Life: Part One

Which of the following policies accumulates cash value at the fastest rates A. 10-pay life policy B. 20-pay life policy C. 25-pay life policy D. 30-pay life policy

A. 10-pay life policy

Al purchases an estate builder (jumping juvenile) policy for his five-year-old son, Donald. Suppose that when Donald reaches age 21 his father presents him with the policy as a gift. Which of the following statements is NOT true? A. Donald does not have to continue to make the premium payments to keep the policy in force B. The policy should have accumulated cash value by that time C. Donald has enjoyed protection against the problems of premature death D. The face value of Donald's policy has increased by five times

A. Donald does not have to continue to make the premium payments to keep the policy in force

The type of annuity in which the value grows according to the performance of the investment medium, and in which benefits may fluctuate according to market performance, is called A. a variable annuity B. a flexible premium annuity C. a TSA D. a deferred annuity

A. a variable annuity

Loan values and retirement income are A. called the living benefits of life insurance B. available from all life insurance policies C. available only from term policies D. available only as part of the business uses of life insurance

A. called the living benefits of life insurance

Permanent insurance differs from term insurance with regard to A. cash value accumulation B. frequency of premium payments C. amount of insurance protection D. taxation of policy proceeds

A. cash value accumulation

The money paid by the insured to the insurance company for insurance protection is called the A. consideration B. dividend C. benefit D. assignment

A. consideration

A term policy that allows the policy owner to switch to permanent insurance is called A. convertible term B. renewable term C. interim term D. deposit term

A. convertible term

In a family plan A. coverages are customarily a combination of permanent and term insurance B. the husband and wife are usually insured for equal amounts C. only the spouse and the children are included D. all family members must have permanent insurance

A. coverages are customarily a combination of permanent and term insurance

A straight life annuity pays a periodic income A. during the annuitant's lifetime with no refund upon his or her death B. with a guaranteed total amount to be paid C. guaranteed to be equal to the purchase price of the annuity D. to two annuitants until one dies, after which all payments cease

A. during the annuitant's lifetime with no refund upon his or her death

An insurance contract is an aleatory contract. This means A. equal value is not given by both parties to the contract B. the contract is one-sided C. the insurance company is relying on the truthfulness of the applicant D. the contract is personal in nature

A. equal value is not given by both parties to the contract

The current rate of interest paid to the cash value account of a universal life policy consists of A. guaranteed interest plus excess interest B. excess interest only C. at the beginning of the corridor period D. when the insured reaches age 95

A. guaranteed interest plus excess interest

Monthly debit ordinary (MDO) insurance combines the following type of insurance A. industrial and ordinary B. decreasing term and ordinary C. deposit term and ordinary D. renewable term and ordinary

A. industrial and ordinary

The contract between an insurer and an insured is called a/an A. insurance policy B. bilateral contract C. two-sided contract D. contract of the entirety

A. insurance policy

The cash value of a variable life policy A. is determined by the investment experience of the separate account B. cannot be withdrawn C. is guaranteed by the company D. receives specified interest payments

A. is determined by the investment experience of the separate account

Life insurance is the most practical means of meeting obligations arising from an individual's premature death because A. it creates an immediate estate B. it always provides the most money C. it is more accessible than savings or stock D. it earns the greatest interest

A. it creates an immediate estate

Which of the following statements about the average number of people who die each year is true? A. it is called the mortality rate B. it cannot be predicted with any accuracy C. it cannot be used to determine insurance rates D. it is the principle factor in risk selection

A. it is called the mortality rate

Which of the following is NOT a characteristic of life insurance as property? A. it requires reasonable managerial ability B. it creates an immediate estate C. it may be paid for in installments D. it requires no physical maintenance

A. it requires reasonable managerial ability

Money taken out of a modified endowment contract (MEC) A. may be subject to unfavorable tax rules B. is always received income tax-free C. is considered to be a return of premium D. will result in the policy being voided

