Chapter 4 Part 1 Life Policies
Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be $250,000 $750,000 $375,000 $500,000
$500,000
Which policy feature makes a universal life policy different from a whole life policy? A fixed cash value A flexible premium schedule A fixed death benefit The ability to take out a policy loan
A flexible premium schedule
A Modified Endowment Contract (MEC) is best described as A life insurance contract which accumulates cash values higher than the IRS will allow An annuity contract which was converted from a life insurance contract A modified life contract which enjoys all the tax advantages of whole life insurance A life insurance contract where all withdrawals prior to age 65 are subject to a 10% penalty
A life insurance contract which accumulates cash values higher than the IRS will allow
A policyowner may change two policy features on what type of life insurance? Modified Whole Life Decreasing Term Life Adjustable Life Whole Life
Adjustable Life
Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider? Can be converted to permanent coverage without evidence of insurability Coverage can be different for each child Premiums on this rider are not required until the limiting age is reached Increases the policy's overall cash value
Can be converted to permanent coverage without evidence of insurability
Which type of life insurance is normally associated with a Payor Benefit rider? Juvenile insurance Family income insurance Spouse insurance Term rider
Juvenile insurance
What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death? Dual Life insurance Joint Life insurance Last Survivor Life insurance Shared Life insurance
Last Survivor Life insurance
Shirley has a $500,000 10-year non-renewable level term life policy. If she dies 15 years after the policy's inception date, how much will her beneficiary receive? Nothing $100,000 $250,000 $500,000
Nothing
An interest-sensitive life insurance policyowner may be able to withdraw the policy's cash value interest free. The provision that allows this is called Partial Surrender Subrogation Automatic Premium Loan Accelerated Death Benefit
Partial Surrender
Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test? Policy loans are disallowed The premium payments will be tax deductible Pre-death distributions are typically taxable Withdrawals will be prohibited
Pre-death distributions are typically taxable
Under a Modified Endowment Contract, what are the likely tax consequences? Interest on policy loans is tax deductible Premium payments are tax deductible Pre-death distributions will become taxable Cash value cannot be surrendered early
Pre-death distributions will become taxable
How are survivorship life insurance policies helpful in estate planning? Provide funds to help fund retirement Provide funds to help pay taxes Provide funds for funeral expenses Provide tax deductions for premium payments
Provide funds to help pay taxes
Which of the following are the premium payments for a Universal life policy NOT used for? Death benefits Cash value Loading costs Separate account investments
Separate account investments
Which type of multiple protection policy pays on the death of the last person? Joint life policy Survivorship life policy Dual life policy Multiple life policy
Survivorship life policy
Which of the following policies does NOT build cash value? Term Straight Life Endowment Variable Life
Term
Krissa purchases a 10-year level term life insurance policy that has a death benefit of $200,000. Which of these statements is true? The policy automatically converts to whole life after the 10-year period The face amount will remain constant and the premium will increase over the 10-year period The premium will remain constant and the face amount will increase over the 10-year period The face amount and premium will remain constant over the 10-year period
The face amount and premium will remain constant over the 10-year period
A life insurance policy that has premiums fully paid up within a stated time period is called stated payment insurance limited universal insurance stated modified insurance limited payment insurance
limited payment insurance
The premium for a Modified whole life policy is higher than the typical whole life policy during the first few years and then lower than typical for the remainder lower than the typical whole life policy during the first few years and then higher than typical for the remainder normally graded over a period of 20 years level for the first 5 years then decreases for the remainder of the policy
lower than the typical whole life policy during the first few years and then higher than typical for the remainder
Decreasing term life insurance is often used to provide retirement funds provide coverage for a home mortgage accumulate cash value provide coverage for estate taxes
provide coverage for a home mortgage
What is the automatic continuance of insurance coverage referred to as? renewal reinstatement resumption renovation
renewal
A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called whole life group life credit life universal life
universal life
A renewable Term Life insurance policy allows the policyowner the right to renew the policy at anytime the policyowner chooses as many times as the policyowner chooses paying the same premium as before the renewal without producing proof of insurability
without producing proof of insurability
All of these are valid options for an Adjustable Life Policy EXCEPT The policy's premium can be increased or decreased The policy's death benefit can be increased or decreased A nonforfeiture option can be used to increase the death benefit The policy's protection period can be modified
A nonforfeiture option can be used to increase the death benefit
Jonas is a whole life insurance policyowner and would like to add coverage for his two children. Which of the following products would allow him to accomplish this? Child term rider Payor rider Family maintenance rider Family income rider
Child term rider
What happens to the coverage under a children's term rider when that child reaches a certain specified age? Coverage decreases automatically Coverage increases automatically Coverage remains as long as proof of insurability is provided Coverage is eliminated
Coverage is eliminated
Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)? Loan against the cash value Policy withdrawal Policy dividend Death benefit
Death benefit
Julie has a $100,000 30-year mortgage on her new home. What type of life insurance could she purchase that is designed to pay off the loan balance if she dies within the 30-year period? Adjustable life insurance Decreasing term insurance Increasing term insurance Modified life insurance
Decreasing term insurance
Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive? Adjustable life policy Modified life policy Endowment policy Universal life policy
Endowment policy
