Types of Life Insurance Policies

Which one of the following statements about variable life insurance is correct? a. The cash value is not guaranteed with variable life. b. Variable life's premiums are only invested in safe, conservative investments. c. Variable life policyowners cannot choose how their contract premiums are invested. d. There is no guaranteed death benefit with variable life.

a. The cash value is not guaranteed with variable life. Variable life insurance policyowners can choose how their premiums are invested. In contrast, traditional whole life insurance policyowners cannot choose how the insurer invests their contract premiums or values. Instead, the insurer invests the premiums in safe, secure, and conservative investments.

In a current assumption whole life policy, what happens to premium rates if an insurer earns more on its investments than was factored into the premium calculation? a. Premiums increase to a new rate supported by the actual investment experience. b. Premiums decrease to a new rate supported by the actual investment experience. c. Premiums stay the same. d. Premiums return to their original introductory rate.

b. Premiums decrease to a new rate supported by the actual investment experience. Good investment results will lead to a reduction in premium rates.

Jessica, age 25, buys a $100,000 life insurance policy. The initial premium is lower than straight whole life rates and increases each year for the first ten years of the policy period. After that, the premium levels off and stays at that amount for the life of the policy. What type of policy does Jessica own? a. single premium whole life b. modified premium whole life c. 10-pay whole life d. graded premium whole life

d. graded premium whole life 10-pay whole life is a form of limited premium life insurance in which all premiums will cease (not increase) ten years after he policy is issued.

Why do endowment contracts not enjoy the same favorable tax treatment as life insurance? a. They mature before age 120. b. Their cash values equal the contract's death benefit when the policy is issued. c. They do not pay benefits if the insured dies before the contract matures. d. They do not build cash values.

a. They mature before age 120. Endowment contracts build cash values quickly.

A whole life insurance policy matures, or endows, when: a. the policy's cash value equals its face amount b. the premiums the owner has paid equal the policy's cash value c. the policy's cash value equals its loan value. d. the premiums the owner has paid equal the policy's face amount

a. the policy's cash value equals its face amount In general, the sum of premiums paid will be significantly less than the policy's face amount. Maturity occurs when the cash value equals the face amount.f

All the following statements about survivorship life insurance policies are correct EXCEPT: a. The death benefit is paid only at the surviving insured's death. b. The premiums are about the same as for two comparable single-life policies. c. They are also known as second-to-die policies. d. They insure two persons under one policy.

b. The premiums are about the same as for two comparable single-life policies. Survivorship life insurance policies are commonly known as second-to-die policies. They insure more than one person but pay the death benefit only when the second insured dies.

Andrea bought a $300,000 term-to-age-55 policy. All the following statements about her policy are correct EXCEPT: a. The policy will generate a cash value that is payable at age 55. b. It is possible that Andrea could convert the term policy to a life insurance policy that provides coverage for Andrea's entire life even if she becomes uninsurable. c. The premium for the policy stays the same until the policy expires. d. The policy provides $300,000 of coverage until Andrea reaches age 55.

a. The policy will generate a cash value that is payable at age 55. If the policy includes the convertibility feature, Andrea could convert the policy to a permanent life policy provided she does so before the term policy expires.

Which one of the following statements about variable life insurance is correct? a. Variable life insurance policyowners can transfer funds between investment subaccounts and the insurer's general account. b. The death benefit under a variable life insurance policy will never be more than the stated minimum. c. Variable life insurance policies do not guarantee a minimum death benefit. d. With variable life insurance, it is the insurance company that assumes most of the investment risk.

a. Variable life insurance policyowners can transfer funds between investment subaccounts and the insurer's general account. With a variable life insurance policy, the insurer guarantees only the policy values that are allocated to the insurer's general account. The policyowner assumes the investment risk for the performance of values in the subaccounts.

From a regulatory perspective, all variable life insurance policies are considered: a. investment securities b. government-secured investments c. risk-free investments that are as safe as ordinary life insurance d. modified endowment contracts

a. investment securities Only if the variable life policy was purchased with a single premium or paid-up in seven years or less would it be considered a MEC.

Donna, age 40, buys a $200,000 straight whole life policy. On the same date, Kara, age 40, buys a $200,000 20-pay life policy. Which of the following statements is correct? a. Kara's policy will build cash value quicker than Donna's policy while she is paying premiums, but once premiums stop, cash value growth will slow down. b. The cash value of Kara's policy will build faster than Donna's policy after Kara's policy is paid up. c. Kara's policy will mature (endow) at a younger age than Donna's policy. d. Kara can make further premium payments once her policy is paid up while Donna cannot.

a. Kara's policy will build cash value quicker than Donna's policy while she is paying premiums, but once premiums stop, cash value growth will slow down. While Kara's policy will generate a bigger cash value while premiums are being paid, cash value growth will slow down once premiums cease. Regardless of the payment mode, all permanent life insurance policies mature at the same age of 120.

Variable life insurance policies offer all of the following EXCEPT: a. a guaranteed death benefit b. a cash value c. flexible premium payments d. a variety of investment subaccount choices

c. flexible premium payments A variable life insurance policy guarantees a minimum death benefit. If the funds in which the policy is invested perform well, those funds will increase the policy's cash value, which in turn boosts the death benefit.

What is the main appeal of joint life insurance? a. underwriting is performed only on the older of the two applicants b. higher death benefit c. lower cost than two separate policies d. ability to cover an entire family

c. lower cost than two separate policies A joint life insurance policy covers two persons under one policy but not an entire family.

Alpha Industries has a noncontributory group life insurance plan. What happens if Alex joins the company on March 1? a. He can join the plan as long as he contributes his share of the premium. b. He must be enrolled in the plan (after a waiting period, if applicable). c. He cannot participate in the plan. d. He may be allowed to participate but only at the employer's discretion

b. He must be enrolled in the plan (after a waiting period, if applicable). In a noncontributory group insurance plan, the plan sponsor pays 100 percent of the premium.

If the employer pays the entire premium for group term life insurance, what is the plan called? a. contributory b. noncontributory c. fully insured d. self-insured

b. noncontributory If an employer pays the entire amount of premiums for a group term life insurance policy, the plan is not considered fully insured.

What is credit life insurance designed to cover? a. the creditor's life b. the borrower's life c. an employee's life d. an association member's life

b. the borrower's life Credit life insurance does not cover the life of a creditor. Instead, the creditor receives the benefit under the policy.

A producer must be registered with the Financial Industry Regulatory Authority (FINRA) to sell which one of the following types of life insurance? a. interest-sensitive whole life insurance b. indeterminate premium whole life insurance c. variable life insurance d. ordinary whole life insurance

c. variable life insurance Producers who sell ordinary whole life insurance are not required to be registered with FINRA.

Which one of the following statements about variable life insurance is correct? a. With a variable life insurance policy, the policyowner assumes most of the investment risk. b. Subaccounts are managed within the insurer's general account. c. Variable life policyowners can invest all of their premiums in the insurer's general account. d. Variable life policyowners can choose flexible premium payment schedules.

a. With a variable life insurance policy, the policyowner assumes most of the investment risk. The unsecured investment subaccounts used with variable life policies are kept in a separate account apart from the insurer's general accounts.

Under a survivorship life insurance policy, when does the insurer pay the death benefit? a. upon the death of the insured who dies first b. upon the death of the insured who dies second c. when the older insured dies d. when the younger insured dies

b. upon the death of the insured who dies second Survivorship life insurance policies are commonly known as second-to-die policies. They insure more than one person but pay the death benefit only when the second insured (such as the surviving spouse) dies.

Sarah, age 40, has just bought a 20-pay whole life policy. Which of the following statements is correct when she turns 60? a. Premiums will no longer be required, but her coverage will remain in effect for her entire life. b. She will receive the policy's death benefit. c. She will have a fully matured policy. d. She will receive the policy's cash value.

a. Premiums will no longer be required, but her coverage will remain in effect for her entire life. The cash value of Sarah's policy will equal the face amount when she reaches age 120. Her policy is not considered fully matured once it has become paid-up.

An endowment policy matures (endows) when its cash value equals its face amount, which may be: a. at almost any age b. no earlier than the insured's age 95 c. only between ages 95 and 120 d. no earlier than the insured's age 120

a. at almost any age While universal life and whole life policies may endow no earlier than age 95 or 120, respectively, endowment policies typically mature much earlier than that.

Under a joint life insurance policy, when does the insurer pay the death benefit? a. upon the death of the insured who dies first b. when the older insured dies c. when the younger insured dies d. upon the death of the insured who dies second

a. upon the death of the insured who dies first In a survivorship (second-to-die) life insurance policy, the insurer pays the death benefit when the second insured dies.

Which statement about the conversion provision in group life insurance policies is correct? a. It allows terminating plan participants to convert their coverage to another group policy at the same benefit level without the need to provide evidence of insurability. b. It allows terminating plan participants to convert their coverage to an individual policy of the same face amount without the need to provide evidence of insurability. c. It allows terminating plan participants to convert their coverage to an individual policy of the same face amount if they furnish evidence of insurability. d. It allows terminating plan participants to convert their coverage to an individual policy of the same face amount if they furnish evidence of insurability or to a policy with a lesser face amount without having to prove insurability.

b. It allows terminating plan participants to convert their coverage to an individual policy of the same face amount without the need to provide evidence of insurability. Group life insurance offers terminating or retiring employees the option to convert their coverage to an individual policy with the same face amount without the need to provide evidence of insurability.

All of the following statements comparing whole life insurance and term life insurance are correct EXCEPT: a. Only term life insurance has a renewal provision. b. Term life insurance is designed for temporary needs while whole life insurance is designed to cover the insured's entire life. c. Both whole life insurance and term life insurance build a cash value. d. Both whole life and term life insurance have level premiums, but only whole life guarantees a level premium for as long as the insured lives.

c. Both whole life insurance and term life insurance build a cash value. Whole life insurance does not require a renewal provision because it never needs to be renewed.

All the following statements about ordinary (or straight) whole life insurance are correct EXCEPT: a. The policy death benefit remains level. b. The insured pays level premiums for life. c. The cash value remains level throughout the life of the policy. d. The premium level is higher than the actual mortality costs during the early years of the policy.

c. The cash value remains level throughout the life of the policy. Under an ordinary life policy, premiums never increase, despite the insured's increased chances of death as he or she ages. As a result, the premium level is higher than the actual mortality costs during the policy's early years.

Which of the following types of insurance is typically used for credit life insurance? a. limited payment b. increasing term c. decreasing term d. whole life

c. decreasing term Limited payment life insurance is not typically used for a credit life insurance policy.

With interest-sensitive whole life insurance policies, insurers may change premium rates after reviewing their investment experience in a process called: a. renewal underwriting b. indexing c. redetermination d. reconfiguration

c. redetermination Once a whole life insurance policy is issued, it never has to be renewed or undergo additional underwriting. Renewal underwriting is a term used in the health insurance field.