Life Review
To reinstate a policy, the policy owner must do each of the following EXCEPT: Select one: a.Prove insurability. b.Go through another contestable period on the original application. c.Pay the overdue premiums plus interest. d.Submit a reinstatement application.
Chapter 11: Required Life Provisions The correct answer is: Go through another contestable period on the original application.
With a Convertible Term policy, what is required to convert to Whole Life? Select one: a.The Insured must pay a higher premium. b.Permission from the beneficiary. c.A conversion fee. d.Proof of insurability.
Chapter 9: Term Life Insurance The correct answer is: The Insured must pay a higher premium.
What is the impact on the Insured under the Payor Benefit Rider? Select one: a.The premiums are reduced by 50% during the period of disability. b.The premiums are waived until the Insured reaches the age specified in the policy. c.The premiums are permanently waived if the payor has died. d.The premiums are permanently waived as long as the payor is disabled.
Chapter 13: Life Insurance Riders The correct answer is: The premiums are waived until the Insured reaches the age specified in the policy.
Each is true about paid up additions EXCEPT? Select one: a.They may generate dividends. b.They are Whole Life policies. c.They are not the automatic (default) dividend option selection. d.They are purchased on a net single premium basis.
Chapter 14: Policy Decisions The correct answer is: They are not the automatic (default) dividend option selection.
Which of the following statements regarding conversion of a Term Life policy from a Group plan to an individual policy is correct? Select one: a.The new converted policy will likely be Whole Life. b.The new converted policy is required to be Term Life, the same as the Group policy.
Chapter 17: Group Life Insurance The correct answer is: The new converted policy will likely be Whole Life.
Which of the following deals with the policy owner's equity in a policy? Select one: a.Dividend Options b.Beneficiary Designation c.Nonforfeiture Options d.Settlement Options
Equity refers to the owner's value of ownership - that is, the cash value account. Chapter 14: Policy Decisions The correct answer is: Nonforfeiture Options
A Whole Life Policy with an Accidental Death Benefit (ADB) Rider (which is also known as a Double Indemnity Rider) provides $250,000 coverage. The insured died of an accidental drug overdose. The policy will pay: Select one: a.$0 b.$250,000 c.$500,000 d.$1,000,000
If it is an accident, the Accidental Death benefit will double the payment. Chapter 13: Life Insurance Riders The correct answer is: $500,000
Which provision in a term policy provides for continued term insurance coverage? Select one: a.conversion provision b.renewability provision
If the policy is renewed, we still have term coverage. However, if we convert, we now have whole life coverage. So, the renewability provisions permits the Insured to continue the term coverage. Chapter 9: Term Life Insurance The correct answer is: renewability provision
Steve buys a $500,000 Life policy and commits suicide one month later. Assuming the policy includes a Suicide Clause, the company will: Select one: a.Deny the claim. b.Refund the premiums paid plus interest. c.Refund the premiums paid without interest. d.Pay the death benefit to Steve's beneficiary.
If the suicide occurs within 2 years, the company will refund the premium without interest, but not pay the claim. Chapter 12: Optional Life Provisions The correct answer is: Refund the premiums paid without interest.
Which of the following Term policies would cost the least? Select one: a.Renewable and non-convertible. b.Non-renewable and non-convertible. c.Renewable and convertible. d.Non-renewable and convertible.
Insurance companies charge extra for extra bells and whistles. So, having no "extras" would cost the least. Nonrenewable and nonconvertible would be cheapest. Chapter 9: Term Life Insurance The correct answer is: Non-renewable and non-convertible.
Most modern day Life Insurance policies cover which of the following? Select one: a.Student pilots. b.Fare paying passengers on regularly scheduled flights. c.No airplane accidents. d.Military pilots.
Life Insurance companies have generally overcome their fear of flying by covering regularly scheduled airlines. However, the typical Life policy won't cover a student pilot, a stunt pilot, or a military pilot who dies in an airplane accident (unless it is a regularly scheduled airline). Chapter 12: Optional Life Provisions The correct answer is: Fare paying passengers on regularly scheduled flights.
