Life/Health A.D. Banker - Chapter 3
How much of a cash value policy loan will an insurer normally grant with a variable type policy? A 75-90% B 50-75% C 100% D 80-90%
A Policy loans are available from either the general account or the separate account. Typically 75-90% of the cash value can be borrowed against.
What "jumps" in a jumping juvenile policy? A The premium jumps five times over the life of the policy, beginning at age 21 or 25 B The premium and the face amount jump by a factor of five after the child's 21st or 25th birthday C The face amount jumps one time, usually to five times the amount of insurance, at age 21 or 25 D The premium increases by a factor of five on the child's 21st or 25th birthday
C A "jumping juvenile" policy will normally increase the face amount of insurance by a factor of five with no change in premium at the next anniversary after the child turns anywhere from age 21 to 25 (depends on the policy). Ownership of the policy also changes at that time to the child, who is now an adult.
When the life insurance policy's cash value equals the face amount of the policy and the proceeds are paid to the policyowner, this is known as the policy's _________. A. Conversion B. Renewal C. Reinstatement D. Endowment
Endowment - When the life insurance policy's cash value equals the face amount, the policy is said to endow.
A homeowner with a 20-year mortgage needs to cover the mortgage amount with term insurance. Which of the following would she choose? A. Re-Entry Term B. Increasing Term C. Decreasing Term D. Level Term
Decreasing Term - Decreasing term would satisfy the insured's specific intent. Level term would pay more than the unpaid mortgage amount.
Which of the following riders can be used to cover the life of an additional insured who is an unrelated business partner? A. Family rider B. Child rider C. Spouse rider D. Nonfamily rider
Nonfamily rider - A Nonfamily Rider covers an additional insured with an insurable interest, such as a business partner.
A is the insured under a $100,000 10 year term life insurance policy with her spouse named as her beneficiary. If she dies in year 9, what will her spouse receive? A. The policy's cash value B. Nothing since this is term insurance C. The face amount of the policy D. A refund to all premiums paid
The face amount of the policy - Since the policy was in force when Angie died, Richard will receive a claim payment equal to the face amount of the policy.
What is the 'waiver of premium' called on a Universal Life insurance policy? A. Waiver of flexible premium B. Monthly premium waiver C. Waiver of Cost of Insurance D. Disability premium income
Waiver of Cost of Insurance - Waiver of Cost of Insurance is a rider that waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled, usually after 6 months of continuous disability.
Which of the following traditional whole life policies has the highest first-year annual premium, all other factors being equal? A. 20-pay life B. 10-pay life C. 40-pay life D. 30-pay life
10-pay life - The shorter the premium paying period, the higher the premium. A Limited Pay Life policy of 10 years would have a higher premium than a 20-pay, 30-pay, or 40-pay life policy.
All of the following are correct pertaining to Decreasing Term, except: A The premium declines throughout the term of the policy B Its most common use is in credit life insurance C The death benefit decreases D The premium stays level
A A decreasing term policy has a death benefit that reduces over a defined number of years, but the premium remains the same in all years.
What is the name of the rider (benefit) that, in the event of a claim, the policy normally pays double or triple the face amount if death was a result of an accident. A Occupational B Accidental Death C Auto Insurance D Additional Indemnity
B Accidental Death Benefit (Double or Triple Indemnity) is a benefit that is payable only if death occurs before a specific age and within 90 days of the accident. It does not add any additional values to the base policy.
Which of the following policies cannot have a premium payment period of less than to age 100?
Ordinary Straight Life - Straight Whole Life premium schedule is level and payable to age 100 or death of the insured, whichever comes first.
First-to-die and last-to-die life insurance policies have in common all of the following, EXCEPT: A. They both continue in force after one of the named insureds dies B. They are both issued by an insurance company C. They both require premiums to be paid on time D. Generally they cover the lives of two people, typically husband and wife
They both continue in force after one of the named insureds dies - With first-to-die, the policy ends with a death claim after the first insured dies. With last-to-die, the policy remains in force until the last named insured dies.
Permanent insurance is designed to provide coverage ___________. A To age 65 B For a specified period of time C For an entire lifetime D For a temporary period of time
C While term insurance is designed to provide protection for a specified time period, permanent insurance is designed to provide coverage for an entire lifetime.
