Life Review
To have an individual life insurance policy reinstated, a person must comply with all of the following EXCEPT:
Agree to a new policy without another reinstatement provision.
What happens if the insurer discovers that the insured's age was accidentally misstated on an application for an individual life insurance policy?
Benefits will be calculated according to how much coverage the premium paid would have purchased for the correct age.
Suppose a whole life insurance policy was issued on August 2, 1998. On August 31, 2000, the insured committed suicide. What action will the insurer probably take?
Pay the policy's face amount (Since the policy was in effect beyond 2-year contestable period, the insurer is obligated to pay the face amount of the policy).
All of the elements of an adjustable life policy are adjustable EXCEPT: -policy loan rate -premium -cash value -face amount
Policy loan rate (This policy contains adjustable provisions that allow premiums to be increased or decreased, the face amount to be increased or decreased, and an extra premium to be paid)
Graded Premium Policy
Premiums are lower in the initial period and gradually increase before leveling off for the duration of the contract.
Roland buys a life insurance policy and names his wife, Carol, as beneficiary. Roland's children, Bob and Sue, are to share the benefits equally if Carol dies before him. His church is to receive the proceeds if his wife and children predecease him. How would the proceeds of Roland's policy be distributed if both his children predecease him?
Carol would receive 100% of the proceeds.
Marked Purchased a 20-year, $100,000, level term life insurance policy and a $250,000 straight whole life insurance policy. Which of the following statements is correct?
Premiums for both policies are set at the time of policy issue and remain level throughout the term of the policies.
If an individual life insurance policy contains a spendthrift provision, the policy can prohibit the beneficiary from taking all of the following actions EXCEPT:
Receiving equal installment payments under the policy (A life insurance policy with a spendthrift provision can prohibit the beneficiary from exchanging, surrendering and borrowing against the policy. To ensure that the beneficiary does not spend all the proceeds at once, the policy will specify that proceeds are to be paid to the beneficiary in equal installments during the beneficiary's lifetime).
If the insured and the beneficiary of the insured's life insurance policy both die simultaneously, the policy proceeds will be distributed:
As if the insured had survived the beneficiary (If the insured and the beneficiary designated in a life insurance policy both die and there is insufficient evidence that they have died otherwise than simultaneously, the policy proceeds will be distributed as if the insured had survived the beneficiary, unless otherwise specified in the policy)
What happens if, when paying benefits, the insurer discovers that a person's age had been misstated on the individual life insurance application?
Benefits will be paid for the amount of coverage the premium would have purchased at the correct age (All individual life policies must contain a misstatement of age provision. when an insured's age has been misstated on the application, the policy will pay the amount which the premium would have bought if the correct age had been stated).
Conventional Life insurance
Classified as a fixed product with a specific (guaranteed) benefit (Conventional annuity products are also classified as a fixed product with a specific (guaranteed) benefit.
All of the following are purposes of juvenile insurance EXCEPT: -Begin a life insurance program for a child at low premium rate -Cover the medical expenses of a child -Fund a college education -Provide funds for a child's final expenses
Cover the Medical Expenses of a child (Juvenile insurance may provide funds for a child's final expenses, for a college education or to begin a life insurance program for a child, at relatively low premium rates. Juvenile insurance also can assure a child has some life insurance if he or she becomes uninsurable later).
The party to whom life the life insurance policy cash values belong is the:
Policyowner (The accumulation that builds over the life of a policy is referred to as the policy's cash value. It belongs to the policyowner, who may or may not be the insured)
In regards to length of time period, the incontestability period is usually:
The same for both individual and group life insurance policies (The time period for the incontestability provision in individual and group life insurance policies is usually the same, with the standard incontestability period being two years).
All of the following are rights to the policy ownership EXCEPT:
To determine the method of submitting the claim (The rights of ownership include the right to pick a beneficiary, the method of distributing the proceeds, to assign the policy, to receive dividends, to cancel the policy, and to select a nonforfeiture option. The right to determine the method of submitting claims and the time period in which to do so is the right of the insurer)
Which of the following statements pertaining to a whole life policy is not correct? -It provides both insurance protection and "living" values -The policy offers insurance protection to age 100 -The face amount may be paid as a lump sum at the policyowner's selected retirement age -It is designed to mature or endow at the insured's age 100
The face amount may be paid as a lump sum at the policyowner's selected retirement age) The face amount of a whole life policy may be paid as a lump sum at the policyowner's death, not retirement age)
Which one of the following statements about reinstating an individual life insurance policy is CORRECT?