A Family Maintenance Policy is a combination of which of the following? Select one: a.Whole Life and Decreasing Term b.Whole Life and Adjustable Life c.Whole Life and Level Term d.Life Insurance and an Annuity
Maintenance keeps us "level," thus level term. Chapter 15: Life Insurance in the Family Setting The correct answer is: Whole Life and Level Term
Under a Guaranteed Insurability Rider, the fee paid for the extra insurance is: Select one: a.based on the Insured's attained age at the time the additional coverage is sold. b.flexible because the Insured may purchase additional insurance at any time. c.based on the Insured's age at the time the original policy was sold. d.based on the Insured's health at the time the additional coverage is sold.
New Point: When the Insured decides to purchase coverage, the premium is based on the Insured's attained age at that time. Chapter 13: Life Insurance Riders The correct answer is: based on the Insured's attained age at the time the additional coverage is sold.
Which of the following would be a good policy for a new college graduate who expects her income to increase significantly over the next few years and will have student loans paid off soon? Select one: a.Graduated (Modified) Premium Life b.Decreasing Term c.Straight Life d.Increasing Term
The struggling recent college graduate would opt for the lowest premium in the early years and then have the payments increase as the graduate's earning increase. That is exactly what a Graded Premium life policy does. Watch out! A Graded Premium life policy is sometimes called a Modified Life policy. Chapter 10: Whole Life Insurance The correct answer is: Graduated (Modified) Premium Life
Under an IRA: Select one: a.Payouts must begin by 72. b.Payins must stop by age 59.
This is correct for traditional IRAs, there is no mandatory withdrawal from a Roth IRA at 72. Chapter 21: Retirement Planning *See Course Updates The correct answer is: Payouts must begin by 72.
Money in a Qualified Annuity will be subject to taxation and a 10% penalty if the money is withdrawn prior to what age? Select one: a.55 b.59 ½ c.65 d.72
59 ½
The Conversion Provision in a Term policy allows the Insured to: Select one: a.Decrease the death benefit b.Obtain Whole Life insurance c.Increase the death benefit d.Change the beneficiary
A "convertible" life insurance policy means that it may be converted from Term to Whole Life. It will usually only be convertible within a fairly short time, such as the first two years. Chapter 9: Term Life Insurance The correct answer is: Obtain Whole Life insurance
The purpose of a life annuity is to guarantee against: Select one: a.Living too long. b.Dying too soon.
Chapter 22: Annuities The correct answer is: Living too long.
Janice wins a substantial cash prize at age 25, which she would like to put away until her expected retirement at age 65 when she plans to withdraw all of the money. Which of the following might be a good option for Janice? Select one: a.Single Premium Whole Life b.A Lump Sum Deferred Annuity c.A Lump Sum Immediate Annuity d.A Flexible Premium Deferred Annuity
She wants to put the money into the annuity fund right away (lump sum) but not withdraw the money until retirement at age 65 (deferred). So, Janice wants a Lump Sum Deferred Annuity. Chapter 22: Annuities The correct answer is: A Lump Sum Deferred Annuity
Which Annuity's payments will always cease upon the annuitant's death? Select one: a.Life Annuity with Amount Certain b.Installment Refund Annuity c.Refund Life Annuity d.Straight Life Annuity
Straight Life Annuity
Another name for a retirement plan for an unincorporated small business is? Select one: a.Keogh Plan b.Roth IRA c.TSA d.IRA
The Keogh Plan is designed for small businesses. Because it is so complicated to administer, most small unincorporated businesses have chosen the newer alternative, the SEP. Both are designed for unincorporated small businesses. Chapter 21: Retirement Planning The correct answer is: Keogh Plan
Anna bought an immediate Single Premium Annuity with a 10 Year Period Certain. She died 23 years later. When did her annuity payments stop? Select one: a.Ten years after she purchased it. b.Can't tell - not enough information. c.When she died. d.Ten years after her death.
