Life insurance Ch. 9,11-19,22

Approximately what percentage of all life insurance in force in the United States is on a group basis?

40%

Which of the following problems could be caused by the flexibility offered by a universal life insurance policy?

A death benefit reduction may cause the policy to be classified as a modified endowment contract.

Insurers offer options that can make joint life particularly attractive. Which of the following options is not offered?

A provision for the exchange, under Section 1035, of the joint life policy for a long-term care insurance policy.

Which of the following could never be treated as a modified endowment contract?

A single-premium policy that was entered into on June 1, 1988.

A policy that originally is not a modified endowment contract will be subject to re-testing if there is a "material change" in the contract. Which of the following would likely be a material change?

An exchange of one policy for another policy in a 1035 exchange.

A policy that automatically increases the death benefit without evidence of insurability will typically violate the MEC rules.

False

An insurance contract entered into before 1988 can never be considered a modified endowment contract?

False

Because of the way that it is taxed, a modified endowment contract is not considered a life insurance policy for tax purposes.

False

Group life provides an after-tax benefit for employees and a deduction for employers.

False

Once a policy is classified as a modified endowment contract, with certain corrections, it can be later treated as not a modified endowment contract.

False

One of the advantages of group term insurance is that the premiums remain level on a per-employee basis regardless of the ages of the employees.

False

Under ERISA requirements, an employee covered by a group term life contract must name his spouse as beneficiary, if he is married.

False

Which of the following statements about the tax aspects of ownership of variable life insurance is false?

Gains received are taxable at capital gains rates.

Level-premium whole life insurance policies allow policyowners to borrow amounts under the policy. Typical loan provisions include which of the following requirements?

If the policy is terminated the cash surrender value is reduced by any outstanding policy loans and unpaid interest.

Advantages of ordinary level-premium whole life include all of the following except

Interest on policy loans is generally non deductible

Which one of the following is not an advantage of group term life insurance?

It is can be used as a standard investment option under the employer's 401(k) plan.

Which of the following statements is true regarding current-assumption whole life insurance?

Policyowners bear more risk of adverse trends in mortality or expenses than if they own traditional whole life policies.

Which of the following is a characteristic of a level-premium non-participating whole life insurance policy?

There is a schedule of guaranteed cash values.

In which of the following situations would a level-premium whole life insurance policy be appropriate?

To provide funds for the continuation of a business through a "buy-sell" agreement

A 10% penalty applies to certain distributions from life insurance policies that are treated as modified endowment contracts.

True

A term life insurance policy makes no promise to pay anything if the insured lives beyond the specified term

True

Most group insurance is issued as yearly renewable term insurance.

True

Most insurance companies do not offer renewable term policies to new applicants after a certain age, which is usually between 60 and 70.

True

One disadvantage of universal life is that policy owners bear more risk of adverse trends in mortality or expenses than if they owned traditional whole life policies.

True

Term life insurance is ideal for temporary needs, such as paying off funeral, estate, and inheritance taxes.

True

Which of the following statements regarding universal life insurance is true?

Universal life allows policyowners to participate in favorable investment, mortality and expense experience of the company. insurance policies.

Which of the following statements about variable universal and variable life insurance death benefits is not true?

Variable Life and Variable Universal Life bear no mortality or expense risk.

A single premium current-assumption life policy generally guarantees all of the following, except:

a fixed level of dividends will be paid throughout the term of the policy

An increasing premium, level death benefit term policy to age 65 is:

a one-year term policy, renewable to age 65

If a limited-pay whole life insurance policy is determined to be a "MEC" (Modified Endowment Contract):

distributions, including policy loans, will likely be includable in income

Which of the following items are NOT treated as income-first when distributed from a modified endowment contract?

dividends retained by the insurer to premiums or other consideration for the contract

If a term policy is convertible it means the policy:

gives the policyholder a contractual right to change the term policy for some other type of life insurance policy without evidence of insurability

A survivorship life plan that involves a greater proportion of term insurance than permanent insurance:

is sensitive to changes in yields, or interest rates

Group life insurance is a welfare benefit plan. As a result:

it is subject to ERISA

Advantages of term life insurance include all of the following, except:

it is the most cost effective when the duration of the needed protection is over 15 years

Which of the following accurately describes a disadvantage of survivorship life insurance?

it provides no benefits at the first death, unless a special rider is added

Disadvantages of term insurance include all of the following except

proceeds are not part of a probated estate unless the estate is a named beneficiary.

Which of the following types of life insurance allows the greatest amount of death benefit to be purchased for a set amount of premium?

term insurance

A limited-pay whole life insurance policy with a short premium paying period (e.g., 10 years) runs the risk of becoming a "MEC" (Modified Endowment Contract) if:

the insured pays the full annual premium and dividends are applied as additional premiums

A survivorship rider permits

the purchase of increased coverage on the insured if the life designated in the rider dies before the insured

A modified endowment contract is a life insurance policy that has failed

the seven-pay test

A key feature of variable life insurance is

there is no guaranteed minimum cash value

An important use of joint life insurance has been

to fund buy-sell agreements in closely-held businesses

Current-assumption whole life insurance is generally a hybrid of:

traditional whole life and universal life insurance

All universal life policies have a guaranteed minimum interest rate, generally ranging from four to six percent.

true

A significant advantage of a split dollar plan using survivorship life instead of a single-life policy is that

very low Table 38 rates are used to measure the pure insurance cost of survivorship life while both insureds are alive, instead of the higher P.S. 58 rates

For which of the following is use of single premium whole life insurance least appropriate?

As a good short-term tax-deferred investment.

Which of the following is a disadvantage of a current assumption whole-life policy?

CAWL policies guarantee maximum mortality and expense rates

Advantages of single premium life include all of the following except

The amount of protection is low relative to the premium paid

Which of the following is true regarding the interest credited to universal life policies?

The rate used may be linked to a well-known index of yields if it exceeds a minimum rate guaranteed in the policy.