A producer is explaining the concept of limited-pay life insurance to her client. Which of these statements is incorrect? A Paying over a longer period of time will make the total payments higher B By paying over a shorter period of time, each of the payments will be higher C By paying over a shorter period of time, each of the payments will be lower D A policy fully paid up at age 65 will not endow until age 100
B Remember that the basic concept of insurance premiums is that by paying less often, a person will pay less in total premium. However, in cash value policies, because the payments are funding the cash value, the actual amount per payment in a limited payment policy will be higher as the number of payments is reduced. A 10-pay policy will have higher premiums than a 20-pay policy, but the total of the 10 payments will be much less than the total of the 20 payments.
Which of the following Whole Life insurance policies has the lowest annual premium payment per $1,000 of coverage for a 35-year-old, all other factors being equal? A. 30-Pay Ordinary Life B. Ordinary Straight Whole Life C. 20-Pay Ordinary Life D. Limited Pay Ordinary Whole to age 85
Ordinary Straight Whole Life - The longer the premium-paying period, the lower the annual premium. A $100,000 Ordinary Straight Whole Life Policy spreads the payments out over a longer period of time than a limited premium payment policy.
Which of the following are characteristics of universal life insurance policies? A Death benefit options, death benefit, and premiums may be changed B Death benefit options, premiums fixed for life C Adjustable death benefit, premiums are fixed for life D Fixed death benefit for life, premiums may be increased or decreased
A Death benefits options are a key characteristic of all forms of universal life insurance. All UL policies permit the policyowner to make changes in both the amount and timing of premium payments, including making no payments at all, and the death benefit may be increased or decreased in accordance with the terms and provisions of the policy.
Which of the following term life insurance policies cannot be renewed? A Decreasing B Level C Increasing D Re-entry
A Decreasing term follows the debt repayment schedule and once the debt has been paid off the policy ends, therefore it cannot be renewed.
How would a term policy normally be used to pay off a mortgage upon death? A Using the death proceeds after the insured has died B By using the policy as collateral for a policy loan C Through a viatical or life settlement D By using the policy's cash values
A Term can be used as mortgage insurance which typically provides a decreasing term benefit.
Which of the following term life insurance policies would have the lowest 1st-year annual premium, all other factors being equal? A 1-year B 5-year C 10-year D 15-year
A The 1-year term life insurance policy would have the lowest first-year premium of the choices provided. In essence, one year of coverage is less risky to the insurer than being locked in to more years.
Which of the following best describes an Annual Renewable Term Policy? A A policy with decreasing premium at each renewal B A policy with an increased face value at each renewal C A policy with a level death benefit, but with increased premium at each renewal D A policy with increasing cash value at each renewal
C Whether the policy period is 1 year, 5 years, 10 years, etc., the premium will increase at each renewal to sustain the same specified death benefit that was purchased when the policy was written. At renewal the premium is based upon attained age.
In the event a parent becomes disabled or dies while paying premiums on a life insurance policy for a minor child, which provision would allow the policy to continue in force until the child reaches a predetermined age? A Payor Benefit (Waiver of Payor Premium) B Minor Child Rider C Return of Premium Rider D Cost of Premium Rider
A A Payor benefit rider waives the policy premium in the event of the death or total disability of the premium payor. Usually found in policies covering children to the child's age 21 or 25.
Which of the following riders is used to increase the death benefit if death is the result of an unintended fatal injury, paying a multiple of the face amount? A Accidental Death B Disability Benefit C Accelerated Death Benefits D Payor Benefit
A If death is ruled to be accidental, the Accidental Death Rider pays a multiple (usually double) of the death benefit of the underlying policy
An insured owns a $50,000 permanent life policy that she purchased 4 years ago that has a disability waiver of premium. The insured becomes disabled and pays premiums during the waiting period until the waiver begins. Once the waiver begins, what happens to the premiums she paid during the waiting period? A The insurer refunds it B It is added to the policy's cash values C It is kept by the insurer as part of the cost of providing the benefit D It is held in escrow until the disability is over then refunded
A Once the waiver of premium takes effect, it is retroactive to the date of the disability. The insurer refunds the premiums paid during the waiting period essentially recognizing the fact that the disability was covered from the first day.
The owner of a Variable Life Policy may allocate the premium into a sub-account which is owned by the insurer, this sub-account is a part of what is also known as the: A Separate Account B Accumulation Account C Allocation Account D Side Fund
A Owners of Variable insurance products may allocate their cash value into the insurer's separate account, with subaccounts that work like mutual funds, or into a guaranteed interest fund.
