Pre-Licensing Insurance Course Chapter 6
What policy provides flexible premiums, cash values, face amounts, premium-paying period and length of coverage? a. Adjustable life b. Whole life c. Equity indexed universal life d. Term life
a. Adjustable life
A policy with flexible premiums based on a changing current interest rate is: a. Modified whole life b. Economatic whole life c. Current assumption whole life d. Graded premium whole life
c. Current assumption whole life
All of the following are features of variable universal life insurance, EXCEPT: a. Flexible premiums b. Cash value c. Death protection is not deducted from cash value d. Death benefit option A or B
c. Death protection is not deducted from cash value
What are the benefits of a convertible and renewable term life insurance policy? a. Lower premiums for higher face amounts b. Increasing face amount with a level premium c. Decreasing face amount with a level premium d. Proof of insurability is not required to convert or renew coverage.
d. Proof of insurability is not required to convert or renew coverage.
Which of the following policies has a level face amount with level premiums? a. Level premium term b. Convertible term c. Decreasing term d. Annual renewable term
a. Level premium term
Family income policies consist of whole life and: a. Increasing term b. Decreasing term c. Level term d. Renewable term
b. Decreasing term
All of the following statements are correct regarding adjustable life policies, EXCEPT: a. The policyowner may take out policy loans. b. Policies have nonforfeiture and settlement options. c. Cash value always accrues in the policy. d. Adjustable life policies are suitable for people with varying incomes.
c. Cash value always accrues in the policy.
If Jaime has an adjustable life policy, he can: a. Convert term to lessen the amount of the whole life b. Convert whole life to lessen or increase the term c. Convert term to equal whole life d. All of the above
d. All of the above
Which type of life insurance provides living benefits? a. Whole b. Term c. Conventional d. No life insurance policy provides living benefits.
a. Whole
Emily is a newly-graduated medical student in her residency as a general surgeon. She and her husband have just found out they are expecting twins, and she realizes getting life insurance has become increasingly important for her family. Her starting salary as a resident is $40,000 and she has to begin paying off her medical school loans very soon. Emily likes the idea of permanent life insurance protection, but simply cannot afford the high premiums right now. What policy would you recommend to Emily? a. ART b. Modified whole life c. 20-pay life d. Ordinary whole life
b. Modified whole life
Which of the following permanent life insurance policies is interest-sensitive? a. Modified whole life insurance b. Universal life insurance c. Straight life d. ART
b. Universal life insurance
Gerald wants a life insurance policy in which he can choose the investment vehicle. Which policy would you recommend to him? a. Ordinary whole b. Variable life c. Universal life d. Adjustable life
b. Variable life
What part of a mortgage reduction policy decreases over time? a. Policy premiums b. Cash value c. Face amount d. Policy term
c. Face amount
Whole life and universal life policies have some similarities and differences. Which of the following is NOT a characteristic of a universal life policy? a. Policy owner may increase or decrease the death benefit b. Cash value is fixed and guaranteed c. Interest earned by the cash account cannot vary d. Flexible premiums schedule is available
c. Interest earned by the cash account cannot vary
Which policy pays a death benefit only upon the death of the last person insured? a. Joint life b. First-to-die c. Survivorship life policy d. Juvenile policy
c. Survivorship life policy
Which of the following best describes a circumstance in which the insurer would increase the death benefit of a universal life insurance policy? a. To lower premiums b. To decrease the death benefit c. To prevent the cash value from growing too quickly d. To decrease the policy loan interest rate
c. To prevent the cash value from growing too quickly
Which of the following policies allows the policyowner to buy term and direct the investments made in the cash value account? a. Variable b. Universal c. Variable universal life d. Equity indexed universal life
c. Variable universal life
All of the following are ways that an adjustable life insurance policy can be altered when an extra premium payment is made, EXCEPT: a. Increase the coverage period b. Decrease the premium-paying period c. Decrease the premium d. Decrease the policy's nonforfeiture values
d. Decrease the policy's nonforfeiture values
This life insurance policy provides death protection for the insured's entire life, but premiums are not paid for the insured's entire life. a. 20-pay life b. Economatic life c. Modified whole life d. Indeterminate premium
a. 20-pay life
Judy wants to purchase whole life insurance, but cannot afford straight life insurance premiums. Her agent recommends she purchase economatic whole life. If Judy wants $500,000 of whole life coverage, which of the following is a possible arrangement? a. $500,000 term; $0 whole b. $350,000 term c. $400,000 whole; $100,000 term d. $500,000 whole; $0 term
c. $400,000 whole; $100,000 term
Who is the beneficiary of a credit life policy? a. Insurer b. Insured c. Creditor d. Debtor
c. Creditor
Mr. Barnes purchased a universal life policy with a death benefit of $200,000 several years ago. With a current cash value of $50,000, he selected benefit option B. What is his current death benefit? a. $50,000 b. $100,000 c. $200,000 d. $250,000
d. $250,000
Which of the following life insurance policies is not an example of third party ownership? a. Split-dollar plan b. Key employee life insurance c. Group life d. Economatic
d. Economatic
Which of the following laws defined a security product? a. Securities Act of 1933 b. Securities Act of 1934 c. Investment Company Act of 1940 d. None of the above
a. Securities Act of 1933
Which of the following is not a way that an endowment policy can mature? a. Surrender of cash value b. When the cash value equals the face amount, at the end of the policy period c. When the policy period ends, even if the insured is alive d. Upon the death of the insured
a. Surrender of cash value
Which policy will pay benefits on the death of the second insured? a. Survivorship life policy b. First-to-die c. Modified whole life d. Current assumption whole life
a. Survivorship life policy
What happens when a universal life policyholder pays the minimum premium? a. The face amount will automatically increase. b. The face amount will automatically decrease. c. The policy will resemble term life insurance. d. The policy will resemble whole life insurance.
