Life Premiums and Benefits

Level premium term life insurance policies

Have premiums that are averaged over the policy period. The policyowner pays more in the early years for protection to help cover the cost in later years. This allows the premiums to remain level throughout the life of the policy.

A tax-free Section 1035 Exchange of a life insurance policy to a different policy is permitted if it occurs:

From insurer to insurer and no cash is received by the policyowner. The Internal Revenue Code (IRC) enables a tax-free section 1035 Exchange of a life insurance policy to a different policy if it occurs from insurer and the policyowner does not receive any cash.

A beneficiary change can occur:

Normally at any time during the policy term.

Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors?

Spendthrift Clause. A spendthrift clause is a statement in a settlement agreement that indicates that the proceeds of the policy will be free from attachment or seizure by the beneficiary's creditors.

An example of naming a beneficiary by class would be:

"To the children born of my union with Ned Jackson"

Which of these factors helped determine an insured's life insurance premium?

Avocation (hobby). Life insurance premiums are determined by several factors pertaining to the insured, such as age, occupation, and avocation (hobby).

Which of these premium payment frequencies is not typically available to a policyowner?

Bi-Weekly.

Naming a contingent beneficiary as "all surviving children" is described by which term?

Class designation. All surviving children is an example of naming a beneficiary by class designation.

Pat is insured with a life insurance policy and Karen is his primary beneficiary. They are both involved in an automobile accident where Pat dies instantly and Karen dies 5 days later. Which policy provision will protect the rights of the contingent beneficiary to receive the policy benefits?

Common disaster clause. With a common disaster provision, a policyowner can be sure that if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary.

All of these are settlement options for life insurance policies EXCEPT:

EXCEPT: (Extended Term) It's considered a nonforfeiture option, not a settlement option. There are acceptable for settlement options. 1. Life Income 2. Lump Sum 3. Fixed Period

insurance premium is determined by each of the following factors EXCEPT:

EXCEPT: Liquidity These factors determine an insurance premium: 1. Mortality 2. Interest 3. Expenses

What is created after policy proceeds are obtained in a lump sum and then immediately invested?

Estate. Policy proceeds can be obtained in a lump sum and invested to create an estate.

Over the course of a year, which premium payment mode is most expensive?

Monthly

Mortality is calculated by using a large risk pool of:

People and Time.

If the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if:

The insured outlived the beneficiary. A common disaster provision states that if the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if the insured outlived the beneficiary. This allows the proceeds to go to the contingent beneficiary.

Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident?

Contingent beneficiary. If the insured and the primary beneficiary are killed in the same accident, the policy proceeds will be paid to the contingent be beneficiary of the insured.

How is the cost of a policy affected when a policyowner pays premiums more frequently?

Increases

Which settlement option involves having the proceeds remain with the insurer and earning paid on a monthly basis to the beneficiary?

Interest Only

What would be an expensive factor in an insurance program?

Mortality Cost.

Proceeds from a life insurance policy are protected from the beneficiary's creditors by which clause?

Spendthrift trust clause. The clause in a life insurance policy protecting its proceeds from the beneficiary's creditors is referred to as the spendthrift trust clause.

What happens to the total amount of premium paid for an insurance policy when the payment frequency increases?

Increases. As the premium payment frequency increases, the total amount of premium paid for an insurance policy increases.

Sharon is the policyowner of a $50,000.00 life insurance policy. Her son, Mike, is the beneficiary. If Sharon MUST obtain Mike's signature in order to change the beneficiary, what kind of beneficiary designation is this?

Irrevocable. An irrevocable beneficiary designation requires the beneficiary's signature.

A life insurance claim which involves a per capita distribution of policy proceeds would be payable to the:

Named living primary beneficiaries. Per Capita is a method of life insurance distribution using total number of individuals. This means that all living members that are identified in the life insurance policy will receive an equal amount of the life insurance proceeds. Using per capita distribution means that if one of the beneficiaries becomes deceased before the insured, then the other beneficiaries will simply have their share increased accordingly.

What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured?

Specified amount of money. Life insurance guarantees to the beneficiary sum of money in the event of the insured's death.

A policyowner can receive a percentage payment of the death benefits prior to death by using what kind of contract?

Viatical settlement agreement. Viatical settlement agreements typically include a percentage payment of the death benefits to the policyowner prior to the death of the insured.

A beneficiary has just received a claim payment for a life insurance policy. Which of the following is TRUE regarding the federal income tax liability owed?

No federal income tax is owed on life insurance proceeds. There is no federal income tax on life insurance proceeds if you receive the proceeds under a life insurance contract as a beneficiary.

Tonya has replaced her whole life policy with an annuity without incurring a tax penalty. This transaction is called a(n)

1035 Exchange. A 1035 tax free Exchange is the IRS tax code that allows for the rollover of a non-qualified annuity (or transfer of a life insurance policy) to a new annuity or life policy of equal or greater value.

What is the primary feature of a viatical settlement?

Reduced death benefit prepayment.

Which of the following enables a life policy to be replaced with another life policy and results in the postponement of the tax consequences?

Section 1035 exchange.