This was simply a plain old "10 Year Period Certain" Annuity. It wasn't a Life Annuity, so payments stopped after 10 years. So, not all annuities are "life" annuities, particularly on the exam! Chapter 22: Annuities The correct answer is: Ten years after she purchased it.
Sandra and Charles want to purchase a policy that will automatically cover newborns at no extra cost. Which policy should they choose? Select one: a.A Joint Life Policy b.A Family Policy c.A Family Income Policy d.A Family Maintenance Policy
New Point: The only policy in the list which provides any coverage for family members is the Family Policy. It covers the main breadwinner with a whole life policy but offers smaller convertible term policies for the spouse and children. There is no extra cost for policies if newborns come along. The underwriters already have that possibility factored into the premium. Chapter 15: Life Insurance in the Family Setting The correct answer is: A Family Policy
An agent misrepresents the benefit levels under a policy. Which provision provides the insurance company the most protection? Select one: a.The Free Look Clause b.The Ownership Clause c.The Insuring Clause d.The Entire Contract Clause
One of the things specified in the Entire Contract Clause is that the Insurer isn't bound by statements made by the producer. The Insured can rely only on what is in the "Entire Contract." If it weren't for the Entire Contract Clause, I could claim that the producer promised me a free dinner in Hawaii on each of my birthdays. Sorry, no free dinners and no free trip to Hawaii. Chapter 11: Required Life Provisions The correct answer is: The Entire Contract Clause
What happens when the whole life policy's grace period expires? Select one: a.The policy is surrendered. b.The policy expires. c.The policy lapses. d.The insurance policy matures.
The Policy lapses is the correct answer: Lapse (lapsation) means the Insured hasn't paid the premium and the Grace Period is over. This is a key test concept! Chapter 8: Life Insurance Basics The correct answer is: The policy lapses.
Which section of the life policy may provide that the policy will not pay claims due to military action, foreign travel, or suicide? Select one: a.Insuring Agreement b.Contestability Provision
The exclusions are part of the Insuring Agreement section of the policy. Chapter 12: Optional Life Provisions The correct answer is: Insuring Agreement
A policy owner who has a Convertible Term policy wishes to convert to Whole Life. Will proof of insurability be required? Select one: a.No. b.Yes.
We want to encourage clients to switch from Term Insurance to the better Whole Life policy. The Insurer knows that clients who are in such poor health that they are likely to die soon won't bother to buy the more expensive Whole Life policy. Thus, no evidence of insurability will be required to convert from Term to Whole Life. However, the Insurer will usually require this decision to be made in the first few years rather than when the Term policy is nearing expiration. Chapter 10: Whole Life Insurance The correct answer is: No.
Which will have a premium that increases each year? Select one: a.20-Pay Whole Life b.Annually Renewable Term Life c.Straight Life d.15-Pay Whole Life
Chapter 10: Whole Life Insurance The correct answer is: Annually Renewable Term Life
Which is correct regarding a Family Policy? Select one: a.The death benefits are provided using Term policies for all family members. b.The policy consists of a Permanent policy on the breadwinner and Term policies for the other family members. c.Each family member receives a Whole Life policy. d.The death benefit is the same for each family member.
The policy consists of a Permanent policy on the breadwinner and Term policies for the other family members is correct. If new kiddies come along, they are covered at no extra premium. Chapter 15: Life Insurance in the Family Setting The correct answer is: The policy consists of a Permanent policy on the breadwinner and Term policies for the other family members.
An insured may borrow which of the following under a Whole Life policy? Select one: a.The death benefit b.The amount of the cash value c.The annual premium amount only d.The amount of the cash value less the interest to be charged for the year
Chapter 11: Required Life Provisions The correct answer is: The amount of the cash value less the interest to be charged for the year
The Free Look period begins at what time? Select one: a.When the policy is issued. b.When the policy is delivered.
Chapter 11: Required Life Provisions The correct answer is: When the policy is delivered.
