Insurance Chapter 4

Joanna has selected a variable universal life policy because it meets her needs. Which of the following is not a characteristic of a variable universal policy?

it has no cash value

Which life insurance policy has annual increasing premiums and does not build cash value?

Annual renewable term

What is the primary purpose of the Securities Act of 1933?

Defines a securities product

Which of the following policies has premiums that are fixed and level?

Variable life

Insurance agent Sam would need a securities license to sell this policy:

variable life

Equity indexed universal life

works the same way as universal life insurance, except the interest rate is tied to the stock market index, which has the potential to offer greater cash value growth than universal life insurance..

Gerald wants a life insurance policy in which he can choose the investment vehicle. Which policy would you recommend to him?

Variable life

All of the following are true regarding credit life insurance, EXCEPT:

At any time, the face amount of the policy cannot be greater than the amount of the debt. Straight life or economatic life insurance may be used to cover a debt. Credit life policies are typically issued for a period of 10 years or less. * Credit life insurance is only sold through a group policy.

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

Life insurance protection is provided for the insured's entire life. Premiums are level. The policy has living benefits _ grows cash value. * The premium-paying period may extend beyond the income-earning years.

All of the following policies could be offered as variable policies, EXCEPt:

Ordinary whole life Joint life Universal * Decreasing term

Characteristics of decreasing term life insurance;

Premiums are level in a decreasing term life policy. The policy face decreases to zero by the end of the policy period _ on the day of policy expiration, the face amount equals zero. Decreasing term policies are often called _mortgage reduction insurance_ because they are used to insure a mortgage.

What are the two major types of life insurance?

Term and whole

Hank is looking for the best life insurance policy to meet his needs. He has a limited amount of income and assets, but needs a large amount of insurance protection. Which policy should Hank's insurance agent recommend?

Term life insurance

Wesley purchases an increasing term life insurance policy. Which of the following elements must increase in Wesley's policy?

The death benefit

An endowment life insurance policy is characterized by all of the following, EXCEPT:

The death benefit is paid upon the death of the insured. The policy's face amount is paid out if the insured is alive at the contract maturity date. Policy cash value must equal the face amount by the end of the policy period. * Endowment contracts endow only upon the insured's death.

Which of the following best describes option 1 under a universal life policy?

The death benefit is the policy face amount or policy cash value, but not both.

Which of the following is not a way that an endowment policy can mature?

When the cash value equals the face amount, at the end of the policy period When the policy period ends, even if the insured is alive Upon the death of the insured *Surrender of cash value

Variable universal life (VUL) is a mixture of:

Whole life insurance, Universal life insurance and Variable life insurance.

Which policy pays a death benefit only upon the death of the last person insured?

survivorship life policy

front-end loaded;

that sales and administrative charges were deducted from the first-year premium.

Which term policy has level premiums and a level face amount?

Level premium term

Which of the following laws defined a security product?

Securities Act of 1933

All of the following characterize term life insurance, EXCEPT: Select one:

Term life insurance provides the largest amount of coverage for the lowest amount of premium. Term life insurance provides pure death protection. Term life insurance usually cannot be renewed beyond a certain age, usually 75. *Term life insurance provides living benefits (cash accrual).

Because variable contracts are equity products, they are subject to various regulations. Which of the following applies to variable contracts?

The 12% rule

How Variable Insurance works:

The death benefit will never drop below the guaranteed minimum face amount. Cash value is figured daily and varies based on the investment in the separate account. Cash value may be borrowed or withdrawn at any time. Policy loans are subject to interest. If policy loans are not repaid, the death benefits are reduced by the amount of the loan plus interest. Policy loans are typically limited to 75% - 80% of the policy's cash value

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

They must cover cash values, net insurance and mortality costs, as well as expenses.

Of the following policies, which has a guaranteed minimum death benefit, fixed premiums and nonguaranteed cash values?

Variable life

Some universal policies permit a cash withdrawal. All of the following are true statements about universal life, EXCEPT:

*It is treated as a loan. It will reduce the cash value. It is not subject to interest. Repayment is treated like a premium payment.

Term insurance is categorized by all of the following, EXCEPT:

Temporary protection Premiums increase each time the policy is renewed Provides the largest amount of protection for the least amount of premium *Policy cash value grows tax-deferred

What is the primary purpose of the Investment Company Act of 1940?

Requires insurer to maintain a separate account for variable investments

All of the following statements are correct regarding variable universal life contract charges and fees, EXCEPT:

Sales and loading charges are deducted from the policy's cash value. The full cost of death protection is deducted from the policy's cash value. Insurers must provide policyowner's with an annual statement of charges and interest earned. * Interest earned is credited to the death benefit.

Which of the following laws requires sales representatives selling variable products to have a Series 6 license?

Securities Act of 1934

Which life insurance policy allows the policyowner to choose where they want their funds invested?

variable liife

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

20-pay life

In which fund are premiums for a variable whole life insurance policy invested?

