Chapter Exam - Premiums and Proceeds

T and S are named co-primary beneficiaries on a $500,000 Accidental Death and Dismemberment policy insuring their father. Their mother was named contingent beneficiary. Five years later, S dies of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit will the mother receive?

$0 the mother receives $0 b/c T is still alive and the sole primary beneficiary, while the mother is still the contingent beneficiary

of personal life insurance premiums is usually deductible for federal income tax purposes.

in general personal life insurance premiums are not deductible for federal income tax purposes.

T is the policy owner for a life insurance policy with an Irrevocable beneficiary designation. If T wishes to change the beneficiary, T must obtain permission from the ?

beneficiary

Which premium schedule results in the lowest cost to the policyowner?

Annual

When can a policy owner change a revocable beneficiary?

Anytime

K has a life insurance policy where her husband is beneficiary and her daughter is contingent beneficiary. Under the Common Disaster clause, if K and her husband are both killed in an automobile accident, where would the death proceeds be directed?

Daughter

which of these statements is incorrect regarding the federal income tax treatment of life insurance?

Entire cash surrender value is taxable-- this is incorrect-- The Total cash surrender value is NOT taxable. The interest gained is taxable.

How would a contingent beneficiary receive the policy proceeds in an Accidental Death and Dismemberment (AD&D) policy?

If the primary beneficiary dies before the insured

A policy owner would like to change the beneficiary on a life insurance policy and make the change permanent. Which type of designation would fulfill this need?

Irrevocable

A policy owner's rights are limited under which beneficiary designation?

Irrevocable

Which type of life insurance beneficiary requires his/her consent when a change of beneficiary is attempted by the policy owner?

Irrevocable Beneficiary

Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?

Life Income ( The Life Income settlement option pays a specified amount to the annuitant with no residual value payable to a beneficiary.)

Which of the following statements is CORRECT regarding the tax treatment of a lump-sum payment paid to a life insurance policy's primary beneficiary?

Life insurance policy has a stated beneficiary, all the proceeds are income tax free in the year which they are received.

A whole life insurance policy owner does not wish to continue making premium payments. Which of the following enables the policy owner to sell the policy for more than its cash value?

Life settlement contract. A life settlement contract allows a policy owner to sell a life insurance policy for more than its cash value.

A policy owner is allowed to pay premiums more than once a year under which provision?

Mode of Premiums

Which of these is not an element of Life insurance premiums?

Morbidity rate is NOT an element of life insurance premiums (Morbidity is how fast a specific illness kills off a population)

Which statement is true regarding a minor beneficiary

Normally a guardian is required to be appointed in the Beneficiary clause of contract. In most cases, insurers require that a guardian be appointed in the Beneficiary clause of the policy or that a guardian be designated in the will.

which of the following best describes a contingent beneficiary.

Person designated by the insured to receive policy proceeds in the event that the primary beneficiary dies before the insured

On a life insurance policy, who is qualified to change the beneficiary designation?

Policyowner

Who has the right to change a revocable beneficiary?

Policyowner

A policy owner is able to choose the frequency of premium payments through what policy feature?

Premium mode

K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?

Proceeds will be payable to k's estate if P dies within a specified time. Under the Common Disaster provision, proceeds will be payable to K's estate if P dies within a specified time.

A primary beneficiary has died before the insured in a life insurance policy. A contingent beneficiary Is also named in the policy. Which of the following will occur when the insured dies?

Proceeds will go to the contingent beneficiary

T is covered by an Accidental Death and Dismemberment (AD&D) policy that has an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?

Request of the change will be refused

J would like to maintain the right to change beneficiaries. Which beneficiary designation should be used?

Revocable

M purchased an Accidental Death and Dismemberment (AD&D) policy and named his son as beneficiary. M has the right to change the beneficiary designation at anytime. What type of beneficiary is his son?

Revocable

a(n) ----- beneficiary may be changed by the policy owner WITHOUT the consent of the beneficiary.

Revocable

Which statement regarding the change of beneficiary provision is true?

The Policyowner can change the beneficiary

Common Disaster Clause provides that if both the insured and the sole named beneficiary were to die in a common accident, which of the following is true?

The clause provides the payment of proceeds to the insured's estate

C is trying to determine whether to convert her convertible term life policy to whole life insurance using her original age or attained age. What factor would affect her decision the most?

The cost

What is the underlying concept regarding level premiums?

The early years are charged more than what is needed

J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct?

The gross premium is higher on a monthly payment mode as compared to being paid annually

Quarterly premium payments increase the annual cost of insurance because

interest to the insurer is decreased while the administrative costs are increased.

P and Q are married and have three children. P is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the contingent beneficiary. P, Q, and R are involved in a car accident and Q and R are killed instantly. The Accidental Death benefits will be paid to

p survived the accident and is the primary beneficiary

A level premium indicates?

the premium is fixed for the entire duration of the contract

If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the Uniform Simultaneous Death Act?

under the Uniform Simultaneous Death Act, if both insured and primary beneficiary are killed in the same accident and there is insufficient evidence to show who died first, policy proceeds will be paid as if the insured died last. in other words the proceeds will be paid to the secondary or contingent beneficiary.