Life Insurance
How soon can income payments begin in an immediate annuity?
no later than 1 year from the time of annuity purchase
What universal life option (option a or option b) has a gradually increasing cash value and a level death benefit?
option A- level death benefit
What nonforfeiture option provides coverage for the longest period of time?
reduced paid up
How are annuities classified depending on how many lives they cover?
single life and multiple life annuities
What type of whole life insurance policies only requires a payment of premium at its inception, and in addition to providing insurance protection for the life of the insured, endows at the insured's age 100?
single premium whole life
what type of whole life policy is this? - one time lump-sum payment - level death benefit - generates immediate cash value
single premium whole life
What type of whole life insurance policy generates immediate cash value?
single premium whole life because you pay one lump sum premium and that automatically generates cash
Regarding taxation, how does the cash value of a universal life policy accumulate?
tax deferred
An annuity purchased with multiple payments that begins income payments after one year from the moment of purchase is known as what type of annuity?
Flexible premium deferred annuity.
what is the major difference between the most common types of whole life policies: straight life, limited payment, and single premium
premium payment methods
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
primary beneficiary
What policy component must decrease in decreasing term insurance?
face amount (death benefit)
If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used by the insurer?
lump-sum payment
Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits?
$50,000 The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitant's death. Straight life annuity paments stop at death of the annuitant regardless of the principal left in the account.
What are the most common exclusions in life insurance policies?
- aviation - war/ military service - hazardous occupation/hobby
What are the dividend options in life insurance policies?
- cash - reduced premium - accumulation at interest - paid-up additions - paid-up option - one year term - acceleration of endowment
What settlement options are available in life insurance policies?
- lump sum/ cash - fixed period - fixed amount - life income - interest only
The policyowner of a whole life insurance policy is also the insured. What age must the insured attain in order to receive the policy's face amount?
Age 100
Who receives income payments from an annuity?
Annuitant
If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid out?
Annuitant's estate
When an annuity is written, whose life expectancy is taken into account?
Annuitants
An individual has a contract that will provide him with a certain amount of income for the reat of his life. However, this is not a life insurance policy. What type of contract does this person have?
Annuity
Who possesses all the rights in an annuity?
Annuity owner
Which of the following will NOT be an apporpriate use of a deferred annuity? A. Accumulating funds in an IRA B. Funding a child's college education C. Creating an estate D. Accumulating retirement funds
C. Creating an estate deferred annuities grow tax deferred and are best suitable for accumulating retirement income or funds for children's college education. Unlike life insurance, annuities do not create and estate, but liquidate it.
What are 2 types of refund life annuities?
Cash refund and installment refund
What type of annuity can be purchased with a single premium?
Immediate annuity
What type of life insurance policy is Life Paid-up at Age 65?
Limited-pay whole life
With a single premium deferred annuity, when will the annuity payments become available?
No sooner than 1 year after the annuity purchase
Can a businesss or a corporation be an annuitant?
No, an annuitant must always be a natural person.
What are the death benefit options in universal life policies?
Option A- level death benefit Option B- increasing death benefit
What is the name for a life insurance policy rider that provides coverage on the insured's family members?
Other-insured rider
What are accumulation units in annuities?
Ownership interest in the separate account (instead of buying shares, annuity holder purchases accumulation units)
What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?
Straight life
what type of whole life policy is this? - premium paid from issued date to age 100 - level death benefit and premium, increasing cash value - this kind will have the lowest annual premium
Straight whole life
What causes a variable annuity benefit the vary?
The annuity's underlying investments (stocks and bonds)
Who owns a group life insurance contract?
The employer (also known as the sponsor of the group)
What does term double indemnity mean?
The insurer will pay a benefit of twice the face amount
What type of annuity requires an agent to have a securities license?
Variable annuity
What type of premium is charged on a straight life policy?
a level premium
Who is insured under a juvenile life policy?
a minor
Whole life policies provide protection until the insured reaches what age?
age 100
in annually renewable term policies, what is the annual premium based upon?
the insured's attained age
a policy states that it will pay a specified face amount if the insured dies during the 20 year premium-paying period and nothing if death occurs after the 20 year period. What type of policy is this?
20-year level term
Fixed annuities provide each of the following EXCEPT A) Hedge against inflation B) Equal monthly payments for life C) Minimum guaranteed rate of interest D) Future income payments
A) Hedge against inflation
Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
Absolute assignment
What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?