The insured must pay all back premiums with interest before the policy can be reinstated.
A contract between one party who will buy the death benefit of a life insurance policy from the policyholder is called:
Viatical Settlement
Alan is the insured in a $50,000 endowment at age 60 policy he purchased in 1979 at the age of 40. How long did he pay premiums before the policy endowed? -40 years -100 years -20 years -60 years
20 years (The endowment described in this question is a 20-year endowment, and as such, necessitates 20 years of premiums)
Which of the following best describes the basic purpose of the facility-of-payment clause found in some life insurance policies?
It authorizes the insurer to designate the payee of life insurance death benefits if the designated beneficiary cannot be located (The facility of payment clause exists to expedite the claims process for life insurance companies by authorizing them to pay death benefit proceeds to a beneficiary of their choosing if the designated beneficiary cannot be located or the designated beneficiary is invalid (e.g., a minor))
All individual life insurance policies must contain a provision permitting the policyholder to return the policy within how many days to receive a full refund of premiums?
10 days (All individual life insurance policies and annuity contracts must contain a provision permitting the policyholder to return the policy within ten days of delivery for cancellation and a full premium refund for the unexpired term of the policy. This is also called a free-look provision).
Which term would identify a policy in which the premium payments are paid for 20 years before the policy endows, at which time the insured turns age 60? - Endowment at age 60 policy -20-pay life policy -20 pay endowment at age 60 policy -Whole life policy
20-Pay endowment at age 60 policy (In this case, the premium payments are paid for 20 years before the time of endowment)
Which of the of the following is stated in the Consideration Clause of a life insurance policy?
Amount and Frequency of premium payments (the consideration clause specifies the amount and frequency of premium payments that the policyowner must make to keep the insurance in force).
In which of the following circumstances would the incontestable clause of an insurance policy apply? -Intent to murder -Concealment of smoking -Impersonation of the applicant by another -No insurable interest
Concealment of smoking
Which Provision of a life insurance policy states that the application is part of the contract?
Entire Contract Clause (The entire contract clause states that the policy document the application, which is attached to the policy, and any attached riders constitute the entire contract. The policy cannot refer to any outside documents as being part of the contract).
Brian, age 25, just started working and would like to purchase life insurance to ensure that his wife and child are protected if he dies prematurely. He has very limited funds but would eventually like to have permanent protection. Brian should consider purchasing: -whole life insurance -variable life insurance -limited pay whole life insurance -level term life insurance
Level term life insurance (Because permanent life insurance protection costs more than term insurance protection, Brian should consider purchasing a term life insurance policy. Most term policies include a conversion option that guarantees policyowners the right to convert the policy to permanent protection without having to provide evidence of insurability).
Who designates the beneficiary of a life insurance policy?
Policyowner (One of the rights of owing a life insurance policy is the right to designate and change the beneficiary of the policy proceeds).
Which of the following provisions of a life insurance contract generally helps to keep policies in force if policyowners neglect to pay their premiums?
The Grace Period (The grace period provides additional time -- usually 30 days after the premium due date -- in which the policyowner can pay the premium. The insuring clause describes the terms that define the insurance contract. The free-look provision gives the insured a time period to examine the policy and return it for a full refund of the first premium if dissatisfied for any reason. The incontestable clause provides that after a certain amount of time, the insurer no longer has the right to contest the validity of the policy).
How to have the largest cash value in a policy?
The larger the face amount of the policy, the larger the cash values. The shorter the premium - payment period, the quicker the cash values grow. The longer the policy has been in force, the greater the build-up in cash values.
Individual life insurance policies have a provision which allows a policyowner to return the policy for a full refund. To receive this full refund the policyowner must typically return the policy within: -10 days following the purchase of the policy -10 days following the delivery of the policy
10 days following the delivery of the policy
The validity of a life insurance policy cannot be tested after it has been in effect for how many years?