A. may be subject to unfavorable tax rules

Paul dies before his annuity has paid out an amount at least equal to the purchase price of the annuity, so Paul's beneficiary continues to receive annuity payments until that amount has been reached. This type of annuity is a A. refund life annuity B. straight life annuity C. joint and survivorship annuity D. life annuity with no refund

A. refund life annuity

All other factors being equal, which of the following policies is the least expensive as far as the total amount of premiums paid is concerned, assuming the insured lived to be 100 years old? A. single premium B. 10-pay life C. 20-pay life D. while life

A. single premium

The premium for a yearly renewable term policy is a A. step rate premium B. level premium C. decreasing premium D. variable premium

A. step rate premium

If children are born or adopted after a family policy is issued A. term insurance will automatically be provided for the child under the same policy B. a new family policy will have to be purchased C. term insurance will be provided under the same policy, but for an additional premium D. coverage will be provided for the child under the same policy, but only after a waiting period and proof of insurability

A. term insurance will automatically be provided for the child under the same policy

"Annuity period" refers to which of the following? A. the time during which payments are made to the annuitant B. the time during which premiums are paid to fund the annuity C. The process of determining the amount of the annuity payment D. the principal factor in determining the annuity premium

A. the time during which payments are made to the annuitant

Jack has a variable annuity in a separate account that has a portfolio valued at $5 million. There are 500,000 outstanding accumulation units for the account. What's the value of one unit? A. $5 B. $10 C. $20 D. $50

B. $10

In a universal life policy with a guaranteed interest rate of 5% and a current interest rate of 9%, what would be the dollar amount of the annual policy load generated by not paying excess interest on the first $1,000 in the cash value account? A. there is usually no annual load after the first year B. $40 C. $50 D. $90

B. $40

The situation below that most likely calls for the purchase of term insurance is A. Tanya plans to retire at 59 with enough income to travel abroad B. George has two years of medical school to complete. He and his wife have one child. C. Leonard is 42 years old and owns a thriving business. He is married, with two teenage children. D. Marge, widowed, has one married son, age 30.

B. George has two years of medical school to complete. He and his wife have one child.

Alicia, age 35, has an annuity that has a guaranteed growth rate of 6% and that will pay her a specified monthly income beginning at age 65. What kind of annuity does Alicia have? A. an immediate variable annuity B. a deferred fixed annuity C. a deferred variable annuity D. an immediate fixed annuity

B. a deferred fixed annuity

An accounting measure used to determine a contract owner's interest in the separate account of a variable annuity before payments begin is called a/an A. annuity unit B. accumulation unit C. premium D. installment certain

B. accumulation unit

One-year renewable term insurance provides A. a level premium year after year B. an increasing premium every year C. a decreasing premium every year D. a variable premium that may go up or down

B. an increasing premium every year

A universal life policy may be surrendered for its cash value A. only when the cash value equals the death benefit B. at any time C. within 30 days of an interest payment only D. only if there are no outstanding loans

B. at any time

The cash value accumulation in a life insurance policy A. cannot be used until the policy matures B. can be used for loans or later as retirement income C. is always so small that the policy owner can do very little with it D. is taxed as income to the policy owner as it accumulates

B. can be used for loans or later as retirement income

Premiums for a variable universal life policy A. can vary in amount but must be paid at specified intervals B. can vary in amount as well as payment schedule C. may not vary in amount but can vary as to payment schedule D. cannot vary in amount and must always be paid at specified intervals

B. can vary in amount as well as payment schedule

The type of policy that can be changed from one that does not accumulate cash values to one that does is a A. renewable term policy B. convertible term policy C. whole life policy D. level term policy

B. convertible term policy

When the cash value account of a universal life policy reaches zero, the policy owner must make a premium payment or A. the policy has lapsed B. the policy goes into the grace period C. the policy is indefinitely suspended D. nothing happens because the cash value account can never reach zero

B. the policy goes into the grace period

A level term policy is one on which A. the premium remains the same as the protection is reduced B. the premium and protection remain constant for the term of the policy C. protection remains level while the premium is decreased D. protection remains constant for the term of the policy while the premium increases