Kobi purchased a Whole Life policy at age 23. At age 45, she is tired of paying the premium each month. If she discontinues the payments, which nonforfeiture option will automatically be used? Select one: a.Reduced Paid-Up Insurance b.Cash c.Reinstatement d.Extended Term Insurance
Chapter 14: Policy Decisions The correct answer is: Extended Term Insurance
Policy loans can only be made for policies that have which of the following options? Select one: a.Settlement Options b.Death Benefits c.Beneficiary Designation d.Nonforfeiture Options
Chapter 14: Policy Decisions The correct answer is: Nonforfeiture Options
Which of the following best describes an Adjustable Life policy? Select one: a.A special type of Annuity with a Decreasing Term Life death benefit. b.A Whole Life policy combined with an Annuity. c.A Term Rider that may be converted to its own Whole Life policy. d.A policy with a unique two-way conversion feature.
A policy with a unique two-way conversion feature is correct. An Adjustable Life Policy has the two-way conversion feature - if it is Term Insurance, it may be converted to Whole Life. If it is Whole Life, it may be converted to Term. It may even be a combination of Term and Whole Life. But the conversion is at the request of the Insured, not at a specified time. In addition, everything in the policy is adjustable - from the premium to the death benefit (with proof of insurability). However, the Insurance Company picks the investment options for the cash value account - the policy holder doesn't make those investment decisions. Chapter 19: Adjustable Life Policies The correct answer is: A policy with a unique two-way conversion feature.
A securities license is required to sell which of the following? Select one: a.Universal Life b.Modified Life c.Variable Universal Life d.Adjustable Life
Both a Life Insurance license and a Securities license are needed to sell any variable product. The Securities license is obtained from the SEC or NASD or FINRA (FINRA is the most up-to-date answer, but go with whichever answer you see). Chapter 20: Newer Life Policies The correct answer is: Variable Universal Life
What happens to the premium over the course of a Decreasing Term policy? Select one: a.It increases. b.It decreases. c.It remains level and fixed. d.None of the above.
Don't forget our "almost" sacred rule - the premium is "almost" always level and fixed. So, what changes is the death benefit. Term Insurance has traditionally been sold to people who can't afford Whole Life at this time. The convertibility provision allows such people to buy the fancier Whole Life when their financial situation improves. Chapter 9: Term Life Insurance The correct answer is: It remains level and fixed.
Which of the following provides lifetime income benefits? Select one: a.A Period Certain Annuity b.An Immediate Lump Sum Annuity c.A Straight Life Annuity d.An Amount Certain Annuity
If you want to be sure that you will be paid as long as you live, select a Life Annuity, also known as a Straight Life Annuity. That could be structured as a Life Annuity with Period Certain, a Life Annuity with Amount Certain (a refund annuity), or a Joint and Survivor Annuity. All will pay for at least your life and perhaps longer. Chapter 22: Annuities The correct answer is: A Straight Life Annuity
Life insurance protects against: Select one: a.living too long. b.dying too soon.
In many ways, annuities are the opposite of life insurance because annuities pay as long as you live. Thus, an annuity protects against the risk of living so long that you out-live your savings. So, insurance professionals like to say that life insurance protects against dying too soon while annuities protect against living too long, that is, the fear that you will have spent all of your savings. Chapter 8: Life Insurance Basics The correct answer is: dying too soon.
Key Person Life Insurance is designed to do which of the following? Select one: a.Provide extra compensation to an employee who dies unexpectedly. b.Protect the company in case an insured employee dies prematurely. c.Protect a creditor in case the Insured dies. d.Protect the surviving spouse in case the Insured dies.
Key Person Life Insurance protects the business when one of its key employees dies. The premium is paid for by the company and the company is the beneficiary. The key employee's family gets nothing. New Point: Key Person life insurance generally indicates that the company is well run, resulting in a better credit rating as well as a higher stock price (in theory). Chapter 16: Life Insurance in the Business Setting The correct answer is: Protect the company in case an insured employee dies prematurely.