Entire contract
What type of annuity credits its interest based upon an index such as S&P 500?
Equity indexed annuity
What are the 2 classifications of annuities according to the time when annuity payments begin?
Imediate and deferred
What is the disadvantage of owning a fixed annuity, as opposed to variable?
In times of inflation, the benefit of a fixed annuity will have decreased purchasing power.
What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?
Incontestability
With the interest only settlement option, what happens to the policy's death benefit?
Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary
Who controls changes in premium payments, face values, and loans in the life insurane policy?
Policyowner
What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?
Pure Life or "straight life"
What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?
Reinstatement
What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?
Settlement options
When can an insurance company use suicide as a defense against paying a death claim?
When suicide is comitted within a special period of time after the policy is purchaed (usually within the first 2 years)
When will a contingent beneficiary receive death benefit from a life insurance policy?
When the primary beneficiary dies before the insured
In flexible premium payment annuities, the term "flexible" refers to what?
amount of the premium
Which of the following would not cause the death benefit to increase? a. Guaranteed insurability rider b. cost of living rider c. accidental death rider d. payer benefit rider
d. payer benefit rider this only pays the premium if the payor is disabled or dies
Equity Indexed Annuities a. are more risky than variable annuities b. are security instruments c. invest conservatively d. seek higher returns
d. seek higher returns
An individual has just borrowed $10,000 on a 5-year note from his bank. The note is due in installments. What type of life insurance policy would be best suited to this situation?
decreasing term
what type of life insurance is best suited to cover a mortgage?
decreasing term
If the annuitant dies before the annuitization period starts, what will the beneficiary receive?
either the amount paid into the annuity or the cash value, whichever is greater.
what is the main advantage of converting from group life insurance to individual coverage?
evidence of insurability is not required.
What type of life insurance policy offers pure death protection?
term
In an annuity, the accumulated money is converted into a stream of income during which phase?
the Annuitization peroid
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
waiver of premium
What are the 3 nonforefeiture options in life insurance policies?
- Cash surrender - Reduced paid-up - Extended term
To meet the requirement of the entire contract policy provision, an insurance policy must contain what?
A copy of the orginal insurance application
What are the 2 phases of an annuity?
Accumulation and annuitization (or pay-in and pay-out)
If the current interest rate on an annuity is higher than the guaranteed rate, which rate will the annuity owner receive as part of the annuity payment?
Current rate
What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?
Extended term
An agent selling variable annuities must be registered with
FINRA (And hold a securities license)
what does level refer to in level term insurance?
Face amount. Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages.
How long will a life annuity with a 15-year period certain pay?
For the life of the annuitant unless they die within the first 15 years of the annuitization period; then the payments will last 15 years
Is the beneficiary required to have insurable interest in the insured?
No.
What dividend option can increase the death benefit of the existing life policy?
Paid-up additions
What are policy dividends?
Return of unused premiums
What type of beneficiary can be changed at any point by the policyowner?
Revocable
All of the following are true of an annuity owner EXCEPT: a. The owner must be the party to receive benefits b. The owner pay premiums in the annuity c. The owner has the right to name the beneficiary d. The owner is the party who may surrender the annuity
a. The owner must be the party to receive benefits
Group life insurance policies are written as what type of insurance?
annually renewable term
The death protection component of a universal life policy is expressed as what type of coverage?
annually renewable term insurance
How is the premium determined in a joint life insurance policy?
average age of the insureds
The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called
b. Life income with period certain
All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT: a. The insurer determines the amount for each payment b. it is a life contingency option c. it will pay the benefit only for a designated period of time d. the payments are not guaranteed for life
b. it is a life contingency option Under the installments for a fixed period annuity settlement option, the insurer determines how much each payment will be. There are no life contingencies and this option pays for a specific amount of time only.
When would a 20-pay whole life policy endow? a) After 20 payments b) In 20 years c) When the insured reaches age 100 d) At the insured's age 65
c) When the insured reaches age 100
Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?
cash surrender
in variable universal life insurance, to what policy component does the term variable refer to?
cash value and death benefit
What happens to the cash value when a whole life insurance policy matures?
cash value is paid to the policyowner
What type of assignment is used to secure the payment of a debt with an existing life insurance policy?
collateral assignment
What does common disaster clause protect?
contingent beneficiary
What type of beneficiary is next in line after the primary beneficiary?
contingent beneficiary
to sell variable life insurance policies, an agent must receive all of the following except: a. FINRA registraion b. a securities license c. a life insurance license d. SEC registration
d. SEC registration SEC registration is for securities, not agents.