2 years (all individual life insurance policies must contain an incontestability provision that states that the validity of the policy cannot be contested, except for nonpayment of premiums, after it has been in force for two years. Group life insurance policies must also contain an incontestability provision)
Which of the following types of groups purchasing group life insurance are required to maintain a specified number of insured under the policy?
A credit life group (The provision under a credit life insurance group policy, which is issued on the lives of borrowers and purchasers on credit, require that a specified number of insureds under the policy be maintained. 100 insureds is a common level for the number of insureds required. If participation drops below that number, the insurer may not insure new debtors under that group policy).
Which of the following statement pertaining to a life insurance policy is NOT correct? - When reinstating a policy, the insurer may charge the policyowner for past-due premiums? - When reinstating a policy, the insurer may charge the policyowner for interest on past-due premiums - A suicide clause is renewed with reinstated policy. - A new contestable period usually becomes effective in a reinstated policy.
A suicide exclusion period is renewed with a reinstated policy (When reinstating a life policy, no new suicide exclusion period goes into effect)
An insured has an equity indexed universal life policy with a minimum return of 2% and a maximum return of 12% in any given year. If the policyholder's index performs at 20% increase for a given year, what is the return on the policy for that year?
12% (Equity index universal life allow policies to reflect the growth of a particular index, while also offering some downside-risk protection not normally seen with a variable product. In tis case, the policy offers a maximum return (or cap) of 12% while at the same time offering a minimum of 2% return. the trade-off is that, if the index performs at 20% in a given year, and the cap in the policy is 12%, the policyholder will only see a 12% return on the year.
Endowment Life Insurance
A combination of a pure endowment plus term insurance for a specific period. The term portion pays a death benefit if the insured dies before the endowment period
An assignment in which the assignee receives full control over the policy is called:
An Absolute Assignment (Under an absolute assignment, the transfer of rights and benefits is complete and irrevocable).
Which of the following policyowner rights relates directly to the cash value of permanent insurance?
Right to take policy loan (A policyowner has the right to take a policy loan based on the cash value accumulated in the policy).
Winnie is insured under a life insurance policy. She designates "All natural children of the insured" as beneficiaries in her life insurance policy. Which of the of the following phrases best describes this type of beneficiary designation?
Class Beneficiaries (Rather than specifying one or more beneficiaries by name, a policyowner may designated a class or group of beneficiaries. Thus, if Winnie names "children of the insured" as her beneficiaries, she is designating a class of beneficiaries. Designating a class of beneficiaries. Designating a class of beneficiaries allows for withdrawals or additions to the class without having to amend the designation.
Madge took out a $100,000 10 year convertible term policy at age 30, and at age 36 decides to convert the policy to permanent insurance of the same amount on an original- age basis. All of the following statements pertaining to this situation are correct EXCEPT:
Conversion will be contingent upon her evidence of insurability (Under term life insurance, the option to convert offers the insured the right to change the term policy to permanent insurance without evidence of insurability)
Which of the following statements about a 1-year renewable term policy is CORRECT? -Its premium increase each year on the basis of the insured's health -it may not be renewed more than once - It renews with an increase in premium based on the insured's age -It has a premium that remains the same, not matter how many times it is renewed
It renews with an increase in premium based on the insured's age (Under a renewable term policy, the premiums remain level for each term period, but increase at each renewal on the basis of the age of the insured)
A family in which both parents work and, therefore, are in need of the same amount of coverage, would be a candidate for which of the following plans? -Joint Life -Juvenile Plan -Family Plan -Family Maintenance
Joint Life (A joint life plan is simply one policy covering two or more persons. Usually, permanent insurance is written)
Mike has a term insurance policy in which the amount of protection remains constant during the term period. Which kind of term insurance does Mike have?
Level Term (Level term insurance provides a constant, level face amount of coverage for the term of the policy)
All of the following about the reinstatement of individual life insurance polices are correct EXCEPT:
To reinstate a policy, the insured need not show evidence of insurability (All individual life insurance policies must include a reinstatement provision, stating that a policy can be reinstated at any time within 3 years from the date of premium default if satisfactory evidence of insurability is produced, back payment of premiums is paid, and any other indebtedness to the insurer is paid or reinstated. Policies cannot be reinstated, however, if they have been surrendered for their cash surrender value, their cash surrender value has been exhausted, or the paid-up term insurance has expired).