Peter has a policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index. What kind of policy is this? Modified Endowment Contract Current assumptive whole life Credit life insurance Equity index whole life
Equity index whole life
A spouse and child can be added to the primary insured's coverage as what kind of rider? Dependent term Guaranteed insurability Primary term Family term
Family term
Which of these riders will pay a death benefit if the insured's spouse dies? Guaranteed Insurability rider Family term insurance rider Family whole insurance rider Payor benefit rider
Family term insurance rider
All of these are characteristics of a universal life insurance policy EXCEPT Flexible death benefit Fixed surrender value Flexible premiums Builds cash value
Fixed surrender value
A life insurance policy written on one contract for two people in which it is payable upon the first death is called Split Shared Joint Survivorship
Joint
What is a corridor in relation to a Universal Life insurance policy? The gap between the total death benefit and the policy's cash value The gap between when a claim is filed and when the death benefit is received The amount of interest that has accumulated in the policy's cash value The point in time when the policy's cash value reaches $0
The gap between the total death benefit and the policy's cash value
The statement which best describes the relationship between the premiums of a whole life policy and the premium payment period is The shorter the payment period, the lower the premium The longer the payment period, the higher the premium The shorter the payment period, the higher the premium The payment period has no affect on the premium payment
The shorter the payment period, the higher the premium
Joe has a life insurance policy that has a face amount of $300,000. After a number of years, the policy's cash value accumulates to $50,000 and the face amount becomes $350,000. What kind of policy is this? Increasing Term Life policy Nonparticipating policy Modified Whole Life policy Universal Life policy
Universal Life policy
A partial surrender is allowed in which of the following life policies? Adjustable whole life Universal life Decreasing term life Limited whole life
Universal life
Reggie purchased a life insurance policy with a face amount of $500,000. After 15 years, the cash value has accumulated to $100,000 and the policy's face amount has become $600,000. Which type of life insurance policy is this? Adjustable life Credit life Modified life Universal life
Universal life
A life insurance policy which contains cash values that vary according to its investment performance of stocks is called Increasing Term Life Modified Whole Life Variable Whole Life Adjustable Whole Life
Variable Whole Life
Which type of policy combines the flexibility of a universal life policy with investment choices? Adjustable universal life policy Flexible universal life policy Variable universal life policy Modified universal life policy
Variable universal life policy
Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested? Adjustable life policy Variable universal policy Universal policy Modified whole life policy
Variable universal policy
All of these statements concerning whole life insurance are false EXCEPT Policyowner can take out a policy loan up to the face amount When a whole life policy is surrendered, income taxes may be owed Coverage is normally temporary The death benefit is not affected by outstanding loans
When a whole life policy is surrendered, income taxes may be owed
Which of these would be the best example of a limited pay life insurance policy? Whole life policy that pays out its cash value over a 20 year period Whole life policy with premiums paid up after 20 years Term life policy that returns cash value after 20 years Term life policy with premiums paid up after 20 years
Whole life policy with premiums paid up after 20 years
A single premium cash value policy can be described as a policy that is paid up after only one payment a policy that only requires an annual payment a policy that is guaranteed issue a policy that covers two or more lives
a policy that is paid up after only one payment
A Renewable Term Life insurance policy can be renewed at a predetermined date or age, regardless of the insured's health only if the insured provides evidence of insurability anytime at the policyowner's request typically with no change in premium
at a predetermined date or age, regardless of the insured's health
Level premium permanent insurance accumulates a reserve that will eventually equal the face amount of the policy pay a dividend to the policyowner require the policyowner to make periodic withdrawals become larger than the face amount
equal the face amount of the policy
When a decreasing term policy is purchased, it contains a decreasing death benefit and increasing premiums level premiums decreasing premiums variable premiums
level premiums
A limited payment whole life policy provides protection for 20 years lifetime protection protection for more than one person discounted premiums
lifetime protection
A permanent life insurance policy where the policyowner pays premiums for a specified number of years is called a(n) adjustable policy limited pay policy level term policy variable universal policy
limited pay policy
Term insurance is appropriate for someone who seeks living benefits for themselves seeks a policy that builds cash value seeks temporary protection and lower premiums seeks permanent protection and higher premiums
seeks temporary protection and lower premiums
The type of policy which pays on the death of the last person is called joint life survivorship life dual life shared life
survivorship life
The type of multiple protection coverage that pays on the death of the last person is called a(n) joint life policy survivorship life policy annuity joint policy dual life policy
survivorship life policy
What types of life insurance are normally used for key employee indemnification? term, whole, and universal life insurance increasing term insurance joint, credit, and group life insurance adjustable, permanent, and limited-pay life insurance
term, whole, and universal life insurance
Pre-death distributions from a modified endowment contract (MEC) receive different tax treatment than other life insurance policies because the MEC has tax deductible premiums the MEC is considered an illegal product the MEC tends to be an investment vehicle the MEC does not accumulate cash value
the MEC tends to be an investment vehicle
A securities license is required for a life insurance producer to sell modified life insurance Modified Endowment Contracts (MEC) variable life insurance universal life insurance
variable life insurance
Shawn, Mike, and Dave are brothers who have a $100,000 "first to die" joint life policy covering all three of their lives. If Mike dies first, the policy proceeds will no longer provide insurance protection will go to Mike's estate will be divided by probate will not be paid until the last brother dies
will no longer provide insurance protection
