Life Ch 3-4

Which of the following is the required number of participants in a contributory group plan? A75% B100% C25% D50%

A75%

Which of the following best describes fixed-period settlement option? ABoth the principal and interest will be liquidated over a selected period of time. BOnly the principal amount will be paid out within a specified period of time. CThe death benefit must be paid out in a lump sum within a certain time period. DIncome is guaranteed for the life of the beneficiary.

ABoth the principal and interest will be liquidated over a selected period of time.

To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters? A4 credits B6 credits C10 credits D40 credits

B6 credits

All of the following would be eligible to establish a Keogh retirement plan EXCEPT AA hair dresser who operates her business at her house. BThe president and employee of a family corporation. CA sole proprietor of a service station who employs four employees. DA sole proprietor of film development store with no employees.

BThe president and employee of a family corporation. Keogh plans are for self-employed individuals and their employees.

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the AContingent beneficiary. BIrrevocable beneficiary. CRevocable beneficiary. DSecondary beneficiary.

CRevocable beneficiary.

What happens when a policy is surrendered for its cash value? ACoverage ends but the policy can be reinstated at any time. BThe policy can be reinstated by paying back all policy loans and premiums. CThe policy can be converted to term coverage. DCoverage ends and the policy cannot be reinstated.

DCoverage ends and the policy cannot be reinstated.

What is the purpose of a fixed-period settlement option? ATo provide a guaranteed income for a certain amount of time BTo settle the insurance company's liability CTo provide a guaranteed income for life DTo provide a guaranteed amount of money each month

ATo provide a guaranteed income for a certain amount of time

Which of the following statements is TRUE about a policy assignment? AIt transfers rights of ownership from the owner to another person. BIt is the same as a beneficiary designation. CIt permits the beneficiary to designate the person to receive the benefits. DIt authorizes an agent to modify the policy.

AIt transfers rights of ownership from the owner to another person.

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? ACompany is the owner, and the company pays the premium. BExecutive is the owner, and the executive pays the premium. CCompany is the owner, but the executive pays the premium. DBoard of directors is the owner, and the board of directors pays the premium.

BExecutive is the owner, and the executive pays the premium.

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? AExtended term BFixed amount CFixed period DLife income period certain

BFixed amount

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an ANonqualified annuity. BModified endowment contract. CAccelerated benefit policy. DEndowment.

BModified endowment contract.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the APaid-up additions. BOne-year term option. CPaid-up option. DAccelerated endowment.

BOne-year term option.

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? AThe key employee is the owner and beneficiary. BThe key employee is the owner and the employer is the beneficiary. CThe employer is the owner and beneficiary. DThe employer is the owner and the key employee is the beneficiary.

CThe employer is the owner and beneficiary.

What is the number of credits required for fully insured status for Social Security disability benefits? A4 B10 C30 D40

D40 The term "fully insured" refers to someone who has earned 40 quarters of coverage (10 years of work times 4 maximum annual credits).

What is the waiting period on a Waiver of Premium rider in life insurance policies? A30 days B3 months C5 months D6 months

D6 months

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income? ABoth principal and interest BNeither principal nor interest CPrincipal only DInterest only

DInterest only

The interest earned on policy dividends is ANontaxable. BTax deductible. C40% taxable, similar to a capital gain. DTaxable.

DTaxable.

What is the official name for the Social Security program? AOld Age Survivors Disability Insurance BSocial Insurance Program CDefined Benefit Retirement Insurance DQualified Pension Plan

AOld Age Survivors Disability Insurance

Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members? ATerm rider BAccidental death and dismemberment rider CGuaranteed insurability rider DChange of insured rider

ATerm rider

All of the following are personal uses of life insurance EXCEPT ACash accumulation. BBuy-sell agreement. CSurvivor protection. DEstate creation.

BBuy-sell agreement.

After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive? APercentage of medical costs paid by the insurer BPayments for life CYearly premium waiver and income DMonthly premium waiver and monthly income

DMonthly premium waiver and monthly income

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? AThe same as the original policy minus the cash value BEqual to the original policy for as long as the cash values will purchase. CIn lesser amounts for the remaining policy term of age 100. DEqual to the cash value surrendered from the policy

BEqual to the original policy for as long as the cash values will purchase.

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? AValue Adjustment Rider BReturn of Premium Rider CInflation Rider DCost of Living Rider

DCost of Living Rider

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid? AInsuring clause BEntire contract clause CBeneficiary clause DConsideration clause

AInsuring clause

Which of the following statements about the reinstatement provision is true? AIt requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. BIt permits reinstatement within 10 years after a policy has lapsed. CIt provides for reinstatement of a policy regardless of the insured's health. DIt guarantees the reinstatement of a policy that has been surrendered for cash.