Q has an ordinary straight whole life insurance policy for $100,000. Due to a change in circumstances, Q finds that there is now a need for more coverage, but the budget is not there for another similar policy. What can Q do to satisfy the need for additional coverage at a low price? A. Ask for an increase in the existing policy's face amount B. Add a term rider C. Use the cash values of the policy to cover the difference D. Add an accidental death rider
Add a term rider - Adding a term life insurance rider will allow for the additional coverage to be put into place at an affordable price, without having to acquire another policy. Ordinary straight whole life does not allow for an increase in face amount, as it is a fixed benefit policy.
An ordinary straight whole life policy issued 30 years ago would endow at what age? A 121 B 100 C 65 D 95
B An ordinary straight whole life policy issued 30 years ago would endow at age 100. Only recently issued policies have an endowment of age of 121.
Which of the following life insurance policies does not develop a cash value? A Whole life B 5 year term C Variable whole life D Universal life
B Term insurance is temporary, therefore it does not develop a cash value.
In a Universal Life policy, the minimum separation between the cash value and the death benefit is called the _______. A Earned interest B MEC limit C Risk corridor D Cash value
C A universal life policy must include an amount at risk. If the cash value approaches the face amount, the death benefit must increase so as to provide for this amount at risk. This minimum separation between the cash value and the death benefit is called the 'risk corridor.'
Which of the following is not a form of permanent life insurance coverage? A Ordinary straight whole life B Adjustable life C Term to age 70 D Indeterminate premium whole life
C Adjustable Life is a type of permanent life insurance that combines features of term and whole life coverage, giving policyowners the option to change the characteristics of their policies as their needs change over time. Term is not a permanent form of coverage.
Adjustable life allows the policyowner to do all of the following, except: A Adjust the premium B Adjust the death benefit C Change the insured D Adjust the premium paying period
C Adjustable life allows policyowners to manipulate the period of protection (to age 100 or shorter), increase or decrease the face amount with insurability, raise or lower the premium amount, and change the length of the premium payment period.
Equity Indexed, Variable, and Variable Universal all have which of the following characteristics in common? A The owner chooses the separate account(s) to invest the cash values in B All have a guaranteed death benefit C A securities license is required to sell each policy D The overall policy performance has something to do with the stock market in general
D All of these policies do not have a guaranteed death benefit, and the Equity Indexed life policy does not require a securities registration. However, all of them have a death benefit that is somehow tied to the stock market.
A _______________ policy has death benefit that can increase or decrease over time based on stock market performance, but with a guaranteed minimum death benefit, a choice of subaccounts in which cash value may be allocated, and a fixed premium. A Investment Grade Whole Life B Equity indexed Universal Life C Variable Universal Life D Variable Life
D Only Variable Life, also known as Variable Whole Life, has all of these characteristics. Variable Universal Life does not adjust the death benefit in relation to stock market performance. Equity Indexed Universal Life does not permit allocation of cash value in stock-based funds. There is no such thing as Investment Grade Whole Life.
When a whole life policy endows, what happens to the policy cash value? A The face amount of the policy is paid to the policyowner B The cash value reverts to the insurance company C The cash value is deducted from the death benefit and the remainder is paid to the policyowner D Cash value is only found in term life policies, not whole life
A At endowment, because the insured has not already died, a whole life policy's cash value will equal the face amount of insurance. The policy ends and the cash value is paid to the policyowner.
Term Life insurance is designed to provide coverage for ___________. A A specified period of time B To age 65 C For one year D An entire lifetime
A Term Life Insurance is designed to provide coverage for a temporary period of time. The amount of time is specified in the policy acquired, for example, 10 year, 20 year, or 30 year term.
Which of the following term policies cost the least all other factors being the same? A Nonrenewable and non-convertible B Renewable and convertible C Renewable and non-convertible D Nonrenewable and convertible
A The fewer features a policy has the less it will cost the consumer.
Variable Universal Life should only be sold to those clients who are: A More investment savvy B First time investors C Looking for guarantees D Very conservative
A VUL is appropriate for those who are seasoned investors who understand investment risk and are willing and can afford to take it.
All of the following are true of a Universal Life policy, except: A It allows the owner to make additional contributions that increase the cash value or skip some premiums if the owner desires to do so B Any borrowing or partial withdrawal from the cash value account terminates the policy C Adjustments to the face amount may be requested by the policyowner to reflect changes in need D The cash value account earns interest at the current rate with a guaranteed minimum rate established
B Any borrowing or partial withdrawal from the cash value would not terminate the policy. However, loans might reduce the interest amount credited to the cash value as well as reducing the overall payout upon death to the beneficiary.
