than straight life since the number of payments is reduced. Because of this, the cash value will accumulate faster in a 10-pay life and slower in a straight life policy. Both policies will endow at age 100. Neither a straight life or 10-pay life policy has immediate cash value.