In the insure's separate account

___________ policies have premiums that fluctuate between the current rate and maximum rate, as stated in the policy.

Indeterminate premium

The death benefit in a variable whole life policy:

Is a guaranteed minimum, but may increase based on favorable investment activity in the separate account

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

It grows tax-deferred. It is a nonforfeiture value that is fully guaranteed to the policyowner. It can be used to pay policy premiums. *It may be used as a policy loan without affecting the death benefit.

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

The policy endows

Donna is getting ready to look at variable life insurance as an option for her insurance. Which of the following statements is TRUE about variable life insurance?

To sell a variable life insurance policy, the proposal must be accompanied by a prospectus

Which type of life insurance provides living benefits?

Whole

A policy known as interest-sensitive whole life is:

current assumption whole life

All of the following are guaranteed features in a variable life insurance policy, EXCEPT:

Death benefit Premium rate Period of death protection * Cash value

Which policy works the same way as universal life, but has an interest rate that is tied to the stock market index?

Equity indexed universal life

All of the following are features of variable universal life insurance, EXCEPT:

Flexible premiums Cash value Death benefit option A or B * Death protection is not deducted from cash value

Which of the following laws requires that insurers maintain a separate account for variable investments?

Investment Company Act of 1940

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?

Limited payment policies

Which of the following characteristics does not describe convertible term life insurance policies?

No matter which age is used, premiums will be higher when the policy is converted. Most converted term policies use the insured's attained age to determine the new premium. The terms of the conversion option are clearly stated in the policy. * The attained age is the insured's age upon purchase of the term life insurance policy.

Which of the following life insurance policies is not an example of third party ownership?

Split-dollar plan Key employee life insurance Group life *Economatic

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 total premium is lower

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

Whole life insurance is permanent protection providing death protection for the insured's entire life. Whole life insurance provides living benefits in addition to permanent life insurance. Whole life insurance policies use the insured's age at issue to establish policy premiums. * The cash value in a permanent life insurance policy is not a nonforfeiture benefit.

back-end loading;

sales and administrative charges are not deducted until the policy owner takes out cash value from the policy or surrenders the policy for its cash value.decreases over a period of years; In the first or second years, the charge may by 10%; In the 10th or 11th years, the charge may be zero.

Which of the following policies allows the policyowner to buy term and direct the investments made in the cash value account?

variable universal life

What part of a mortgage reduction policy decreases over time?

Face amount

All of the following statements regarding renewable term life insurance policies are false, EXCEPT:

Renewable term life insurance policies can only be renewed by the insurance company, and the insured must provide evidence of insurability. Renewable term life insurance policies are always convertible. Renewable term life insurance policies may be renewed by the insured as long as evidence of insurability is provided. * Renewable term life insurance policies are renewable at the insured's option.

What happens when a universal life policyholder pays the target premium?

The policy will resemble whole life insurance.

A policy with flexible premiums based on a changing current interest rate is:

current assumption whole life

All of the following policy elements are not guaranteed in a variable whole life policy, EXCEPT:

Value in separate account Accumulation units Cash value *Death benefit

All of the following policy features may change throughout the policy term of a variable universal life policy with option 2, EXCEPT:

Death benefit Cash value in the separate account Premiums * Face value

What are the benefits of a convertible and renewable term life insurance policy?

Proof of insurability is not required to convert or renew coverage.

Variable insurance

policyowners have the opportunity to earn higher interest rates because it is linked to the insurer's separate account, which fluctuates according to its investment performance. risk is borne upon the policyowner. Variable life insurance products are securities contracts and are regulated by the Securities and Exchange Commission (SEC). Agents selling variable products must have a life insurance and a FINRA representative license. Premiums are paid at regular intervals. If the policyowner does not pay a premium after the policy grace period, the policy will lapse. The policy cash value is not guaranteed.

Sheldon wants a life insurance policy with premiums that do not increase over time. Which of the following policies would you not recommend to him?

Convertible term

All of the following term life insurance policies have level premiums, EXCEPT:

Level Decreasing Increasing *Annual renewable term

Variable universal life

is universal life insurance with a separate account. policies have the flexible features of universal life and the investment choices of variable life. Flexible premiums Cash value based on investment in separate account Policyowners choose sub-account investments Access to cash values (policy loans and withdrawals) Death protection deducted from cash value Death benefit option 1 or option 2

Universal life policy; lets the policyowner "buy term and invest the difference."

the cash value in the policy must continually cover the cost of death protection (cannot reach zero); otherwise, the policy will expire after its grace period lapses, are simply annual renewable term with a cash value account. Interest rates range from 8% - 12% with guaranteed minimum rate, typically around 5%. (Ordinary whole life may earn 3% - 6%.) Reserves are usually invested in long-term securities. Allows policyholders to- Increase or decrease premiums, Skip premium payments, and Increase or decrease policy face amount. There are two adjustments made to the policy's cash value each month: Cost of death protection deducted and Current interest rate credited. Can Take out policy loans and Withdraw cash. Death benefit options; Option A (Option 1) pays a designated amount specified by the policy owner. Option B (Option 2) pays an increasing death benefit.

Which policy has fixed premiums, a guaranteed minimum death benefit and nonguaranteed cash values?

variable whole life