Mary decides to convert her Term Policy to permanent protection. Which of the following statements is true regarding the conversion? A Premiums and the amount of coverage remain the same B She may convert without evidence of insurability C She may convert at any time D She may convert after proof of insurability
B The Conversion Option of a Term Policy allows conversion to a Permanent Policy without evidence of insurability, but it is not an option that lasts forever. Typically the policyowner must do so within the first 10 years or so, and not after a specified age, such as 60.
A mother with a teenage son purchases a life policy on his life. The policy includes an optional rider called the Payor Benefit. What will happen to the policy if the mother dies or is disabled before her son reaches age of majority? A The premiums would be suspended and later paid back by the son B The premiums on the son's policy would be waived until the son reaches a specified age C The amount of coverage is reduced as the policy is paid up D The policy would pay out a modest lump sum to the beneficiary
B The Payor Benefit Rider is used in third-party policies in which the insured and owner are not the same. The insurer continues the policy as if the owner were still making premium payments.
A Last-to-Die policy would be the most appropriate recommendation for which of the following? A A corporation concerned that its CEO might die before the end of his employment contract. B A business owner who wants to make sure his wife has enough money to buy the business from his partner if he should die before his partner does C A husband and wife concerned about paying estate taxes after they have died D Two business partners who are concerned about the future success of the business and want to provide funds to purchase the business from the decedent's family
C Married couples worried about estate taxes would be best served in most cases by a Last-to-Die, or Survivorship, policy
In order for a death benefit to be paid to a beneficiary, with of a 15-pay Whole Life Policy, the insured must pay premiums: A Until the insured dies whenever that occurs B For 15 years or the insured's death whichever time period is greater C For 15 years regardless of when the insured dies D For 15 years, or until the insured's death, whichever occurs first
D A 15-pay Whole Life Policy is a limited payment policy. If the insured does not die within the limited period, premiums cease because the policy is fully paid up (i.e. no more premiums are due). Death always results in the payment of the policy proceeds as long as the policy is in force.
How is Variable Whole Life different from Variable Universal Life? A It is designed to provide a hedge against inflation B Cash values can be invested in a separate account C The policyowner takes on all of the investment risk D The policy has a guaranteed minimum face amount
D Generally speaking, Variable Whole Life has a guaranteed minimum death benefit provided that all premiums are paid in full and on time as scheduled, whereas a Variable Universal Life policy has no guaranteed death benefit.
Money accumulated in a permanent policy that the policyowner may borrow via a policy loan or receive if the policy is surrendered, refers to: A Savings Account B Accumulated at Interest Account C Deferred Savings Account D The Cash Value
D Premiums in excess of what is necessary to cover the cost of pure insurance (i.e. term) create cash value as an internal savings component in all permanent policies.
Which of the following is not a feature of term life insurance? A Pure protection B Limited duration C Low cost D Cash surrender value
D Term life insurance has no cash value and is often referred to as providing pure protection. Compared to the same face amount of whole life insurance, term will cost less.
Joe has a whole life policy with a guaranteed insurability rider. He was 21 at the time the policy was issued. If he exercises all of the options at the ages specified under the typical rider, how many policies will he end up with? A 7 B 3 C 6 D 2
A Under the typical guaranteed insurability rider, Joe would have options to buy additional policies of the same type and face amount at ages 25, 28, 31, 34, 37, and 40, therefore he would buy 6 more to bring his total policies owned to 7.
Jacob owns a policy that pays a death benefit only if he dies within the 20-year policy period. If Jacob dies anytime that the policy is in force, his beneficiary will receive $100,000. The premium that Jacob pays for this policy will be the same throughout the 20-year policy period. Jacob owns: A. A Decreasing Term policy B. An Increasing Term policy C. A Level Term policy D. A Re-Entry Term policy
A Level Term policy - The question specifies a death benefit only. The death benefit is constant (level) throughout the 20-year policy period, and the premium is the same (level) throughout the policy period.
Mortgage or credit life refers to what type of life insurance coverage? A Renewable term B Increasing term C Level term D Decreasing term
D Decreasing term is used to cover the outstanding balance of any loan the consumer may have.
