Life Insurance Policy Options

Beth is secondary beneficiary of a life policy, receiving monthly income benefits under an installment refund option. Her mother, the primary beneficiary, received a total of $4,200 in benefits before she died. The original proceeds totaled $22,000. Assuming Beth lives long enough, she will be paid monthly benefits until she has received a total of

$17,800

Which of the following period certain income options would call for the highest payment rate per $1,000 of life policy proceeds?

5-year period certain

Which of the following options is designed to protect the policyowner should the policy be in danger of lapsing for nonpayment of premiums?

Automatic premium loan

What is the default nonforfeiture option?

Extended term

What settlement option is designed to pay out a specified amount of income at regular intervals over an unspecified period of time?

Fixed-amount option

Hector's spouse was the primary beneficiary of his $250,000 life insurance policy. She received payments of approximately $700 a month as long as she lived and, at her death, their 2 children received lump-sum payments of $125,000 each. What settlement option was in effect on Hector's policy?

Interest-only option

Which of the following statements best describes the nature of a cash value loan?

It is a financial transaction in which the insurer loans the money and attaches a comparable portion of the cash value as collateral.

Carl and Laura receive $270 per month under a joint and two-thirds survivor life policy settlement option. What would happen if Carl died within a year after payment started?

Laura would receive $180 per month for as long as she lived.

Jeremy did not designate a specific settlement option to be paid upon his death. How will the death benefit proceeds be distributed?

Lump-sum payments

Paul, age 62, is applying for a universal life insurance policy and wants to arrange the beneficiary designation in such a way as to use the proceeds to provide lifetime income to his spouse, Marsha. Which of the following settlement options is best suited for this purpose?

Paul, as the owner, can pick life income as the settlement option his spouse must take when he dies. This option will give Marsha a monthly income she cannot outlive.

Which of the following statements about participating and nonparticipating life insurance policies is NOT correct?

Policy dividends are considered taxable income.

Lisa exercised her automatic premium loan provision to pay her annual premium on her $50,000 life insurance policy. She died 4 months after the loan was taken, never having a chance to repay it. Which of the following statements is CORRECT?

The amount paid to Lisa's beneficiary as the death proceeds was reduced by the amount of the loan plus interest due.

Which of the following factors is NOT used to calculate each payment with the fixed period option?

The chosen payment amount

Tammy owns a participating whole life insurance policy for which she has elected the paid-up additions option. If the insurer declares a dividend of $500 in the current year, how will this amount be used with this dividend option?

The insured uses the $500 as if it were a single premium to purchase a unit of paid-up whole life insurance based on Tammy's attained age.

Which of the following statements regarding the paid-up additions life insurance policy dividend option is NOT correct?

The paid-up additions dividend option is only available to insureds that remain insurable.

A policyowner stops paying premiums on a whole life policy with an accidental death benefit and exchanges the policy for extended term insurance. Which of the following statements pertaining to this situation is NOT correct?

The term policy will have a reduced face value.

Unlike corporate dividends, insurance policy dividends

are not considered taxable income

All of the following are dividend options EXCEPT

assigning dividends to pay off a mortgage

Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will

continue to increase

Lynn elects to surrender her whole life policy for a reduced paid-up policy. The cash value of her new policy will

continue to increase

Under a fixed-period life insurance settlement option, excess interest will

increase the size of the payments

Most participating whole life insurance policies allow all of the following uses of standard life insurance dividends EXCEPT

to increase the policy's face amount

With a participating life insurance policy, a policyowner may do all of the following with dividends received EXCEPT

use the dividends to pay overdue premiums from previous years

All the following are standard life insurance dividend options EXCEPT

using the dividend to increase the base whole life policy's face amount

Which of the following statements regarding policy dividends is CORRECT?

They are the difference between the gross premium charged and the actual experience of the insurer.

How can the cash value accumulation in a straight whole life insurance policy be accessed while the insured is living and while keeping the coverage in force?

Through a policy loan

Which of the following statements about life insurance policy settlement options is NOT correct?

Under the fixed-period option, the payment of excess interest will lengthen the payment period.

Betty owns a universal life insurance policy that was issued with a $100,000 face amount and now has total death benefit protection of $110,000. Several months ago she borrowed $15,000 from the policy. The outstanding loan balance (including interest) is $15,200. If Betty dies today, what will be the amount of the death benefit?

$94,800

Which of the following is NOT a standard life insurance policy nonforfeiture option?

1-year term insurance option

At age 60, David decides to stop paying premiums on his $60,000 whole life policy and exchanges it for extended term insurance. What face value will the term insurance have?

$60,000

Heather wants her $85,000 life insurance policy arranged to pay her spouse a monthly income if she dies first, but most or all of the proceeds to go to their 2 children after her spouse's death. Which of the following settlement options could Heather select to provide income for her spouse and conserve the proceeds for the children?

Interest-only option

Which of the following dividend options produces a result similar to taking dividends in cash and depositing them in a bank savings account?

Leaving dividends to accumulate at interest

John, age 55, owns a whole life policy with a face amount of $100,000 for which the annual premium is $1,000. John explains to his agent that he lost his job and cannot afford his $1,000 annual premium but still desires to have life insurance to age 100. What nonforfeiture option could John's agent recommend to him?

Reduced paid-up policy

In the sale of life insurance, all references to policy dividends

must include a statement that dividends are not guaranteed

The privilege of accessing the cash value of an insurance policy if it is surrendered is known as the

nonforfeiture provision

Insurance policies that pay dividends are referred to as

participating policies

The settlement option that will pay the largest amount to the beneficiary regardless how long he lives is

the life only or straight life option

Under an installment refund settlement option, if the primary beneficiary dies, the secondary beneficiary will receive

the same income payments until the total amount paid out to both beneficiaries equals the original amount of proceeds

Denise, age 52, has a straight whole life policy and decides to stop paying premiums and take a paid-up policy for a reduced amount. Her paid-up policy will be

whole life

Suppose Max wants to arrange the distribution of his life insurance proceeds so that his spouse, as beneficiary, will receive monthly payments for as long as she lives. Which of the following settlement options will meet this need?

Life income option

Doris and Arnold receive $450 per month under a joint and one-half survivor life insurance option. What would happen if Arnold were to die first after the payments have started?

Monthly payments of $225 would be made to Doris as long as she lived.

Norris is the primary beneficiary of a life insurance policy. He dies after receiving $275 per month for 6 years, under a 10-year period certain income option. His son, Neil, is the secondary beneficiary. Which of the following statements pertaining to this situation is CORRECT?

Neil will receive income checks in the same amount as his father for 4 years.

Susan, the beneficiary on John's $500,000 life policy, chose life-only as her settlement option. Susan received 5 years of settlement checks from the insurance company, totaling $150,000. How much will Susan's beneficiary receive upon her death?

Nothing, because life-only states that when the beneficiary dies, any remaining death benefit is kept by the insurance company

Which of the following descriptions of life insurance policy settlement options is CORRECT?

Under an installment refund option, if the primary beneficiary dies, payments of the same amount continue to the secondary beneficiary until all installments to both beneficiaries equal the original amount of proceeds.

Wendy has a $100,000 whole life participating policy. She recently married and is planning to have a family. She wants to increase her life insurance coverage but at minimal additional cost. Which of the following dividend options would be most suitable for her needs?

Use dividends to buy paid-up additions

Arnold buys a $25,000 participating whole life policy. He has a definite need for more life insurance but believes he cannot afford it. Which of the following dividend options would help to solve this problem automatically?

Using dividends to buy paid-up additions