The Entire Contract Provision: Select one: a.States that both the policy and the application are part of the contract. b.Entitles the applicant to review the entire contract prior to paying the first premium.
Chapter 11: Required Life Provisions The correct answer is: States that both the policy and the application are part of the contract.
Which provision states that documents kept at the Insurer's home office may not be referenced as part of the policy? Select one: a.The Consideration Clause b.The Free Look Clause c.The Incontestable Clause d.The Entire Contract Clause
Chapter 11: Required Life Provisions The correct answer is: The Entire Contract Clause
The Accelerated Death Benefit will pay up to 50% of the face value in which situation? Select one: a.The Insured becomes totally disabled and is confined to a nursing home. b. The Insured dies within 2 years after the policy is issued.
Chapter 13: Life Insurance Riders The correct answer is: The Insured becomes totally disabled and is confined to a nursing home.
With a Life Annuity with 10 Year Period Certain, what does the "10 year" portion refer to? Select one: a. The length of time that payments will be deferred after the Annuity is purchased. b.The length of time after the annuitant's death that payments will be made. c.The maximum length of time that payments will be made. d.The minimum length of time that payments will be made.
Chapter 22: Annuities The correct answer is: The minimum length of time that payments will be made.
The amount that the beneficiary will receive if the Insured dies is called the: Select one: a.Premium value. b.Face value.
Chapter 8: Life Insurance Basics The correct answer is: Face value.
Which provides a death benefit that may be changed to Whole Life without proof of insurability? Select one: a.Renewable Term b.Convertible Term
Chapter 9: Term Life Insurance The correct answer is: Convertible Term
Which Term policy will be the most expensive? Select one: a.Noncovertible and Nonrenewable b.Convertible and Renewable
Chapter 9: Term Life Insurance The correct answer is: Convertible and Renewable
Molly has a $2 Million life annuity. Her annuity guarantees that if she dies before the money has been fully paid to her, the balance will be paid to her church over a period of time. This is an example of: Select one: a.An Installment Refund Life Annuity b.Endowment Policy c.Whole Life policy d.A Cash Refund Life Annuity
This is an example of a refund annuity (the extra money is refunded) where the balance of the funds are paid to the church as beneficiary after the death of the annuitant. Here the beneficiary gets the "refund" not in a lump sum (Cash Refund) but in payments over time. Thus, this is an example of an Installment Refund Life Annuity. Tough Question but common. Chapter 22: Annuities The correct answer is: An Installment Refund Life Annuity
An insurer will likely require proof of insurability in each of these situations EXCEPT: Select one: a.when applying for an individual Term policy. b.when applying for an individual Whole Life policy. c.when increasing the policy's face value. d.when changing the beneficiary.
Any time the Insured wants to increase the face value, you can pretty well bet that the Insurer will want a new medical exam as proof of insurability. Merely changing the beneficiary in no way changes the risk to the Insurer, so proof of insurability won't be required. Also remember from Chapter 4 that proof of insurability usually isn't required when purchasing group life insurance. Chapter 8: Life Insurance Basics The correct answer is: when changing the beneficiary.
Which policy will require the highest premium check? Select one: a.A 15-Pay Policy b.A Straight Life policy c.A 30-Pay Life Policy d.A Single-Pay Whole Life Policy
Chapter 10: Whole Life Insurance The correct answer is: A Single-Pay Whole Life Policy
Which of the following would you recommend to a young professional who currently has a limited income and wants life-long coverage? Select one: a.Renewable Term b.30-Year Term Life c.Graduated Life d.15-Pay Whole Life
Chapter 10: Whole Life Insurance The correct answer is: Graduated Life
Which of the following policies would have the lowest premium in the first year for a 40 year old? Select one: a.Straight Life b.15-Pay Whole Life c.20-Pay Whole Life d.Paid Up at 55 Whole Life
Chapter 10: Whole Life Insurance The correct answer is: Straight Life
Alexa buys a 10-Pay Whole Life policy. Assuming she pays all her premiums, how long will she be covered? Select one: a.Until death or age 100. b.Until the end of the 10 year term.