AIt requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.

Which is true about a spouse term rider? AThe rider is usually level term insurance. BCoverage is allowed for an unlimited time. CThe rider is decreasing term insurance. DCoverage is allowed up to age 75.

AThe rider is usually level term insurance. The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance.

Which of the following is TRUE about nonforfeiture values? AThey are required by state law to be included in the policy. BThey are optional provisions. CA table showing nonforfeiture values for the next 10 years must be included in the policy. DPolicyowners do not have the authority to decide how to exercise nonforfeiture values.

AThey are required by state law to be included in the policy.

Who is a third-party owner? AAn irrevocable beneficiary BA policyowner who is not the insured CAn insurer who issues a policy for two people DAn employee in a group policy

BA policyowner who is not the insured Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.

Which of the following settlement options in life insurance is known as straight life? AFixed amount BLife income CSingle life DLife with period certain

BLife income The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive.

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability? AMedical exam and parents' medical history BProof of insurability is not required. CMedical exam DHer parents' federal income tax receipts

BProof of insurability is not required. If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

Which nonforfeiture option provides coverage for the longest period of time? AAccumulated at interest BReduced paid-up CExtended term DPaid-up option

BReduced paid-up

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? ASingle life BFixed-amount CLife income with period certain DJoint and survivor

CLife income with period certain

The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the ATotal contract. BAleatory contract. CComplete contract. DEntire contract.

DEntire contract.

What is the main purpose of the Seven-pay Test? AIt requires level premium payments for 7 years. BIt ensures that the policy benefits are paid out in 7 years. CIt guarantees the minimum interest. DIt determines if the insurance policy is a MEC.

DIt determines if the insurance policy is a MEC. The Seven-pay Test determines whether an insurance policy is "over-funded" or if it's a Modified Endowment Contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then AThe benefit is subject to the exclusionary rule. BIRS has no jurisdiction. CThe benefit is received as taxable income. DThe benefit is received tax free.

DThe benefit is received tax free.

Which of the following terms is used to name the nontaxed return of unused premiums? AInterest BSurrender CDividend DPremium return

CDividend The return of unused premiums is called a dividend. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums.

All of the following are Nonforfeiture options EXCEPT AExtended term BReduced paid-up CInterest only DCash surrender

CInterest only

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the AJuvenile rider. BPayor rider. COther-insured rider. DChange of insured rider.

COther-insured rider.

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated? AThose who have dependents BThose who have no history of claims CThose who have been insured under the plan for at least 5 years DThose who have worked in the company for at least 3 years

CThose who have been insured under the plan for at least 5 years

Which of the following is true about the premium on the children's rider in a life insurance policy? AIt decreases when the oldest child reaches the age of 21. BIt increases when a newborn baby is added to the policy. CIt decreases when an adopted child is added to the policy. DIt remains the same no matter how many children are added to the policy.

DIt remains the same no matter how many children are added to the policy.

All of the following are true regarding insurance policy loans EXCEPT AThe amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies. BThe policy will terminate if the loan plus interest equals or exceeds the cash value of the policy. CPolicyowners can borrow up to the full amount of their whole life policy's cash value. DPolicy loans can be made on policies that do not accumulate cash value.

DPolicy loans can be made on policies that do not accumulate cash value. The policy loan option is only found in policies that contain cash value.

Which of the following is TRUE about the 10-day free-look period in a Life Insurance policy? AIt applies only to term life insurance policies. BIt is optional on all life insurance policies. CIt begins when the policy is delivered. DIt begins when the application is signed.

CIt begins when the policy is delivered.

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? AWaiver of premium BIncontestability period CAssignment DAutomatic premium loan

DAutomatic premium loan

What is the benefit of choosing extended term as a nonforfeiture option? AIt can be converted to a fixed annuity. BIt has the highest amount of insurance protection. CIt matures at age 100. DIt allows for coverage to continue beyond maturity date.

BIt has the highest amount of insurance protection.

When a reduced paid-up nonforfeiture option is chosen, what happens to the face amount of the policy? AIt decreases over the term of the policy. BIt remains the same as the original policy, regardless of any differences in value. CIt is reduced to the amount of what the cash value would buy as a single premium. DIt is increased when extra premiums are paid.

CIt is reduced to the amount of what the cash value would buy as a single premium. In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident, and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do? APay nothing; there was a misrepresentation on the application BPay the full death benefit and refund excess premium CPay a reduced death benefit DPay the full death benefit

CPay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex and identity.