B. the premium and protection remain constant for the term of the policy

To what does the statement "spreading the result of financial loss created by an individual's death among many persons, so the cost for each individual is small" refer? A. the principle of mortality B. the principle of life insurance C. the principle of indemnity D. the principle of risk

B. the principle of life insurance

An immediate annuity with quarterly payments will begin making payments A. one month after the annuity is purchases B. three months after the annuity is purchases C. six months after the annuity is purchased D. one year after the annuity is purchased

B. three months after the annuity is purchases

Alma, age 35, earns $50,000 a year and expects to retire when she is 65. What is Alma's human life value? A. $50,000 B. $150,000 C. $1.5 million D. $5 million

C. $1.5 million

A mother purchases an estate builder (jumping juvenile) policy for her child, having a face amount of $5,000. When the child reaches age 21, the face amount of the policy would normally be A. $5,000 B. $10,000 C. $25,000 D. $50,000

C. $25,000

In a universal life policy, the amount of the death benefit option has an initial face amount of $75,000 and a cash value of $10,000, the actual death benefit would be A. $75,000 B. $65,000 C. $85,000 D. $10,000

C. $85,000

For life insurance purposes, all persons are considered to be statistically "dead" at age: A. 88 B. 96 C. 100 D. 92

C. 100

If Sarah has a family maintenance policy purchases when she was 25 that has a 15 year payment period, how many years will Sarah's beneficiary receive income from this policy if Sarah should die at age 39? A. 1 year B. 14 years C. 15 years D. 0 years

C. 15 years

A variable life policy A. always offer a variable premium B. death benefit varies to reflect the investment results of the underlying separate account, but never falls below a guaranteed minimum C. death benefit is fixed; what varies is the cash values D. cash values are fixed; what varies is the death benefit

B. death benefit varies to reflect the investment results of the underlying separate account, but never falls below a guaranteed minimum

At age 35, Kerry purchases a home with a 20-year mortgage that he wants to cover with term insurance. The most practical term policy for his situation is A. level term B. decreasing term C. convertible term D. one-year renewable term

B. decreasing term

Mortality figures are normally developed by studying and interpreting statistics A. from small groups of people over ten-year periods B. developed from the deaths of millions of persons over long periods of time C. gathered by interviewing many persons in selected cities across the nation D. obtained by surveys of insured persons

B. developed from the deaths of millions of persons over long periods of time

When the cash value accumulation of a policy equals the face amount, we can say the policy A. expires B. endows C. is a whole life policy D. is a limited pay life policy

B. endows

With an immediate annuity, payments to the annuitant begin when a period of time has elapsed that is A. any period agreed upon by the company and the annuitant B. equal to the period of time between payments C. usually a specified date in the distant future D. any period of time after one year

B. equal to the period of time between payments

Which of the following statements about variable universal life policy is NOT true A. it offers flexible premium payments B. it has no loading features C. it offers policy loans with interest D. the policy owner has a choice of death benefit options

B. it has no loading features

One factor common to all estate builder (jumping juvenile) policies is A. the cash value automatically increases three times at age 21 B. it is issued on the application of a parent or legal guardian but insures the life of a child C. the original face amount of the policy increases five times at age 18 D. after the purchase of the original policy, the child is always permitted to purchase additional insurance at age 21, regardless of insurability at that time

B. it is issued on the application of a parent or legal guardian but insures the life of a child

Which of the following is NOT a characteristic of a joint life policy A. it insured the lives of two or more people B. it pays a benefit when each of the insureds dies C. it can be either permanent or term insurance D. it may be converted to an individual whole life policy without proof of insurability

B. it pays a benefit when each of the insureds dies

All of the following are living benefits of life insurance EXCEPT A. loan values B. last expenses C. retirement income D. cash withdrawals

B. last expenses

A life insurance policy that continues to provide protection after the premium period has ended is called a A. whole life policy B. limited pay life policy C. level term policy D. decreasing term policy

