Life Insurance Exam
The grace period under an annuity contract lasts for
1 month.
Variable Universal Life
1. A flexible premium that can be increased, decreased or skipped as long as there is enough value in the policy to fund the death benefit 2. Increasing and decreasing the amount of insurance 3. Cash withdrawals or policy loans
What are the requirements that apply to reinstatement of life insurance policies?
1. Policy was not surrendered for cash; cash values has not been exhausted; or the paid up term insurance, has not expired. 2. Provide evidence of insurability 3. Payment of all past premiums with interest not to exceed 6% per year 4. Payment of all indebtedness
Agents selling variable life insurance products must be:
1. Registered with FINRA. 2. Be licensed by the state to sell life insurance 3. Have received a securities license
What are the three basic forms of whole life insurance?
1. Straight whole life 2. limited pay whole life 3. single premium whole life
accelerated benefit rider
1. early payment if insured is diagnosed with a specified catastrophic illness 2. a portion of the death benefit 3. death benefit is reduced by the amount paid plus earnings lost by the insurer
additional insured rider
1.spouse/other insured - term rider (limited time, limited coverage); usually expires when spouse turns age 65 2. children's term - covers all children of the insured (limited time, limited coverage); can be converted to a permanent policy nonfamily insured - used by businesses (e.g. key person insurance)
What percentage of a company's employees must take part in a noncontributory group life plan?
100%
When an insured dies, how long does the insurer have to make a settlement on the payment of benefits?
2 months
An annuity contract will be incontestable after it has been in force for a period of how many years from the date of issue?
2 years
The incontestability provision stipulates that an insurer cannot deny a claim due to statements in the application after the policy has been in force for
2 years
Any surplus premiums are payable to the insured in cash or may be applied to other dividend options as provided by the policy, beginning no later than the year of the policy.
3rd
According to the Standard Nonforfeiture Law, how long does an insurer have to notify the insured if a policyowner defaults on a loan as to the cash surrender value?
6o days
The maximum interest rate that can be charged on a policy loan is
8% per year.
Characteristics of Traditional Whole Life Products
Level premium- the premium for whole life policies is based on the issue age; therefore it remains the same throughout the life of the policy.
Variable Whole Life
Level, fixed premium, investment-based product. Guaranteed death benefit. The cash value is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. The policyowner bears the investment risk in variable contracts. Because insurance company is not sustaining the investment risk of the contract, the assets of the contract need to be held in a separate account, not in the insurance company's general account.
What are the three basic types of term life insurance?
Level, increasing, and decreasing
Which life insurance settlement option guarantees payment 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?
Life income with period certain
What do agents need to sell fixed annuity?
Life insurance
What do agents need to sell variable annuities?
Life insurance plus securities
What is the other term for the cash payment settlement option?
Lump sum, Upon the death of the insured, the contract is designed to pay the proceeds in cash.
The death protection component of Universal Life Insurance is always
annually renewable term
Reduction of Premium option allows the policyholder to...
apply policy dividends towards the next year's premiums
An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his ...
attained age
A man decided to purchase a $100,009 annually renewable term life policy to provide additional protection until his children finished college. He discovered that his policy...
required a premium increase each renewal.
Death benefit
the death benefit is guaranteed and also remains level for life Cash value- the cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 and is paid out to the policyowner. Cash values are credited to the policy on an regular basis and have a guaranteed interest rate. Living benefits- the policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered. The cash value, also called nonforfeiture value, does not usually accumulate until the third policy year and it grows tax deferred.
The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as
the policy contains sufficient cash value to cover the cost of insurance
The paid up addition uses the dividend
to purchase a smaller amount of the same type of insurance as the original policy
waiver of monthly deductions
waives the cost of insurance in the event of the insured's disability
waiver of premium
waives the premium if the insured becomes totally disabled; 6-month waiting period before benefits begin
What premium payment mode will incur the lowest overall payment?
Annual
What is the maximum death benefit that the Delaware Life and Health Insurance Guaranty Association will pay for health insurance benefits for any one individual?
$100,000
The grace period under an annuity contract lasts for
1 month
If a group life policy is terminated by the insurer, every person in the group is entitled to convert to an individual life insurance policy if he or she has been insured under the current plan for at least
5 years
If a group life policy is terminated by the insurer, every person in the group is entitled to converted to an individual life insurance policy if he or she has been insured under the current plan for at least
5 years.
What is the waiting period on a Waiver of Premium rider in life insurance policies?
6 months
What is the waiting period on a waiver of premium rider in life insurance policies?
6 months
Interest-sensitive whole life
A whole life policy that provides a guaranteed death benefit to age 100. The insurer sets the initial premium based on current assumptions about risk, interest and expense. If the actual values change, the company will lower or raise the premium at designated intervals. These policies credit the cash value with the current interest rate (usually comparable with money market rates)
Viatical Settlements
Allow someone living with a life-threatening condition to sell their existing life insurance and use the proceeds when they are most needed, before their deaths
Single Premium Immediate Annuity
An immediate annuity is one that is purchased with a single, lump sum payment and provides income payments that start within one year from the date of purchase.
What life insurance products are exempt from life insurance solicitation regulation?
Annuities Credit life insurance Group Life insurance Variable life insurance Life insurance policies issued in connection with pension and welfare plans
The paid up addition option uses the dividend to....
purchase a smaller amount of the same type of insurance as the original policy.