A life insurance policy must give the policyowner at least how many days after delivery of the policy to cancel the policy?
10 days
Joe buys his first home after obtaining a 30 year mortgage from his bank. He is considering the purchase of life insurance to ensure that the mortgage will be paid in the event of his death, in which case he will leave the house to his wife and children. What should his life insurance agent recommend as the best life insurance protection for Joe in this situation? -Decreasing term -Level term -Whole life -Universal life
Decreasing Term (Decreasing Term insurance is the best policy for Joe to buy. It addresses his need for protection that will decline from year to year. This would be a good choice to insure the declining balance on a home mortgage).
Which of the of the following statements pertaining to limited pay life policies is CORRECT? -Insurance protection exists only during the time premiums are actually paid -Both limited pay life and whole life policies endow at age 100 -The total premium cost for a single-premium life policy is more than the total premium cost for a policy with premiums spread over a period of years -A limited pay life policyowner pays premium of variable amounts during the life of the policy period
Both limited pay life and whole life policies endow at age 100 (Both limited pay life and whole life policies endow at age 100. A single premium policy would cost less than a policy with payments spread over its term, since there are fewer administrative expenses involved with single payment policy).
Credit Life Insurance
Credit life insurance is on the life of the debtor. It will provide payments on a loan if the debtor dies before the loan is repaid. Whenever credit insurance is required as additional security for indebtedness, the debtor has the option of furnishing the required insurance through existing insurance policies he or she owns or by purchasing the required coverage through an authorized insurer.
Joshua returns to the agent the new life insurance policy delivered by the agent three days earlier. Joshua had paid the initial premium. Assuming his policy has a "free-look" provision, what is Joshua entitled to receive?
A full refund of the initial premium. (Under the "free-look" provision, policyowners have either 10 or 20 days to examine their new life policies. If not satisfied with the policy, a policyowner may return it to the insurer and receive a full refund of the initial payment).
Michelle, age 31, just purchased a $50,000 variable life insurance policy. With regard to her policy, which of the following statements is NOT correct? - Her premium payments will be fixed and level for the duration of the contract - She directs the insurer as to how her cash values are to be invested - At her death, her beneficiary may receive more or less than $50,000 in proceeds - The cash value growth of her policy will depend on how the investments supporting those values perform
At her death, her beneficiary may receive more or less than $50,000 in proceeds (A variable life insurance policy invests its cash values insecurities at the owners direction. There are no guarantees to as to the cash value growth or accumulation. Although the death benefit may fluctuate in response to the cash values, a minimum death benefit -- the policy's face value amount -- is guaranteed. Premiums fixed and payable over the life of the policy).
What is Credit Life Insurance?
Insurance that covers a debtor's life and will provide funds to pay off a loan if the debtor dies before the loan is repaid.
Endowment
Life insurance policy that pays the assured sum (face amount) on a fixed date or upon the death of the insured, whichever comes earlier.
