Chapter 6 Exam - Life Insurance Premiums, Proceeds and Beneficiaries

Pat is insured with a life insurance policy and Karen is his primary beneficiary. They are both involved in an automobile accident where Pat dies instantly and Karen dies 5 days later. Which policy provision will protect the rights of the contingent beneficiary to receive the policy benefits? 1. nonforfeiture clause 2. common disaster clause 3. spendthrift clause 4. accident indemnity clause

2. common disaster clause

What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured? 1. policy dividend 2. specified amount of money 3. policy's cash value 4. funeral expense fund

2. specified amount of money

How are death benefits that are received by a beneficiary normally treated for tax purposes? 1. taxable at the beneficiary's current tax bracket 2. subject to state and local taxes only 3. exempt from federal income taxes 4. taxable as a capital gain

3. exempt from federal income taxes

A tax-free Section 1035 Exchange of a life insurance policy to a different policy is permitted if it occurs 1. in the same state as the original transaction 2. within a 12 month period 3. from insurer to insurer and no cash is received by the policy owner 4. from agent to agent as long as the agents are licensed in the same line

3. from insurer to insurer and no cash is received by the policy owner

When calculating life insurance premium rates, which component would an agent's commission fall under? 1. morbidity 2. mortality 3. insurer's expenses 4. occupation

3. insurer's expenses

Tonya has replaced her whole life policy with an annuity without incurring a tax penalty. This transaction is called a(n) 1. modified exchange 2. endowment exchange 3. 1040 exchange 4. 1035 exchange

4. 1035 exchange

Sharon is the policy owner of a $50,000 life insurance policy. Her son, Mike, is the beneficiary. If Sharon MUST obtain Mike's signature in order to change the beneficiary, what kind of beneficiary designation is this? 1. tertiary 2. contingent 3. revocable 4. irrevocable

4. irrevocable

Insurance premium is determined by each of the following factors EXCEPT 1. mortality 2. interest 3. expenses 4. liquidity

4. liquidity

A beneficiary receives only the death benefit earnings in which settlement option? 1. interest option 2. life option 3. stock option 4. fixed amount option

1. interest option

What is the price of insurance for each exposure unit? 1. rate 2. premium 3. rating 4. expense

1. rate

Which of these premium payment frequencies is not typically available to a policy owner? 1. bi weekly 2. monthly 3. quarterly 4. semi annual

1. bi weekly

Which of the following is NOT a component of determining policy premiums? 1. dividends 2. mortality 3. interest 4. expenses

1. dividends

Which settlement option involves having the proceeds remain with the insurer and earnings paid on a monthly basis to the beneficiary? 1. interest only 2. dividends only 3. extended interest 4. fixed period

1. interest only

Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors? 1. spendthrift clause 2. protection clause 3. viatical clause 4. settlement clause

1. spendthrift clause

A policy owner can receive an immediate payment before the insured dies by using a(n) 1. viatical settlement contract 2. buy sell arrangement 3. adhesion agreement 4. spendthrift plan

1. viatical settlement contract

A policy owner can receive a percentage payment of the death benefits prior to death by suing what kind of contract? 1. viatical settlement option 2. funding medium agreement 3. split dollar plan 4. buy-sell plan

1. viatical settlement option

A policy owner can receive a percentage payment of the death benefits prior to death by using what kind of contract? 1. viatical settlement option 2. funding medium agreement 3. spit dollar plan 4 buy-sell plan

1. viatical settlement option

A creditor would be allowed rights to life insurance policy proceeds if which of the following beneficiaries is chose? 1. The insured's mother 2. The insured's estate 3. The insured's children 4. The insured's spouse

2. The insured's estate

Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident? 1. primary beneficiary's estate 2. contingent beneficiary 3. insured's estate 4. children of the insured

2. contigent beneficiary

Elizabeth is the beneficiary of a life insurance policy. She is receiving the death benefit in payments of $10,000 per month until the principal and interest has been paid out. Which option was chosen? 1. fixed period 2. fixed amount 3. life income 4. interest only

2. fixed amount

How is the cost of a policy affected when a policy owner pays premiums more frequently? 1. not affected 2. increases 3. decreases 4. depends on the type of coverage

2. increases

Pam is the primary beneficiary of a life insurance policy and wants to let the death benefit accumulate and receive only the monthly investment proceeds. Which settlement option should she choose? 1. lump sum option 2. interest option 3. life income option 4. fixed amount option

