Life Licenses Chapter 2

An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is an

Interest-sensitive Whole Life

The death protection component of Universal Life Insurance is always

Annually renewable Term

A variable annuity has a payout that is

Contingent upon the profitability of the investment portfolio.

A Universal Life insurance policy is Best Described as

An Annually renewable Term policy with a cash value account.

What component increases in the increasing term insurance?

Death benefit

The death benefit in a variable universal life policy

Depends on the performance of a separate account.

In reference to fixed annuities, what comprises most of a life insurance company's general account?

Conservative investments like bonds

What characteristics makes whole life permanent protection?

Coverage until death or age 100

Which is the correct comparison between survivorship life and a joint life policy?

Joint life pays a death benefit on the first death, while survivorship life pays on the last death.

What are the "living benefits" of whole life insurance?

Loan values and retirement income

All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy?

Lower

In variable whole life policies, where are the policy premiums allocated?

Separate Account

The policy owner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding the change?

The death benefit can be increased by providing evidence of insurability.

Convertible term insurances

is convertible without proof of insurabiligy 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

Annuitization period

the time during with accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.

An agent selling variable annuities must be registered with

FINRFA

The death benefit under the Universal Life Option B

Gradually increases each year by the amount that the cash value increases.

Which option for Universal Life must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS.

Option A

Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?

Option B

What is another term for the accumulation period of an annuity?

Pay-in period

Annuities have nonforfeiture values, which may be withdrawn

Prior to the annuitization date

What causes a variable annuity benefit to vary?

The annuity's underlying investment

In a deferred annuity, how do the current and guaranteed interest rates work together?

The owner will receive the guaranteed rate or the current rate, whichever is higher.

What best describes what annuity period is

The period of time during which accumulated money is converted into income payments

What is true about both equity indexed annuities and fixed annuites

They have a guaranteed minimum interest rate

At the time of annuitization, the number of annuity units becomes

fixed

The type of policy that can be changed from one that does not accumulate cash value to the one that does, is a

Convertible Term Policy

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?

Deferred

Which policy component decreases in decreasing term insurance?

Face amount

K purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it?

Immediate

The type of term insurance that provides increasing death benefits as the insured ages is called

Increasing term

An insured has a Level Term Life insurance policy that is guaranteed renewable and also includes a re-entry provision. The re-entry provision would allow the insured to renew the policy and

Pay a lower renewal premium by providing insurability

An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term?

The insured may renew the policy for another 10 years, but at a higher premium rate.

A life insurance policy owner skips her premium payment, but the policy does not lapse. Instead, the premium amount is deducted from the cash value of the policy. What type of policy is this?

Universal Life

What kind of policy allows withdrawals or partial surrenders?

Universal Life

What life policy is designed to provide the policy owner a hedge against the effects of inflation?

Variable Life

Variable Annuity

contributions are maintained in the insurer's separate account and credited with a certain number of accumulations units

Increasing Term

features level premiums and a death benefit that increases each year over the duration of the policy term.

Term policies provided for the _____________ amount of coverage for the _______________ premium, as compared to any other for of protection.

greatest, lowest

Equity Indexed Annuities are less risky than variable annuities and earn _____________________ than fixed annuities.

higher interest rates

The Human Life Value Concept deals with

human capital.

annuity

is a contract that provides income for a specified period of years, or for life. It protects a person against outliving his or her money

Term insurance

is temporary protection because it only provides coverage for a specific period of time.

Term insurance has no cash value and provides no death benefit if the insured dies after the policy is expired; however,

it provides the highest amount of protection for a temporary period of time

Only an immediate annuity can begin paying out in

less than a year

Life Paid-up at Age 65 is an example of

limited-pay life policy?

Decreasing Term Policies

policy that features a level premium and a death benefit that decreases each year over the duration of the policy term.

Level premium

provides a level death benefit and a level premium during the policy term.

An insured owns a term policy with a guaranteed renewable option. When the end of the policy draws near, the insured answers medical questions in order to prove insurability and qualifies for a discounted premium rate. What best describes this scenario?

re-entry

Single premium whole life requires

the entire premium to be paid in one lump sum at the policy's inception.

Level term insurance

the most common type of temporary protection purchased.

The annuitant is

the person who receives benefits or payments from the annuity and for whom the annuity is written.

The renewable provision allows

the policy owner the right to renew the coverage at the expiration date without evidence of instability

Annually renewable term (ART)

the purest form of level term insurance that offers the most insurance at the lowest cost

If a deferred annuity is surrendered prior to annuitization,

the surrender value of the annuity is guaranteed due to the nonforfeiture provision.

What are the special features of an term insurance policy?

they are renewable, convertible, or renewable and convertible (R&C)

A variable annuity is considered to be a security and is regulated by the

SEC

Equity Indexed Annuities

invest on an aggressive basis in order to yield higher returns.

Since the annuitant's life expectancy is taken into consideration, the annuitant must be a

natural person

Human capital is a

person's income potential.

What are Adjustable Life Policies

they allow for increases or decreases in the face amount of premium, so long as the premium is sufficient to pay for the mortality.

What do the accumulation units of variable annuities convert to upon annuitization?

Annuity units

What are some facts about Equity Indexed Annuities?

1. The insurance company keeps a percentage of the returns 2. They have guaranteed minimum interest rates. 3. They are less risky than variable annuities.

What are some characteristics of a Universal Life Policy

1. The insurance company reserves the right to adjust the mortality charges and or interest rate. 2. The cash account accumulates on a tax-deferred basis 3. Universal Life is a combination of term insurance and a separate savings account joined in a single contract.

If an annuitant withdraws cash before age 59 and a half, the tax penalty is

10%

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing Term

The annuity purchased with multiple payments, whose benefits paid more than one year after the purchase is known as what type of annuity?

Flexible Premium Deferred Annuity

What are the licensing requirements for someone who sells variable universal life insurance?

Life insurance and securiteis

Who is entitled to the cash values in a life insurance policy?

Policy owner

Which Universal Life option has a gradually increasing cash value and a level death benefit?

Option A

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provided additional protection until his children finished college. He discovered that his policy

Required a premium increase each renewal.

Which type of life insurance policy generates immediate cash value?

Single Premium