B. limited pay life policy

When converting a term policy to a whole life policy at attained age, the cash values at age 65 will be A. higher than if ordinary life had been purchased at original age B. lower than if ordinary life had been purchased at original age C. practically the same as if ordinary life had been purchased at original age D. exactly the same as if ordinary life had been purchased at original age

B. lower than if ordinary life had been purchased at original age

An universal life policy with a back-end load A. has no grace period B. makes a service charge when the policy is surrendered C. deducts a portion of each premium payment for operating expenses D. accumulates cash value more slowly than a policy with a front-end load

B. makes a service charge when the policy is surrendered

A renewable term policy A. may be renewed with proof of insurability B. may be renewed with no proof of insurability C. keeps the same premium with each renewal D. is available only as a rider on a permanent policy

B. may be renewed with no proof of insurability

Agents selling variable life insurance A. must have a valid life license only B. must have a valid life licensed and must be registered with the NASD C. must be registered with the NASD only D. need not be licensed

B. must have a valid life licensed and must be registered with the NASD

A life insurance policy is a unilateral contract because A. only the insured is bound to live up to his or her side of the agreement B. only the insurance company is bound to live up to its side of the of the agreement C. either party may default on the agreement D. neither party may default on the agreement

B. only the insurance company is bound to live up to its side of the of the agreement

From the standpoint of premium cost, which is the most advantageous age when converting a term policy? A. attainted age B. original age C. age next birthday D. age last birthday

B. original age

An annuitant has a temporary annuity certain, and dies shortly after the payments start but before the certain period of 10 years has elapsed. Any money remaining is A. kept by the company B. paid to the beneficiary for the rest of the certain period C. paid to the beneficiary in one lump sum D. paid to the annuitant's estate

B. paid to the beneficiary for the rest of the certain period

A flexible premium annuity provides for a flexible A. premium payment schedule B. premium payment amount C. annuity payout amount D. interest rate

B. premium payment amount

A whole life policy A. requires a single payment after which coverage is afforded for the whole life of the insured B. requires the insured to pay the premium for life and endows at age 100 C. is paid up at some specific time and endows at 65 D. is paid up at some specific time and endows at age 100

B. requires the insured to pay the premium for life and endows at age 100

Which of the following policies will build cash value quickest? A. decreasing term B. single premium C. 10-pay life D. 30-pay life

B. single premium

All of the following are factors used to determine annuity premiums EXCEPT A. assumed interest rate B. annuitant's age C. annuitant's place of residence D. income amount and payment guarantee

C. annuitant's place of residence

Term insurance differs from permanent insurance in that term A. builds cash value but pays no death benefit B. insurance repays money to a living insured C. builds no cash value, pays a death benefit only D. has a higher premium per $1,000 of insurance

C. builds no cash value, pays a death benefit only

When a policy owner borrows money from a bank, a life insurance policy with some cash value accumulation: A. is not taken into consideration by the bank officials when determining the worth of the individual B. cannot be used as collateral because the insured cannot use any cash value until the policy matures C. can normally be used as collateral for the loan D. is rarely used as collateral for a load

C. can normally be used as collateral for the loan

In order to be valid, a contract must be between individuals considered legally able to enter into an agreement. This principle is known as A. legal purpose B. offer and acceptance C. competent parties D. a contract of utmost good faith

C. competent parties

A life annuity with period certain pays the annuitant A. during the certain period after which all payments cease B. an amount equal to the purchase price in a specified number of installments C. for a specified minimum number of years, or the rest of his or her life, whichever is longer D. until death, at which time the beneficiary begins receiving payments for the rest of his or her life

C. for a specified minimum number of years, or the rest of his or her life, whichever is longer

A flexible premium annuity A. is an immediate annuity with annuity payment amounts that vary according to the investment experience of the separate account B. is a deferred annuity with annuity payment amounts that vary according to the investment experience of the separate account C. is a deferred annuity with annuity payment amounts that cannot be determined in advance D. none of these are correct