2. interest option

What would be an expense factor in an insurance program? 1. premiums collected 2. mortality costs 3. opportunity costs 4. investment interest

2. mortality costs

What is the primary feature of a viatical settlement? 1. no interest on policy loans 2. reduced death benefit prepayment 3. longer contestable period 4. lower premiums

2. reduced death benefit prepayment

Which of the following enables a life policy to be replaced with another life policy and results in the postponement of the tax consequence? 1. section 1040 exchange 2. section 1035 exchange 3. nonforfeiture option 4. spendthrift option

2. section 1035 exchange

The probability of death, listed by year, is demonstrated in 1. risk tables 2. frequency tables 3. mortality tables 4. morbidity tables

3. mortality tables

A beneficiary has just received a claim payment for a life insurance policy. Which of the following is TRUE regarding the federal income tax liability owed? 1. a flat tax of 10% is owed on all proceeds 2. federal income tax is owed if proceeds exceed $250,000 3. no federal income ta is owed on life insurance proceeds 4. tax liability owed depends on the type of life insurance policy

3. no federal income ta is owed on life insurance proceeds

Proceeds from a life insurance policy are protected from the beneficiary's creditors by which clause? 1. protection clause 2 creditor clause 3. spendthrift trust clause 4. beneficiary trust clause

3. spendthrift trust clause

Premiums are best described as 1. money paid by the insurer for settling a claim 2. money paid by the insured to acquire policy's benefits 3. the amount an insured pays per unit of coverage 4. commissions payable to the writing agent

3. the amount an insured pays per unit of coverage

How does life insurance create an immediate estate? 1. cash value may be borrowed upon at any time 2. nonforfeiture options are immediately available 3. the insured's estate receives the death benefit 4. after first premium is paid, the face amount may be available to the beneficiary

4. after first premium is paid, the face amount may be available to the beneficiary

What is created after policy proceeds are obtained in a lump sum and then immediately invested? 1. viatical settlement 2. emergency fund 3. lump sum fund 4. estate

4. estate

Purchasing a life insurance policy in order to avoid the forced sale of assets upon death is called 1. estate funding 2. capital withholding 3. capital gains 4. estate conservation

4. estate conservation

Which of the following is NOT a life insurance settlement option? 1. fixed sum option 2. fixed amount option 3. life income option 4. extended term option

4. extended term option

Level premium term life insurance policies 1. build cash value in a separate account 2. automatically convert to permanent insurance at a predetermined date 3. automatically renew at predetermined dates 4. have premiums that are averaged over the policy period

4. have premiums that are averaged over the policy period

Which of these is considered a major tax advantage of life insurance? 1. tax credits are available for life insurance premiums paid 2. annual earnings are tax free 3. premiums are tax deductible by an employee if paid for by an employer 4. income tax is typically not owed on proceeds paid directly to a beneficiary

4. income tax is typically not owed on proceeds paid directly to a beneficiary

A policy owner is prohibited from making any changes to the policy without the beneficiary's written consent under which beneficiary designation? 1. contigent beneficiary 2. tertiary beneficiary 3. revocable beneficiary 4. irrevocable beneficiary

4. irrevocable beneficiary

Which of these is the automatic mode of settlement for life insurance policy proceeds? 1. fixed period 2. interest only 3. extended term 4. lump-sum

4. lump-sum

When calculating life insurance premium rates, which component is affected by an insured's age and gender? 1. insurer's expense 2. morbidity 3. investments 4. mortality

4. mortality

A life insurance claim which involves a per capita distribution of policy proceeds would be payable to the 1. estate of the insured only 2. estate of the deceased beneficiaries only 3. named contingent beneficiaries only 4. named living primary beneficiaries

4. named living primary beneficiaries

Which of the following is NOT an insurer policy expense? 1. rent 2. salaries 3. commissions 4. premiums

4. premiums

A spendthrift clause in a life insurance policy 1. permits the beneficiary to borrow from a policy's cash value 2. evenly distributes benefits among all named living beneficiaries 3. assigns a policy's face amount to the insured's estate if the beneficiary dies before the insured 4. restricts the ability of the beneficiary to assign benefits

4. restricts the ability of the beneficiary to assign benefits

A spendthrift clause in a life insurance policy 1. permits the beneficiary to borrow from a policy's cash value 2. evenly distributes benefits among all named living beneficiaries 3. assigns a policy's face amount to the insured's estate if the beneficiary dies before the insured 4. restricts the ability of the beneficiary to assign benefits

4. restricts the ability of the beneficiary to assign benefits