c. The policy will resemble term life insurance.
Which policy's, income period, begins on the date the policy is issued? a. Family income b. Family maintenance c. Family protection plan d. Jumping juvenile
a. Family income
What policy can be described as annual renewable term with a cash value account? a. Universal life b. Adjustable life c. Decreasing term d. Modified whole life
a. Universal life
Which term policy has level premiums and a level face amount? a. Annual renewable term b. Decreasing term c. Increasing term d. Level premium term
d. Level premium term
Marci's universal life policy is currently crediting its cash value with 5% interest. The interest rate on policy loans is currently 6%. Based on these figures, at what interest rate is Marci's cash value accumulating? a. 5% on the entire cash value b. 6% on the entire cash value c. 1% of the cash value equal to the loan amounts and 5% on non-loaned amounts d. None of the above
a. 5% on the entire cash value
Sandra wants to have flexibility with her life insurance policy to accommodate changes in her situation. She should consider: a. Convertible term b. Adjustable life c. Limited payment d. Economatic
b. Adjustable life
What is the primary purpose of the Securities Act of 1933? a. Defines a securities product b. Regulates sales representatives' duties c. Requires insurer to maintain a separate account for variable investments d. Sets a cap for sales fees
a. Defines a securities product
An adjustable life policy allows the policyowner to make all of the following changes, EXCEPT: a. Invest premiums in a separate account b. Change the length of the coverage period c. Increase or decrease the premium d. Change the length of the premium-paying period
a. Invest premiums in a separate account
Gina and Jerry are purchasing life insurance. They decided on policies that would be paid up in 20 years. What type of policies did they purchase? a. Limited payment policies b. Continuous payment policies c. Economatic policies d. Single premium policies
a. Limited payment policies
For what reason would the insurance company raise the death benefit of a universal life policy? a. Prevent the cash value from growing too quickly b. Require the policyowner to pay higher premiums c. To accommodate lower cash value growth d. To allow the policy to become a MEC
a. Prevent the cash value from growing too quickly
What are the two major types of life insurance? a. Term and whole b. Permanent and whole c. Temporary and term d. None of the above
a. Term and whole
Which of the following best describes option 1 under a universal life policy? a. The death benefit is the policy face amount or policy cash value, but not both. b. The death benefit is the policy face amount and the cash value. c. The death benefit is only the face amount. d. The death benefit is only the cash value.
a. The death benefit is the policy face amount or policy cash value, but not both.
Why are whole life policies more expensive than some other insurance options? a. They must cover cash values, net insurance and mortality costs, as well as expenses. b. They last a really long time. c. The policyholders are high risk. d. Whole life is generally not more expensive.
a. They must cover cash values, net insurance and mortality costs, as well as expenses.
All of the following policies could be offered as variable policies, EXCEPT: a. Ordinary whole life b. Decreasing term c. Joint life d. Universal
b. Decreasing term
Which policy has a face amount that increases by five times the original policy face when the insured child reaches the age of 21? a. Family protection plan b. Estate builder c. Ordinary whole life d. Universal life
b. Estate builder
This policy insures the primary breadwinner with whole life and level term: a. Family income policy b. Family maintenance policy c. Protection plan d. Juvenile policy
b. Family maintenance policy
Which of the following is not true regarding the cash value in an ordinary whole life policy? a. It grows tax-deferred. b. It may be used as a policy loan without affecting the death benefit. c. It is a nonforfeiture value that is fully guaranteed to the policyowner. d. It can be used to pay policy premiums.
b. It may be used as a policy loan without affecting the death benefit.