Chapter 10: Whole Life Insurance The correct answer is: Until death or age 100.
What is the standard grace period for Life Insurance policies? Select one: a.45 days b.20 days c.31 days d.15 days
Chapter 11: Required Life Provisions The correct answer is: 31 days
Who has the right to assign a policy? Select one: a.Policy Owner b.Agent c.Insured d.Insurance Company
Chapter 11: Required Life Provisions The correct answer is: Policy Owner
What happens to a Whole Life policy when the Insured reaches age 100? Select one: a.Coverage terminates. b.The policy is automatically renewed for 5 year periods without the need for additional premium payments. c.All premiums paid are refunded. d.The policy is automatically converted to a Term policy.
Coverage terminates, the policy "matures" because the cash value is equal to the death benefit, and the cash value is given to the owner. Chapter 10: Whole Life Insurance The correct answer is: Coverage terminates.
What is decreasing with a Decreasing Term Life policy? Select one: a.Face value b.Cash value c.Premium d.Term
Decreasing Term is used to provide coverage that will pay the Insured's mortgage payments. Because the balance owing on the mortgage decreases each month, Decreasing Term has a decreasing death benefit. Remember that premiums are presumed to be level and fixed. Chapter 9: Term Life Insurance The correct answer is: Face value
Mrs. M has a $100,000 life annuity. Her annuity guarantees that if she dies before the $100,000 has been fully paid to her, the balance will be paid to her designated beneficiary in a single payment. This is an example of: Select one: a.An Installment Refund Life Annuity b.A Cash Refund Life Annuity c.Term Life Policy d.Endowment Policy
This is clearly an example of a refund annuity. More specifically, it is a Cash Refund Annuity because the whole balance is given to the beneficiary in a single payment. With an Installment Refund Annuity, payments are given to the beneficiary in installments rather than with a single payment. Chapter 22: Annuities The correct answer is: A Cash Refund Life Annuity
A Variable Life policy differs from an Adjustable Life policy in what way? Select one: a.Selling Adjustable Life requires a Securities license, but the sale of a Variable Life policy does not. b.Variable Life has a Free Look provision but Adjustable Life doesn't. c.Variable Life policy allows the owner to select from a list of investments and Adjustable Life does not. d.A Life Producer's license is needed to sell Adjustable Life but not Variable Life.
Whenever you see a Variable question, you can bet that they will want you to know that: 1) you need a securities license to sell the product, or 2) the product allows the policyowner to select the investment option for the money in the cash value account. Here the correct answer is the Variable policy allows the owner to select the investment choice. Chapter 20: Newer Life Policies The correct answer is: Variable Life policy allows the owner to select from a list of investments and Adjustable Life does not.
What changes over the course of a Modified (Graded) Premium Whole Life policy? Select one: a.The cash value decreases. b.The premium decreases. c.The death benefit increases. d.The premium increases.
Ah, yes, an exception to every rule. I have repeatedly said that the premium is level and fixed. The Graded Premium (Modified) Whole Life Policy is the first exception - here we have low premiums in the early years and higher premiums at a later set time. Chapter 10: Whole Life Insurance The correct answer is: The premium increases.
A 20-Year Endowment policy's cash value is equal to which of the following after 20 years? Select one: a.The Insured's age. b.The face value. c.The total amount of premiums paid less interest earned. d.Premiums paid less any cash loan values.
An Endowment Policy endows (cash value account equals death benefit) at an age lower than age 100. The definition of "endow" is that the cash value equals the death benefit. So, after 20 years, a 20-Year Endowment policy's cash value has to equal the death benefit which is also known as the face value. Chapter 18: Taxes and Individual Life Insurance The correct answer is: The face value.
