Life Insurance Chapter 3 Life insurance Policies

Which of the following policies would be classified as a traditional level premium contract? A Adjustable Life B Universal Life C Variable Universal Life D Straight Life

- Straight Life - Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.

If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may A Require a higher premium. B Prolong the open enrollment period. C Increase medical requirements on existing members. D Require evidence of insurability.

Require evidence of insurability. - In group underwriting the evidence of insurability is usually not required of each participant unless he or she is enrolling for coverage outside of the normal enrollment period.

When an annuity is written, whose life expectancy is taken into account? A Beneficiary B Life expectancy is not a factor when writing an annuity. C Owner D Annuitant

Annuitant - The annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and annuity owner are often the same person but do not have to be.

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? A Policy Summary B Illustrations C Buyer's Guide D Insurance Index

Buyer's Guide - The Buyer's Guide is a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.

Which of the following is NOT an example of insurable interest? A Business partners in each other B Employer in employee C Child in parent D Debtor in creditor

Debtor in creditor

Which of the following is TRUE regarding the annuity period? A During this period of time the annuity payments grow interest tax deferred. B It is also referred to as the accumulation period. C It is the period of time during which the annuitant makes premium payments into the annuity. D It may last for the lifetime of the annuitant.

It may last for the lifetime of the annuitant. - The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? A Installment refund B Joint and survivor C Pure life D Life with guaranteed minimum

Pure life - A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors.

Which two terms are associated directly with the way an annuity is funded? A Increasing or decreasing B Immediate or deferred C Renewable or convertible D Single payment or periodic payments

Single payment or periodic payments - Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installment varies.

Which of the following is NOT true regarding the annuitant? A The annuitant receives the annuity benefits. B The annuitant must be a natural person. C The annuitant cannot be the same person as the annuity owner. D The annuitant's life expectancy is taken into consideration for the annuity.

The annuitant cannot be the same person as the annuity owner - While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person.

The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE? A The insurance company will retain the cash value and pay back the premiums to the owner's estate. B The money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary. C The beneficiary will receive the greater of the money paid into the annuity or the cash value. D The owner's estate will receive the money paid into the annuity.

The beneficiary will receive the greater of the money paid into the annuity or the cash value. - If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value, whichever is greater.

Which type of life insurance policy allows the policyowner to pay more or less than the planned premium? A Universal life B Variable life C Decreasing term D Straight whole life

Universal life - The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits? A $50,000 B $62,500 C $75,000 D Nothing

50,000 - The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitant's death. Straight life annuity payments stop at death of the annuitant regardless of the principal left in the account.

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits? A Variable annuity B Flexible payment annuity C Deferred interest annuity D Immediate annuity

Immediate annuity - An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.

Which of the following best describes what the annuity period is? A The period of time during which accumulated money is converted into income payments B The period of time from the accumulation period to the annuitization period C The period of time during which money is accumulated in an annuity D The period of time from the effective date of the contract to the date of its termination

The period of time during which accumulated money is converted into income payments - The annuity period is the time during which accumulated money is converted into an income stream.

Which of the following is called a "second-to-die" policy? A Family income B Juvenile life C Joint life D Survivorship life

Survivorship life - Survivorship life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.

If the annuitant dies during the accumulation period, who will receive the annuity benefits? A The annuity owner B The insurance company C The annuitant's estate D The beneficiary

The beneficiary - If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.

The Medical Information Bureau (MIB) was created to protect A Insureds from unreasonable underwriting requirements by the insurance companies. B Medical examiners that perform insurance physical examinations. C Insurance companies from adverse selection by high risk persons. D Insurance departments from lawsuits by policyowners.

Insurance companies from adverse selection by high risk persons. - The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Which of the following is TRUE regarding the accumulation period of an annuity? A It is a period of time during which the beneficiary receives income B It is limited to 10 years. C It is a period during which the payments into the annuity grow tax deferred. D It is also referred to as the annuity period.

It is a period during which the payments into the annuity grow tax deferred. - The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.

Which of the following types of annuities will generally provide the highest monthly income? A Joint and survivor B Installment refund C Life with a 10-year period certain D Straight life

Straight life - Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; therefore, it has the potential to provide the highest monthly income. Any time a "period certain" option is included, it will reduce the monthly payout amount because, even if the annuitant dies, the company must continue to pay benefits for the period certain.

What does "level" refer to in level term insurance? A Interest rate B Face amount C Premium D Cash value

Face amount - Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages.

If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined? A It is a percentage of the cash value and decreases over time. B It is always 7% of the cash value. C It is a flat fee determined by the annuity owner when the annuity is purchased. D It will increase as the accumulation period increases.

It is a percentage of the cash value and decreases over time. - f a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.

Annually renewable term policies provide a level death benefit for a premium that A Decreases annually. B Remains level. C Fluctuates. D Increases annually.

- Increases annually. - Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.

The annuity owner dies during the accumulation period without naming a beneficiary. Annuity's cash value exceeds premiums paid. Which of the following is TRUE? A The cash value will be paid to the state government. B The cash value will be paid to the annuitant's estate. C The premium value will be paid to the annuitant's estate. D All benefits will be forfeited.

The cash value will be paid to the annuitant's estate. - If an annuitant dies during the accumulation period, the beneficiary is paid either the cash value of the policy or the amount of premiums paid, whichever is the larger amount. In this case, a beneficiary is not named, so the cash value will be paid to the annuitant's estate.

Which of the following is TRUE for both equity indexed annuities and fixed annuities? A They are both tied to an equity index. B Both are considered to be more risky than variable annuities. C They invest on a conservative basis. D They have a guaranteed minimum interest rate.

They have 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 domestic insurer issuing variable contracts must establish one or more A Liability accounts. B Annuity accounts. C General accounts. D Separate accounts.

Separate accounts.

A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that? A Survivorship Life Policy B Second-to-Die C Family Income Policy D Joint Life Policy

Joint Life Policy - Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends.