chapter 19 practice quiz
22. A whole life policy guarantees that a policyholder who decides to stop paying premiums can have a few options except which of the following? a. Cash surrender value b. Continue the same face amount of the policy in force as extended term insurance for a shorter period c. Incontestable period is longer d. Paid-up insurance in lower face amount.
ANS: c
18. Which of the following life insurances is usually offered as a supplement to a separate program of group term benefits? a. Group yearly renewable b. Group whole c. Group variable d. Group universal e. Group limited-payment
ANS: d
1. In a one-year term life insurance, an insurer promises to pay $100,000 at the death of each insured who dies during the year. If past experience indicates that 0.1 percent of a group of young people will die during the year, one death may be expected for every 1,000 persons in the group. If a group of 300,000 is insured, what is the premium amount that the insurer must collect per policyowner? (Assume that premiums are based only on morality) a. $10,000 b. $100 c. $300 d. $1,000 e. $200
ANS: b
10. In variable life insurance, if actual investment returns exceed the assumed rate of returns, cash values increase more than assumed, and these increases are used partly to purchase additional death benefits. The additional death benefits are usually in the form of: a. term life insurance. b. increased face value. c. straight life insurance. d. whole insurance. e. limited-payment insurance.
ANS: a
16. A whole life policy guarantees that a policyholder who decides to cancel the policy can either take cash for the surrender (cash) value or continue the policy in force as extended term insurance and paid-up insurance. What are these provisions are called? a. Nonforfeiture options b. Survivorship c. Double indemnity d. Incontestable e. Reinstatement
ANS: a
19. Who bears the investment risk in variable life and universal variable life policies? a. The policyholder b. The insurer c. The beneficiary d. The underwriter e. None of the above
ANS: a
9. The _____ strategy used by some insurers ties the rate of return on cash values to a published index, such as rates on 90-day U.S. Treasury bills or Moody's Bond Index, rather than leaving it to the insurer's discretion and its actual investment portfolio returns. a. new money rate b. indexed investment c. no-load contract d. unbundling e. fixed-dollar
ANS: a
11. In most respects, these policies work like universal life. The major deference is that, similar to traditional whole life contracts, the premiums are fixed. These policies do not have the flexible premium arrangements characteristic of universal life. Identify the life insurance policy being discussed. a. Single premium life insurance b. Current assumption whole life insurance c. Straight life insurance d. Limited payment life insurance e. Variable universal life insurance
ANS: b
12. The purpose of the _____ provision is to enable the owner of the policy to designate to whom the proceeds shall be paid when the insured dies. a. common disaster b. payment of benefits c. assignment d. reinstatement e. survivorship
ANS: b
23. Compare the characteristics of term life, whole life, universal life and variable life insurance policies in terms of availability of loans a. All life insurance policies provide for loans b. All life insurance policies provide for loans except term life and variable life with no cash value c. No life insurance policies provide for loans d. Only whole life insurance policies do not provide loans e. none of the above
ANS: b
6. Which of the following life insurance policies is bought exclusively for its investment features where protection is viewed as a secondary benefit of the transaction? a. Credit life insurance policy b. Single premium life insurance policy c. Straight life insurance policy d. Limited-payment life insurance policy e. Term life insurance policy
ANS: b
ference between the reserve at any point in time and the face amount of the policy is known as: a. net amount at risk. b. protection element. c. cash value. d. surrender value. e. premium value.
ANS: b
13. Which of the following provisions provides that the beneficiary must survive the insured by a specified period of time or must be alive at the time of payment to be entitled to the proceeds? a. Assignment b. Reinstatement c. Common disaster d. Payment of benefits e. Incontestable
ANS: c
2. Which of the following plans is equivalent to a hypothetical single premium that could be paid at the beginning of the contract, discounting for interest and mortality? a. Disappearing premium b. One-year c. Level premium d. Yearly renewable e. Lump-sum payment
ANS: c
20. What is Accelerated Death Benefits rider in life insurance? a. Doubling of the death benefits when accident occurs b. Getting Option B of the universal life policy c. When the insured is suffering from catastrophic (dread) illness or the diagnosis of a terminal illness, the rider pays a portion of a life insurance policy's face amount prior to death d. When the insured is suffering from curable cancer, the rider pays a portion of a life insurance policy's face amount prior to death. e. None of the above
ANS: c
21. Which of the following statements is true only of a variable life insurance policy? a. The policy stays in force as long as the premiums are paid. b. It provides protection for a specific period. c. This "mutual fund of stocks and bonds" policy is intended to keep death benefits apace with inflation. d. It pays the face amount if policy is in force when death occurs. e. The interest rates of the policy are based on bonds only (not stocks) and can be higher than the minimum guaranteed.
ANS: c
5. Which of the following statements is true of a variable life insurance policy? a. The policy stays in force as long as the premiums are paid. b. It provides protection for a specific period. c. This "mutual fund" policy is intended to keep death benefits apace with inflation. d. It pays the face amount if policy is in force when death occurs. e. The interest rates of the policy are based on bonds only (not stocks) and can be higher than the minimum guaranteed.
ANS: c
8. Which of the following best describes unbundling? a. A feature that allows the sharing of current profits from investments, mortality assumptions, expense estimates, and lapse experience with policyholders. b. The need to pay for protection in order to gain access to the cash value element of a single-premium or other investment-oriented plan. c. A feature of universal life that clearly shows the separate effect of mortality, investment, and expense components. d. The process where issuers of universal policies lower their front-end charges and increase surrender charges. e. A feature of variable life that credits the account with the return an insurer earns on its latest new investments.
ANS: c
15. Payment plans have several methods for death proceeds. In the life income method: a. there is even distribution of the proceeds until depleted. b. there is even distribution of the proceeds over a certain number of years. c. the beneficiary leaves the proceeds with the insurer and collects only the interest. d. there is even distribution of the proceeds over the life of the beneficiary. e. there is a lump-sum distribution.
ANS: d
4. In which of the following life insurance policies are premiums fixed, but increase at each renewal? a. Variable life b. Whole life c. Universal life d. Term life e. Variable universal life
ANS: d
7. Which of the following factors have the most influence on the size of dividends received? a. The lapse experience b. The expense estimates c. Mortality assumptions d. Investment returns e. The premium amount
ANS: d
14. Payment plans have several methods for death proceeds. In _____ method, there is even distribution of the proceeds over the life of the beneficiary, with continued distribution to his or her beneficiary at the same or reduced level. a. interest b. one-sum c. fixed years d. fixed amount e. joint life income
ANS: e
17. Which of the following riders is also known as double indemnity? a. Waiver of premium b. Disability income c. Accelerated death benefit d. Catastrophic illness e. Accidental death benefit
ANS: e