Sharon has a Life policy and has selected a settlement option that will pay an income to her husband for his life. Which settlement option did she choose? Select one: a.Annuity Settlement Option b.Paid up additions c.Cash Settlement Option d.Interest Settlement Option
Chapter 14: Policy Decisions The correct answer is: Annuity Settlement Option
Assuming the same face value, which of the following policies will have the largest accumulated cash value after 10 years? Select one: a.A 5-pay Whole Life policy. b.A 20-Pay Whole Life policy. c.A 20-Year Endowment Life policy. d.A Straight Life policy.
The Endowment policy will have the largest cash value because cash value has to equal the face value at the date of Endowment. Endowment policies have larger premium payments than any other policies to allow for that faster build-up of cash value. Chapter 18: Taxes and Individual Life Insurance The correct answer is: A 20-Year Endowment Life policy.
A Family Maintenance Policy: Select one: a.Combines Increasing Term and Whole Life. b.Involves Decreasing Term. c.Requires a securities license to sell. d.Is a combination of Whole Life and Term.
"Is a combination of Whole Life and Term" is the "best" answer. Although we know that the Term Policy is really a Level Term Policy, it is perfectly correct to say that a Family Maintenance Policy is a combination of Whole Life and Term. This typical of what test writers love to do. They know that you are inclined not to mark this answer because it isn't perfect, even though it is "best" among the four choices. I remember that the Family Maintenance Policy "maintains" the family's lifestyle. So, it provides Whole Life for its primary coverage but uses Level Term to "maintain" the family's income level regardless of how many kids are still living at home when the breadwinner dies. Remember that it is the Family Income Policy that includes Whole Life and Decreasing Term - it will pay a smaller amount each year if the main breadwinner dies while kids are still living at home. Chapter 15: Life Insurance in the Family Setting The correct answer is: Is a combination of Whole Life and Term.
When a Term Life policy ends and the Insured is still living, the policy: Select one: a.Is surrendered. b.Matures. c.Expires. d.Lapses.
Key point for the exam! Term policies expire, whole life policies don't. When the term life policy's coverage period is over but the Insured is still alive, the policy is said to "expire." Chapter 8: Life Insurance Basics The correct answer is: Expires.
Which of the following would help a small hardware store continue its business after the death of one of three owners? Select one: a.Split Dollar Plan b.Deferred Compensation Plan c.Buy-Sell Agreement d.Subrogation
The Buy-Sell agreement is simply one provision in the larger Business Continuation Plan. So, either "Buy-Sell" or "Business Continuation Plan" could be an answer to this question. One of the problems with the exam is that often there can be half a dozen possible answers - hopefully the test writers will only have one of these in the answer list. If they have more than one correct answer, go with the answer that is the most specific response to the question. Chapter 16: Life Insurance in the Business Setting The correct answer is: Buy-Sell Agreement
Which policy provision is designed to shield a policyowner from the irrevocable loss of cash value due to nonpayment of premium? Select one: a.Nonforfeiture Provision b.Insurable interest
The Nonforeiture Provision says that once the Grace Period Expires, the policyowner will receive either the cash value account, an Extended Term policy, or a Reduced Paid-up Whole Life policy. Watch out, another possible answer to this question could be Grace Period (although that wasn't a listed choice). Chapter 14: Policy Decisions The correct answer is: Nonforfeiture Provision
Annuity premiums are based on: Select one: a.MIB reports b.A medical exam c.mortality tables d.morbidity tables
The annuity premium is based on a mortality table that looks only at age and gender. Annuity underwriting is rather simplified compared to life and health insurance underwriting. Chapter 22: Annuities The correct answer is: mortality tables
The Insuring Clause includes all of the following EXCEPT: Select one: a.The Entire Contract clause. b.The Insurer's basic promise to pay. c.The parties to the contract. d.When benefits will be paid.
The only reason the Insuring Clause is a big deal on our exam is because the test writers know that it is so insignificant and obvious that you won't remember what it does. This is a big test item! The Entire Contract Provision is a separate provision. Chapter 11: Required Life Provisions The correct answer is: The Entire Contract clause.
Zela is 30 and wants to buy a $200,000 Life policy. Which of the following will have the highest annual premium? Select one: a.A 30-Pay Whole Life Policy b.A 40-Pay Whole Life Policy c.A "Straight Life" Whole Life Policy d.A 30-Year Endowment Policy
The policy that is paid up the earliest will have the highest premium. Thus, the two 30 year policies will require a higher premium payment than the others. However, the 30-Pay Endowment policy will require the highest premium because the total death benefit must be in the cash value account at the end of 30 years. With a 30-Pay Whole Life policy, much less money is in the account in 30 years because the cash value will continue to grow until age 100. Chapter 18: Taxes and Individual Life Insurance The correct answer is: A 30-Year Endowment Policy
Which policy will have the lowest annual premium for a 40-year old applicant? Select one: a.20-Pay Life b.10-Pay Life c.Life Paid at 65 d.Straight Whole Life
The policy that requires payments over the longest period of time would have the lowest annual premium. The Insure must either pay a little bit each year to age 100 or pay more each year but make payments for fewer years. On the other hand, if it is paid up early, the annual payments will be higher. The Straight Whole Life policy requires the Insured to potentially pay to age 100 - thus it will have the lowest annual premium but will require the greatest total payment over the life of the policy. Chapter 10: Whole Life Insurance The correct answer is: Straight Whole Life
When does a Term Life policy mature? Select one: a.When the Insured converts the policy. b.At the end of the policy term. c.Upon the Insured's death within the policy term. d.When the Insured reaches age 100.
There is only one way for a Term policy to mature - the Insured must die while coverage is in effect. Remember, "mature" means that the policy pays the limit (the face value). Chapter 8: Life Insurance Basics The correct answer is: Upon the Insured's death within the policy term.
Zena is diagnosed with cancer. As a result, her foot must be amputated. Several weeks later, Zena died from the cancer. How much will her AD&D policy pay? Select one: a.Only the capital sum. b.Both the capital sum and the principal sum. c.Neither the capital sum nor the principal sum. d.Only the principal sum.
There was no accidental death or accidental dismemberment. Because the loss was caused by an illness, the AD&D policy won't pay the claim. Chapter 10: Whole Life Insurance The correct answer is: Neither the capital sum nor the principal sum.
Which of the following does NOT constitute third party ownership? Select one: a.A business owner purchases a Life policy to protect her family in case she dies. b.A parent purchases a policy on his child. c.A Key Employee Life Insurance policy. d.An employer purchases a group Life Insurance policy to cover the employees.
Third Party Ownership simply means that the policy is owned by someone other than the Insured. In all of the situations listed, someone other than the Insured owns the policy EXCEPT where the business owner purchases life insurance on herself. In that case, we have First Party Ownership because the owner and the Insured are the same person. Chapter 16: Life Insurance in the Business Setting The correct answer is: A business owner purchases a Life policy to protect her family in case she dies.
Josh applied for a Life policy and intentionally misstated his age to save money. When Josh died five years later, the company discovers the lie. What will the insurance company do? Select one: a.Adjust the death benefit to reflect what the premium actually would have purchased given Josh's true age. b.Return all premiums paid plus interest to the beneficiary. c.Deny the claim on the basis of fraud. d.Pay the claim because the contestable period has passed.
This a key issue. Even if the Insured blatantly lies about age or gender, the insurer will simply adjust the policy rather than terminating coverage. This is required by the "Misstatement of Age or Gender Provision." Chapter 11: Required Life Provisions The correct answer is: Adjust the death benefit to reflect what the premium actually would have purchased given Josh's true age.
With which of of the following is the cash value account measured in "investment units" rather than dollars? Select one: a.Adjustable Life or Interest Sensitive Life b.Term or Whole Life c.Term Insurance only d.Variable Life or Variable Universal Life
Variable products don't have a guaranteed cash value account because we have to look at the value of the investment portfolio each day to determine the current cash value. The variable products measure the cash value account in terms of "investment units." Chapter 20: Newer Life Policies The correct answer is: Variable Life or Variable Universal Life