If an employee wants to join group life insurance coverage outside of the open enrollment period, what would the employee have to provide?
evidence of insurability
When the amount of insurance is increased in an adjustable life policy, what will the insurer require from the insured?
evidence of insurability
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid for what time period?
for 20 years or until the insured's death- whichever occurs first.
What provision in a life insurance policy extends coverage beyond the premium due date?
grace period
What required provision protects against unintentional policy lapse?
grace period
What type of policy issues certificates of insurance to the insureds?
group policy
what type of policy is typically issued without proof of insurability from the insured?
group policy
Universal Life policies have two types of interest rates. What are they?
guaranteed and current
under obtion b in a universal life policy, what happens to the death benefit?
increases each year by the amount of the cash value increases
what happens to the premium in an annually renewable term life policy?
increases with each renewal
Who bears the investment risk in a fixed annuity?
insurer
If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that?
joint life annuity
What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?
life income with period certain
a whole life policy that requires that the policyowner only pays premiums for a specified number of years is known as what kind of policy?
limited-pay whole life
what type of whole life policy is this? - premiums paid up to a certain age before age 100 - premiums are higher due to paying for a shorter amount of time - cash value builds faster
limited-pay whole life
what are the living benefits of whole life insurance?
loan values
What dividend option is automatically selected by the company if not chosen by the policyowner?
paid-up additions
An insurer has discovered a misrepresentation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?
pay a reduced death benefit
What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?
policy premium in a reinstated policy will be set to the insured's original age
Who has the right to the cash value of a life insurance policy?
policyowner
what are the characteristics of the group that underwriters will consider before issuing a group life policy?
purpose, size of group, financial strength, and turnover.
what elements of an adjustable life policy can be changed by the policy owners?
the amount and payment period of the premium, the face amount (death benefit), and the period of protection
A policyowner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?
the amount of the loan will be subtrcted from the death benefit.
Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?
the annuitant receives payments from the annuity during the annuitization period; the beneficiary receives benefits after the annuitant's death.
Whose life expectancy is taken into consideration in an annuity contract?
the annuitant's
If the annuitant dies during the accumulation period, who will receive the annuity benefits?
the beneficiary
What happens to a policy's cash value under an extended term nonforfeiture option?
the cash value is converted to the same face amount as in the whole life policy
An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?
the death benefit will be adjusted to the amount that the insured could obtain for her age
The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?
the death benefit will be paid to the insureds estate
With the reduction of premium dividend option, how is the dividend used?
the dividend is applied to the next year's premium (it reduces the next year's premium)
Whole life insurance policies mature when the insured reaches the age of 100. If the owner of a whole life policy (the insured) dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary?
the full death benefit
In the fixed-period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?
the longer the period selected, the smaller each installment will be
What is the difference between a single premium and a flexible premium payment options in a deferred annuity?
the number of payments that purchase the annuity
Who is entitled to the cash values in a life insurance policy?
the policyowner
In term policies, what happens to the premium throughout the term of the policy?
the premium remains level
why are policy loans not availble on term insurance?
there is no cash value to borrow against
What is the purpose of a free-look period?
to allow the insured to return the policy with a full refund
What is the purpose of settlement options in life insurance policies?
to determine how the death benefit will be paid to the beneficiary
what is the purpose of establishing the target premium for a universal life policy?
to prevent the policy from lapsing
What is the purpose of the Automatic Premium Loan provision?
to prevent the unintentional lapse of a policy because of the nonpayment of the premium
What is the main reason for purchasing an annuity?
to provide income that the annuitant can not outlive
Between adjustable life and universal life policies, which one provides more flexibility to the policyowner?
universal life
in what type of life insurance policies can the policyowner skip premium payments without the policy lapsing?
universal life
In a joint life policy, when is the death benefit paid?
upon the first death
An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have?
variable
When does an adjustable life policy accumulate cash value?
when they premiums paid are more than the cost of the policy
If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?
whole life
what type of life insurance policy provides permanent protection?
whole life insurance