The primary difference between universal life and adjustable life is: a. Premium payments are flexible. b. Premium payments can be skipped. c. Face amount can be increased or decreased. d. None of the above
b. Premium payments can be skipped.
Because variable contracts are equity products, they are subject to various regulations. Which of the following applies to variable contracts? a. NAIC regulations b. The 12% rule c. Flexible premium amounts d. Insurance regulations only
b. The 12% rule
Which of the following is not a characteristic of decreasing term life insurance? a. The policy face decreases to zero by the end of the policy period. b. The premium decreases to zero by the end of the policy period. c. The face amount equals zero on the day of policy expiration. d. Decreasing term insurance is often used to insure a mortgage.
b. The premium decreases to zero by the end of the policy period.
If Sandra chooses an adjustable life policy, all of the following are flexible, EXCEPT: a. Face amount of the policy b. Type of protection c. No requirement for proof of insurability d. Length of protection
c. No requirement for proof of insurability
Term insurance is categorized by all of the following, EXCEPT: a. Temporary protection b. Premiums increase each time the policy is renewed c. Policy cash value grows tax-deferred d. Provides the largest amount of protection for the least amount of premium
c. Policy cash value grows tax-deferred
Which policy has fixed premiums, a guaranteed minimum death benefit and nonguaranteed cash values? a. Whole life b. Universal life c. Variable whole life d. Variable universal life
c. Variable whole life
All of the following are true regarding adjustable life policies, EXCEPT: a. An adjustable life policy can be entirely whole or term, or a mix of both. b. If the policyowner decreases the premium, the policy could be adjusted to have more term coverage. c. When the premium is decreased, the insured is not required to provide evidence of insurability. d. When the face amount is increased, the insured is required to provide evidence of insurability.
c. When the premium is decreased, the insured is not required to provide evidence of insurability.
Which of the following best describes how the cash value in a universal life policy grows? a. At a variable rate b. At a fixed rate c. At a guaranteed minimum rate d. At a guaranteed minimum rate, but may earn a higher current rate
d. At a guaranteed minimum rate, but may earn a higher current rate
All of the following statements are correct regarding variable universal life contract charges and fees, EXCEPT: a. Sales and loading charges are deducted from the policy's cash value. b. The full cost of death protection is deducted from the policy's cash value. c. Insurers must provide policyowner's with an annual statement of charges and interest earned. d. Interest earned is credited to the death benefit.
d. Interest earned is credited to the death benefit.
Which of the following policies combines convertible term and whole life, and has lower premiums in the early years which increase to a higher level after a certain number of years? a. Economatic b. Graded premium c. Index-linked d. Modified whole
d. Modified whole
After looking at his options, Randy decided on a single premium whole life policy. What is the main advantage of this type of policy? a. Only one payment is due. b. The policyholder is covered immediately. c. There is no medical exam. d. The total premium is lower.
d. The total premium is lower.
All of the following are guaranteed features in a variable life insurance policy, EXCEPT: a. Death benefit b. Cash value c. Premium rate d. Period of death protection
b. Cash value
A policy that combines whole life with a term rider, where dividends are earned and used to buy paid-up coverage is: a. Modified whole life b. Economatic whole life c. Current assumption whole life d. Graded premium whole life
b. Economatic whole life
Modified life insurance performs the same basic purpose as: a. Ordinary whole life b. Survivorship life c. Graded premium whole life d. Variable universal life
c. Graded premium whole life
Which policy works the same way as universal life, but has an interest rate that is tied to the stock market index? a. Equity indexed universal life b. Adjustable life c. Flexible premium adjustable life insurance d. Universal life
a. Equity indexed universal life
Compared to ordinary whole life policies, universal life interest rates are: a. Higher b. Lower c. Equivalent d. Not guaranteed
a. Higher
Some universal policies permit a cash withdrawal. All of the following are true statements about universal life, EXCEPT: a. It is treated as a loan. b. It will reduce the cash value. c. It is not subject to interest. d. Repayment is treated like a premium payment.
a. It is treated as a loan.
Which policy is a combination of whole life and convertible term, and has lower premiums in early policy years and higher premiums in later years? a. Ordinary whole life b. Modified whole c. Joint life d. Economatic
b. Modified whole
Which policy covers the primary breadwinner with both level term and whole life coverage? a. Family maintenance policy b. Juvenile policy c. Protection plan d. Family income policy
a. Family maintenance policy
A limited payment life insurance policy is best suited for: a. Josh, a 25-year old successful entrepreneur with extra funds, who doesn't want to pay life insurance premiums when he retires. b. Kelly, a 40-year single waitress who wants the most insurance protection for the least amount of money. c. Megan and Tom, newlyweds who need a life insurance policy to cover the mortgage on their house. d. Berry, an 18-year old student with limited funds.
a. Josh, a 25-year old successful entrepreneur with extra funds, who doesn't want to pay life insurance premiums when he retires.