All of the following are true regarding re-entry term, except: A. The new policy's premium will be based on the rates in effect by the insurer at the time of re-entry B. The new policy's premium will be based on the insured's original age C. The new policy's premiums will be based on the insured's attained age D. The new policy's premium will be based on the premium class approved by the company
The new policy's premium will be baed on the insured's original age - The new policy's premium will be based on the insured's attained age, the rates in effect by the insurer at the time of re-entry, and the premium class approved by the company.
Which of the following best describes an Annual Renewable Term Policy? A. A policy with decreasing premium at each renewal B. A policy with an increased face value at each renewal C. A policy with increasing cash value at each renewal D. A policy with a level death benefit, but with increased premium at each renewal
A policy with a level death benefit, but with increased premium at each renewal - Whether the policy period is 1 year, 5 years, 10 years, etc., the premium will increase at each renewal to sustain the same specified death benefit that was purchased when the policy was written. At renewal the premium is based upon attained age.
What is the face amount of insurance? A The cash value B The limit of liability C The cash surrender value D The maximum loan value
B The face amount of insurance is the stated death benefit, and is referred to as the insurer's limit of liability - the most the policy will pay in the event of the insured's death.
A policyowner would like more coverage than the $100,000 Whole Life policy being proposed, but does not have enough discretionary income to pay a lot more money to do so. What can a producer recommend that will allow the policyowner to have the Whole Life policy, but with more total death benefit at an affordable price? A Buy an Indeterminate Premium Life Policy instead B Add a term rider C Use the equity in the prospects home and buy a Single Premium Life Policy D Use the automatic premium loan feature of the policy
B The most affordable option for a policyowner who needs additional death protection at the lowest cost is to add a term rider.
If Jon dies with an outstanding policy loan of $10,000 on his $100,000 policy that has $15,000 of cash value, what will his beneficiary receive at the time of claim? A $115,000 B $90,000 C $100,000 D $105,000
B Upon death, the insurance company recovers any outstanding loan prior to paying out a claim to the beneficiary.
Whole Life is also known as ________ protection. A Absolute B Permanent C Temporary D Periodic
B Whole Life is designed to provide the insured protection throughout his or her life. Other types of permanent protection are Indeterminate Premium and if designed properly Adjustable Life.
If a consumer would like to make sure that survivors are left with a paid-off car, boat, and home, at an affordable price, what type of policy should he or she consider acquiring at the time each one of those items were purchased? A. Whole life insurance B. Credit life insurance C. Increasing term insurance D. Variable life insurance
Credit life insurance - Credit life insurance is used to pay off the outstanding balances of loans. The decreasing term protection is closely matched to the amount of the debt outstanding based on the loan repayment schedule.
Which of these best describes a disability income rider? A Provides for double the face amount if the insured is disables and has no income B Pays a percentage of the annual premiums as monthly income to the insured if she is totally disabled C Automatically creates an unlimited loan fund in the amount of the death benefit, secured by the cash value, when an insured is totally disabled D Pays a percentage of the death benefit as monthly income to the insured when totally disabled
D A disability income rider pays monthly income to a totally disabled insured. The income is a specified number of dollars per $1,000 of death benefit, which may be expressed as a percentage of the death benefit. Waiver of premium allows the insured to avoid paying premiums when totally disabled. Money paid as income under a disability income rider does not affect the death benefit in any way.
As the cash value increases in a traditional whole life policy, the net amount at risk ____________, but the face amount of the policy would remain the same. A Varies B Remains the same C Increases D Decreases
D As the cash value increases, the net amount at risk decreases, but the face amount of the policy would remain the same.
A "level term" policy means that the _____________ remains the same throughout the lifetime of the policy. A Policyowner B Cash value C Pure cost of insurance D Policy proceeds
D The policy proceeds are also known as the death benefit or face amount. The name of the policy (level, decreasing or increasing term) specifies what happens to the face amount or policy proceeds. A level term policy means that the policy proceeds remain the same throughout the lifetime of the policy.
What is the name of the rider that requires that the premium pay or become totally and permanently disabled before it will pay a claim? A. Payor Benefit (Waiver of Payor's Premium) B. Minor age waiver of premium C. Juvenile Waiver D. Jumping Waiver
Payor Benefit (Waiver of Payor's Premium) - A Payor Benefit (Waiver of Payor's Premium) is a rider most typically available on a juvenile insurance policy. The premium is waived if the premium payor becomes totally disabled or dies prior to the juvenile's reaching the age of majority.