C. is a deferred annuity with annuity payment amounts that cannot be determined in advance

A level premium annuity is one that A. is purchased with one lump sum payment B. pays the annuitant a yearly income C. is purchased over the years prior to the date on which the annuity begins D. must have the entire premium paid by one year prior to the date on which the annuity begins

C. is purchased over the years prior to the date on which the annuity begins

Mr. and Mrs. Burden receive annuity payments. Mr. Burden dies, but Mrs. Burden continues to receive payments. The Burdens have a A. straight life annuity B. joint life annuity C. joint life and survivorship annuity D. life annuity with period certain

C. joint life and survivorship annuity

The type of premium for term insurance that remains the same throughout a policy period of more than one year is the A. step rate premium and it's used for one-year renewable term policies B. step rate premium and it's used for level and decreasing term policies C. level premium and it's used for level and decreasing term policies D. level premium and it's used for one-year renewable term policies

C. level premium and it's used for level and decreasing term policies

A family income rider differs from a decreasing rider in that the family income rider A. always costs less B. pays a lump sum upon the death of the insured C. pays a monthly income upon the death of the insured D. Pays an annual income during a specified number of years from the time of the insured's death

C. pays a monthly income upon the death of the insured

The family maintenance policy A. pays a specific income according to the age of the beneficiary at the death of the insured B. pays a specific monthly income beginning a specific time after the policy is purchased C. pays a specific monthly income for a specific period beginning at the death of the insured D. starts paying a specific income when the insured dies and pays this income for a period specified in the policy, less the period which the insured lived after buying the policy

C. pays a specific monthly income for a specific period beginning at the death of the insured

The type of annuity that guarantees to pay total income at least equal to the purchase price of the contract is A. straight life annuity B. life annuity with period certain C. refund life annuity D. temporary annuity certain

C. refund life annuity

A limited pay policy A. requires level premium payments for the entire lifetime of the insured B. is available only for small face amounts C. requires premium payments for a specified number of years or until a specified age is reached D. cannot be purchased any longer due to tax law restrictions against it

C. requires premium payments for a specified number of years or until a specified age is reached

A universal life contract is in danger of lapsing when A. a regularly premium payment is missed B. the cash value equals the death benefit C. the cash value account becomes too small to pay the cost of insurance D. outstanding loans equal the death benefit

C. the cash value account becomes too small to pay the cost of insurance

All of the following provisions of an adjustable life policy may be changed to meet the policy-holder's needs EXCEPT A. the face amount of the policy B. the amount and/or frequency of premium payments C. the individual insured D. the period of insurance protection

C. the individual insured

One of the greatest advantages of convertible and renewable term policies is that A. they are considerably less expensive than other term policies B. these features are automatically included in all term policies C. the insured isn't required to show proof of insurability in order to renew or convert D. they accumulate cash values

C. the insured isn't required to show proof of insurability in order to renew or convert

The number of years excluded from the conversion privilege on a convertible term policy A. is three years B. is five years C. varies among insurance companies D. there is no exclusion

C. varies among insurance companies

A deferred annuity pays a death benefit to a beneficiary A. under no circumstance B. only when the annuitant dies after having received 12 monthly income payments C. when the annuitant dies before receiving any annuity payments D. only to a contingent beneficiary when both the annuitant and the primary beneficiary have died

C. when the annuitant dies before receiving any annuity payments

If Henry has a family income policy purchased when he was 30 that has a 20 year payment period and he dies at age 45, how many years will Henry's beneficiary receive income from the policy? A. 20 years B. 15 years C. 10 years D. 5 years

D. 5 years

A 25-pay life policy bought at age 30 will be paid up by age A. 40 B. 45 C. 50 D. 55

D. 55

All term policies automatically provide A. convertible privileges B. renewable privileges C. cash value accumulations D. a death benefit