A person who has a universal life policy and needs cash from the policy, but does not want to have an outstanding policy loan should: a. Take a partial surrender of the policy's cash value b. Take a full surrender of the policy's cash value c. Get a loan from the bank d. Take out a policy loan
a. Take a partial surrender of the policy's cash value
What are the two premiums in a universal life insurance policy? a. Target premium; minimum premium b. Increasing premium; decreasing premium c. Adjustable premium; universal premium d. Fast premium; slow premium
a. Target premium; minimum premium
Charlotte takes out a $14,000 loan. How much credit life insurance can the creditor take out on Charlotte? a. $767,011 b. $14,000 plus interest c. $14,000 plus 6% interest d. $28,000
b. $14,000 plus interest
Which of the following best describes option B/option 2 under a universal life policy? a. The death benefit is the policy face amount or policy cash value, but not both. b. The death benefit is the policy face amount and the cash value. c. The death benefit is only the face amount. d. The death benefit is only the cash value.
b. The death benefit is the policy face amount and the cash value.
All of the following are characteristics of whole life insurance, EXCEPT: a. Whole life insurance is permanent protection providing death protection for the insured's entire life. b. Whole life insurance provides living benefits in addition to permanent life insurance. c. Whole life insurance policies use the insured's age at issue to establish policy premiums. d. The cash value in a permanent life insurance policy is not a nonforfeiture benefit.
d. The cash value in a permanent life insurance policy is not a nonforfeiture benefit.
All of the following statements are false regarding universal life insurance, EXCEPT: a. Proof of insurability is required to increase the policy face amount. b. Premium payments cannot be skipped. c. The face amount is level. d. Premiums are fixed.
a. Proof of insurability is required to increase the policy face amount.
A policy known as interest-sensitive whole life is: a. Modified whole life b. Economatic whole life c. Current assumption whole life d. Graded premium whole life
c. Current assumption whole life
___________ policies have premiums that fluctuate between the current rate and maximum rate, as stated in the policy. a. Increasing b. Interim c. Indeterminate premium d. Decreasing
c. Indeterminate premium
All of the following characterize term life insurance, EXCEPT: a. Term life insurance provides the largest amount of coverage for the lowest amount of premium. b. Term life insurance provides pure death protection. c. Term life insurance provides living benefits (cash accrual). d. Term life insurance usually cannot be renewed beyond a certain age, usually 75.
c. Term life insurance provides living benefits (cash accrual).
Which of the following characteristics does not describe convertible term life insurance policies? a. No matter which age is used, premiums will be higher when the policy is converted. b. Most converted term policies use the insured's attained age to determine the new premium. c. The attained age is the insured's age upon purchase of the term life insurance policy. d. The terms of the conversion option are clearly stated in the policy.
c. The attained age is the insured's age upon purchase of the term life insurance policy.
What happens when the cash value of a life insurance policy equals the face value? a. Taxes must be paid on the interest accumulation. b. Premiums must be increased so the policy does not become a MEC. c. The policy endows. d. The policy is void.
c. The policy endows.
What happens when the cash value in a universal life insurance policy reaches zero and the grace period has lapsed? a. The policy endows (pays out). b. The policy renews. c. The policy expires. d. The policy must be reinstated.
c. The policy expires.
In a universal life insurance policy, the two most common adjustments made during a month are: a. Decrease premium and increase death benefit b. Shorten premium-paying period and decrease premium c. Lengthen premium-paying period and increase death benefit d. Cost of death protection deducted and current interest rate credited
d. Cost of death protection deducted and current interest rate credited
All of the following are true regarding credit life insurance, EXCEPT: a. At any time, the face amount of the policy cannot be greater than the amount of the debt. b. Straight life or economatic life insurance may be used to cover a debt. c. Credit life policies are typically issued for a period of 10 years or less. d. Credit life insurance is only sold through a group policy.
d. Credit life insurance is only sold through a group policy.
Which of the following changes may the policyowner of an adjustable life policy NOT make? a. Lengthen the coverage period b. Decrease the premium c. Increase the premium d. Invest premiums in the insurer's separate account
d. Invest premiums in the insurer's separate account
What happens when a universal life policyholder pays the target premium? a. The face amount will automatically increase. b. The face amount will automatically decrease. c. The policy will resemble term life insurance. d. The policy will resemble whole life insurance.
d. The policy will resemble whole life insurance.
All of the following are advantages of whole life insurance, EXCEPT: a. Life insurance protection is provided for the insured's entire life. b. Premiums are level. c. The policy has living benefits _ grows cash value. d. The premium-paying period may extend beyond the income-earning years.
d. The premium-paying period may extend beyond the income-earning years.