Chapter 4 Mod 2 Quiz

Ordinary whole life insurance premiums are:

Ordinary whole life premiums are fixed. The fixed premiums provide the policy with a guaranteed minimum cash value and fixed death benefit. The correct answer is: Fixed

What happens when the cash value of a life insurance policy equals the face value?

When the cash value in a life insurance policy equals the face amount, the policy endows, or pays out. Life insurance policies may not endow earlier than the insured's 95th birthday. The correct answer is: The policy endows.

In what year must cash values begin to accrue in a straight life policy?

Cash values must begin to accrue by the third policy year. The correct answer is: 3rd

The cash value in permanent life insurance policies is characterized by all of the following, EXCEPT:

The interest earned in whole life policies grows tax-deferred. This means that interest is not taxable in the year it is earned. The correct answer is: Interest earned on cash value is taxable in the year it is earned.

Judith wants her life insurance policy to grow cash value quickly. Which policy would you recommend to her?

Limited pay whole life policies grow cash value faster than ordinary (straight) whole life policies because the premium paying period is restricted to a limited number of years. In this example, the premium paying period is restricted to 25 years. The correct answer is: 25-pay life

______________ whole life policies provide a lower initial premium that can fluctuate up to a maximum premium as stated in the policy.

Indeterminate premium whole life policies provide a lower initial premium that can fluctuate up to a maximum premium as stated in the policy. The correct answer is: Indeterminate premium

Which of the following is not a way that limited pay policies differ from ordinary whole life policies?

Limited payment and ordinary whole life policies both mature when the insured reaches age 100, or upon the insured's death, whichever occurs first. Limited payment policies have a shorter premium-paying period. The correct answer is: The death benefit is paid out earlier.

After looking at his options, Randy decided on a single premium whole life policy. What is the main advantage of this type of policy?

The main advantage of a single premium policy is that the premium is less than it would be if it stretched over several or many years. The correct answer is: The total premium is lower.

All of the following are advantages of whole life insurance, EXCEPT:

Because permanent (whole) life insurance protects the insured for their entire life, premiums are due each year until the insured dies. This may prove to be expensive when the insured is retired, and does not earn an income. The correct answer is: The premium-paying period may extend beyond the income-earning years.

Which of the following statements incorrectly describes cash value in an ordinary whole life policy?

Unpaid policy loans are deducted from the policy death benefit upon maturation. The correct answer is: Cash value may be used as a policy loan, without affecting the death benefit.

Which of the following best describes a limited payment life insurance policy?

With a limited payment (LP) whole life policy, the insured is covered for their entire life, but premiums are paid for a limited time. The correct answer is: The insured is covered for their entire life and premiums are paid for a restricted period of time.

Compared to straight life, a limited payment life insurance policy is characterized by all of the following, EXCEPT:

As the name indicates, a limited payment life insurance policy has a shorter premium-paying period compared to a straight life policy. The correct answer is: Premium-paying period is longer.

Why are whole life policies more expensive than some other insurance options?

Because whole life policies include cash values in addition to net insurance, the premiums must cover mortality costs, expenses and the savings amount. The correct answer is: They must cover cash values, net insurance and mortality costs, as well as expenses.

What elements are guaranteed in a straight life policy?

The cash value and death benefit are guaranteed by the insurer. The correct answer is: Both cash value and death benefit

All of the following are characteristics of whole life insurance, EXCEPT:

The cash value in a whole life policy is a nonforfeiture value, meaning that said funds cannot be forfeited, and the policyowner is entitled to such values. The correct answer is: The cash value in a permanent life insurance policy is not a nonforfeiture benefit.

Which of the following is not true regarding the cash value in an ordinary whole life policy?

Unpaid policy loans are deducted from the policy death benefit upon maturation. The correct answer is: It may be used as a policy loan without affecting the death benefit.

With respect to whole life insurance, which of the following statements is false?

Whole life insurance cash values are a nonforfeiture value that the policyowner may withdraw in part or in whole. If all policy cash values are withdrawn and no further premium payments are made, the policy will lapse. The policyowner may cease paying premiums and surrender the policy for its cash value. The correct answer is: None of the above

Which type of life insurance provides living benefits?

Whole life insurance provides living benefits, including cash values and policy loans. The correct answer is: Whole

Ordinary whole life insurance death benefits are:

Ordinary whole life policies have a fixed guaranteed death benefit. The correct answer is: Fixed

Limited payment whole life policies differ from ordinary whole life policies in all of the following ways, EXCEPT:

The primary differences between limited payment whole life and ordinary whole life are: 1.) foreshortened premium-payment period, and 2.) cash value accumulates faster. Do not confuse limited payment with an earlier maturation date _ limited payment whole life policies do not pay out before ordinary whole life policies. Limited payment policies are simply paid up sooner. The correct answer is: The policy pays out earlier.

When considering different types of whole life policies, it is important to know the amount of the premium can vary, depending on the policy chosen. The premium would be highest for:

Normally the premium payments are higher for a shorter payment period. The correct answer is: 20-payment whole life

This life insurance policy provides death protection for the insured's entire life, but premiums are not paid for the insured's entire life.

Limited payment whole life policies provide life insurance protection for the insured's entire life, but premiums are paid for a limited period of time, such as 20 or 25 years. The correct answer is: 20-pay life

Of the basic types of whole life insurance, which policy has the lowest premium?

Compared to limited payment and single premium policies, straight life has the lowest premium. The correct answer is: Straight life

Blaine wants a life insurance policy that builds cash value the quickest. Which of the following policies best fits Blaine's needs?

Limited pay whole life policies grow cash value faster than ordinary (straight) whole life policies because the premium paying period is restricted to a limited number of years. In this example, the 25-pay life policy grows cash value the fastest because the premium paying period is restricted to 25 years, whereas the 40-pay life policy premium paying period is 40 years, which grows cash value in a longer period of time. The correct answer is: 25-pay life

A single premium whole life policy has all of the following features, EXCEPT:

The face amount of a single premium whole life policy has a level face amount. The correct answer is: Face amount is variable

A limited payment life insurance policy is best suited for:

Limited payment policies are suitable for clients who do not want to pay premiums for their entire lives or people who are nearing retirement with liquid capital who don't already have permanent life insurance. The correct answer is: Josh, a 25-year old successful entrepreneur with extra funds, who doesn't want to pay life insurance premiums when he retires.

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?

The limited payment policy allows the policyholder(s) to pay for the entire policy in a shorter period of time. The correct answer is: Limited payment policies

All of the following are basic types of whole life insurance, EXCEPT:

The three basic types of whole life insurance are: continuous premium, limited payment, and single premium. Interim term insurance lasts for one year or less, as a stepping stone coverage for people who intend to purchase permanent coverage. The correct answer is: Interim term

All of the following are characteristics of whole life policies, EXCEPT:

Whole life policies do not offer the opportunity to change components. The correct answer is: Opportunity to change components of the policy

Ben wants to pay his entire whole life policy premium at once. Which policy would you recommend to him?

As the name suggests, a single premium whole life policy allows the insured to pay the entire premium in one lump-sum. The correct answer is: Single premium whole life