D. a death benefit

An indeterminate premium policy offers A. term insurance with a fluctuating death benefit B. whole life insurance with premium payments for a limited number of years C. high initial premium that gradually decreases over the years D. a low initial premium with succeeding premiums based on the company's investment return, morality, and expenses

D. a low initial premium with succeeding premiums based on the company's investment return, morality and expenses

Premium payments made into a variable universal life policy A. are invested according to company policy B. are invested in a conservative account of long-term bonds and mortgages C. must be divided equally into separate investment accounts D. are invested in one or more investment portfolios at the policy owner's option

D. are invested in one or more investment portfolios at the policy owner's option

All of the following are elements of a contract EXCEPT A. legal purpose B. offer and acceptance C. consideration D. assignment

D. assignment

In a universal life policy, the two adjustments usually made to the cash value account are A. guaranteed interest and current interest are credited B. premium and excess interest are charged C. guaranteed interest is charged and premium is credited D. cost of insurance is charged and current interest is credited

D. cost of insurance is charged and current interest is credited

A policy affording pure protection that diminishes to nothing by the time the policy expires is a A. level term policy B. whole life policy C. limited pay policy D. decreasing term policy

D. decreasing term policy

In exchange for a consideration, the insurance company in a life insurance contract agrees to pay a specified sum of money A. in installments of $100 each B. in amounts based on the mortality probability of the beneficiary C. in cash equivalent to premiums paid D. in cash or equivalent income

D. in cash or equivalent income

TSAs are tax-sheltered retirement programs for employees of all the following kinds of organizations except A. charitable B. educational C. religious D. labor

D. labor

The type of policy that is paid up after a specified period of years and endows at age 100 is a/an A. single premium policy B. whole life policy C. endowment policy D. limited pay policy

D. limited pay policy

The death benefit of a variable life policy A. may go up but never down B. may go down but never up C. remains the same D. may go up or down but will never fall below the face amount of the policy

D. may go up or down but will never fall below the face amount of the policy

Which of the following normally comprise a deceased's final expenses? A. a home loan or mortgage B. the family's future living expenses C. education or college fund for the children D. medical and funeral expenses plus debts or current bills

D. medical and funeral expenses plus debts or current bills

A family income policy is comprised of A. permanent insurance only B. term insurance only C. permanent plus increasing term insurance D. permanent plus decreasing term insurance

D. permanent plus decreasing term insurance

An annuity is a contract that A. creates an estate by means of the annuitant making monthly payments until a specified age, usually 65 B. liquidates an estate in one lump sum cash payment to the annuitant C. creates an immediate estate to provide monthly income for the annuitant's beneficiary D. provides a lifetime income through periodic payments to the annuitant

D. provides a lifetime income through periodic payments to the annuitant

Warren and Wilma have a joint life policy. Warren dies and the policy pays nothing. Later on, Wilma dies and the policy death benefit is paid to the beneficiary. This is called a A. limited pay life policy B. convertible term policy C. variable life policy D. survivorship or second-to-die policy

D. survivorship or second-to-die policy

In a whole life insurance policy A. the cash value and insurance protection are greatest at the start of the policy B. the cash value and insurance protection are greatest at the end of the policy period C. the cash value is greatest at the start of the policy, and the insurance protection greatest at the end of the policy period D. the cash value is the greatest at the end of the policy period, and the insurance protection is greatest at the start of the policy

D. the cash value is the greatest at the end of the policy period, and the insurance protection is greatest at the start of the policy

In a universal life policy, the amount of the death benefit can equal the policy's cash value A. at any time B. at no time C. at the beginning of the corridor period D. when the insured reaches age 95

D. when the insured reaches age 95

All other factors being equal, which of the following policies is the least expensive as far as the total amount of premiums paid is concerned, assuming the insured died following the first premium payment? A. single premium B. 10-pay life C. 20-pay life D. whole life

D. whole life

Which of the following policies could be expected to have the lowest premium? A. 15-pay endowment at age 65 B. 20-paylife C. 30-paylife D. whole life

D. whole life