Indexed whole life or Equity Index Whole Life
Cash value of policy is dependent upon the performance of the equity index (S&P 500). The policy's face amount increases annually to keep pace with inflation, without requiring evidence of insurability. Indexed whole life policies are classified depending on whether the policyowner or the insurer assumes the inflation risk. If the policyowner assumes the risk, the policy premiums increase with the increases in the face amount. If the insurer assumes the risk, the premium remains level.
Extended term rider
Insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. (This is for people who want to get out of their whole life policy)
A policy that has which of the following features would not be considered a prohibited policy?
Dividends on participating policies
Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?
Family term rider
Indexed annuities
Fixed annuities that invest on a relatively aggressive basis to aim for higher returns.
What are the two components of a universal policy?
Insurance and cash account
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?
Immediate annuity
During partial withdrawal from a universal life policy, which portion will be taxed?
Interest
What is the main purpose of the Seven-pay test?
It determine if the insurance policy is a MEC
Which of the following is true about the premium on the children's rider in a life insurance policy?
It remains the same no matter how many children are added to the policy
What is the accumulation period?
Known as the pay in period. When the owner makes payments (premiums) into an annuity. These payments earn interest on a tax-deferred basis.
What is the annuity period?
Known as the pay out period. The accumulation period is converted into a stream of income payments to the annuitant
When group life insurance is offered to members of an employee's family, the coverage is typically what when compared with the coverage offered to the employee?
Lesser than
Which two terms are associated directly with the premium?
Level or flexible
Before a policy can be reinstated, all the past premiums must be repaid with what rate of interest?
Not to exceed 6% per year
During replacement of life insurance, a replacing insurer must do what?
Obtain a list of all life insurance policies that will be replaced.
Which Universal Life option has a gradually increasing cash value and a level death benefit?
Option A
Straight life insurance is also known as what?
Ordinary whole life continuous premium whole life
What are nonforfeiture options triggered by?
Policy surrender or lapse
An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called?
Profit sharing plan
Characteristics of Interest Sensitive Whole Life
Provides a guaranteed death benefit to age 100 Company can lower or raise the premium at designated intervals Uses current interest rates to credit the cash value of the policy
What are the features of term policies?
Renewable - you can renew the policy without evidence of insurability Convertible-right to convert a term policy to a permanent policy without evidence of insurability
To sell variable life insurance policies, an agent must receive all of the following except
SEC registration. SEC registration is for securities, not agents.
Which type of life insurance policy generates immediate cash value?
Single premium
If the policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?
The balance of the loan will be taken out of the death benefit.
The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is true?
The beneficiary will receive the greater of the money paid into the annuity or the cash value.
Annually Renewable Term
The death benefit remains level, and the policy may be renewed without proof insurability, but the premium increases annually according to the attained age, as the probability of death increases
If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy?
The death benefit will be smaller.
What happens when an insurer fails to notify the insured under a group plan that they have become eligible to convert to an individual policy within the allotted 15 days?
The insured is entitled to another 15 days.
Level term insurance
The most common type of temporary protection purchased. The word level refers to the death benefit that does not change throughout the life of the policy
An insured has not paid his monthly premium. During this time, he submits a claim on which the insurer would pay a benefit. Which of the following will most likely occur?
The premium amount, plus interest, will be deducted from the benefit.
Which of the following best defines target premium in a universal life policy?
The recommended amount to keep the policy in force throughout its lifetime
Which of the following best defines target premium in a universal life policy?
The recommended amount to keep the policy in force throughout its lifetime.
Joint Life
This type of policy can be either term insurance or permanent insurance.
T or F: In joint life policies, the death benefit is paid upon the first death only.
True
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?
Universal Life - Option A
The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called...
Waiver of premium
When would a whole life insurance policy mature?
When the insured dies or turns age 100, whichever is sooner
Policy loans can be created from which type of life insurance policy?
Whole life
If an applicant's license is denied, and the applicant wishes to appeal the decision, how many days does the applicant have to request a hearing?
Within 10 days
During what time period can a lapsed life insurance policy be reinstated?
Within 3 years
Riders that affect the death benefit
accidental death - pays double or triple indemnity if accidental death occurs as defined in the policy; death must occur within 90 days of accident guaranteed insurability - allows for purchase of additional insurance at specified times without evidence of insurability, at the insured's attained age return of premium- increasing term is added to a whole life policy that provides that if death occurs prior to a given age, not only is the death benefit payable to the beneficiary, but all premiums paid as well
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
cash option
What are the nonforfeiture options?
cash surrender value, reduced paid-up insurance, or extended term
payor benefit
functions like a waiver of premium rider; used for juvenile policies
Buyer's Guide
general guide to life insurance policies; must be provided at the time of the application
If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a
guaranteed insurability rider
A return of premium term life policy is written as what type of term coverage?
increasing
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an
modified endowment contract
A rider attached to a life insurance policy that provides coverage on the insured's family members is called
other-insured rider
What is an MEC (Modified Endowment Contract)?
overfunded life insurance policy=failed the 7 pay test. Once a MEC, always a MEC!
An insured has a life insurance policy from a participating company and receives quarterly dividends to increase the death benefit. The dividend option that the insured has chosen is called...
paid up additions
Accidental death rider
pays double or triple indemnity if accidental death occurs as defined in the policy; death must occur within 90 days of accident
403(b)/tax-sheltered Annuity
qualified plan available to employees of certain nonprofit organizations under Section 501 (c)(3) of the Internal Revenue Code, and to employees of public school systems
Policy Summary
specific information about policy issued; must be provided at the time of application