In which of the following cases would the insurance company most likely cover the loss under a life insurance policy? -During a cross-country flight to a shareholder's meeting, Johnsons commercial airliner suffers engine failure and goes down with no survivors - While on nighttime patrol, U.S. Army 1st Lt. Andrews is killed in a gun battle with the enemy -Graham has a fatal fall from a scaffold while working as a window washer on a downtown skyscraper -While robbing a convenience store, Smith is killed by the accidental detonation of a homemade bomb
During a cross-country flight to a share-holders' meeting, Johnson's commercial airliner suffers engine failure and goes down with no survivors (Exclusions for death resulting from commercial aviation are rarely found in modern life insurance policies. However, this exclusion was not uncommon when commercial aviation was a new means of transportation)
All of the following statements concerning a family plan are correct EXCEPT: -it provides both parents with the same amount of protection -it is designed to insure all family members of an immediate family in one policy -it typically covers all children in a family within a certain age limits -the policy normally is sold in units
It provides both parents with the same amount of protection (Family plan policies are designed for a single-income family where most of the insurance is placed on the wage earner. The policies are normally sold in units and cover all members of the family)
All of the following statements regarding basic forms of whole life insurance are correct EXCEPT: -A single-premium life policy is purchased with a large one-time only premium -The owner of a 30-pay life policy owe no more premiums after the thirtieth year of the policy is in force -Limited payment life provides protection only for the years during which premiums are paid -Generally, straight life premiums are payable, at least annually, for the duration of the insured's life
Limited payment life provides protection only for the years during which premiums are paid (Although the premium payments are limited to a certain period, the insurance protection extends until the insured's death or to age 100)
Universal Life is distinguished from whole life insurance in that: -No withdrawals can be made form the policy's cash value -Partial withdrawals can be taken from the cash value account -Policy loans can be taken from the policy -Complete withdrawals of the cash value can be taken
Partial withdrawals can be taken from the cash value account (A factor that distinguishes universal life from whole life is that partial withdrawals can be made from the policy's cash value account. Whole life insurance allows a policyowner to tap cash values only through a policy loan or a complete cash surrender of the policy's cash values, in which case the policy terminates).
Current Assumption Whole Life Insurance
Also known as interest-sensitive whole life, offer flexible premium payments that are tied into current interest rate fluctuations. Depending on interest rate fluctuation, the insurer reserves the right to increase of decrease the premium within a certain range. During periods of low interest rates, premiums could be increased. During periods of high interest rates, premium could be reduced. Premium adjustments are typically made on annual basis.
In most states, credit life insurance is sold in the form of: -increasing term -whole life -level term -decreasing term
Decreasing Term (Credit life is usually sold in the form of decreasing term insurance. in this way, the policy amount decreases to nothing when the loan is paid)
Which of the following statements about reinstating an individual life insurance policy is CORRECT?
The insured must pay all back premiums with interest before the policy can be reinstated (All individual life insurance policies must include a reinstatement provision stating that the policyowner can reinstate the policyowner can reinstate the policy within 3 years after a default in premium payments unless the policy has been surrendered or the paid - up term insurance has expired. The insured must make a written application, produce evidence of insurability, and pay all back premiums at the interest rate specified in the policy).
Which one of the following differentiates a variable life or annuity product from a conventional life or annuity product? -The right to designate a beneficiary -The fact that the product was purchased through a direct response mailing -The lack of an assignment provision -The presence of a separate account, which contains the investment component of the product
The presence of a separate account, which contains the investment component of the product (Unlike conventional life insurance, which is classified as a fixed product with a specific (guaranteed) benefit, variable life and annuity products provide insurance and benefits that vary according to the investment experience of their underlying accounts. These underlying accounts, which are separate accounts the insurer establishes and maintains, typically are made up of equities such as stocks, the values of which rise and fall and cannot be guarantee. A purchaser of a variable life policy incurs a degree of risk not associated with a fixed whole life policy).
Variable Insurance Products
Do not guarantee contract cash values. This is because policyowners can direct the investment of the funds backing their variable contracts through separate account options. Instead of a fixed return, the investment account will earn a variable return depending on the account's investment performance.
Brian and Jenna both work to support their family. To provide the same amount of life insurance protection in the event either dies, they should consider purchasing which of the following plans?
Joint life
An individual wishes to purchase whole life insurance but does not wish to pay premiums past retirement age. Which of the following policies should the person buy? - Modified Life - Limited Pay - Single Premium - Graded Premium
Limited Pay (With a limited pay life policy, the insured pays premiums for a specified amount of time, with two stipulations: 1.) Premium payment period must last at least ten years; and 2.) Premiums must be paid up by the age of 65. Single premium life insurance is permanent cash value whole life insurance that is purchased with a one large premium. As its name implies, it requires no further premiums to keep the coverage in force for the life of the insured. Modified premium policies typically have a lower fixed premium for the first three or five year period, at which point premiums increase. Graded premiums increase. Graded premium policy premiums are lower in the initial period and gradually increase before leveling off for the duration of the contract).
With Respect to life insurance policy beneficiaries, all the following are examples of a class designation EXCEPT:
My sister Alice and my nephew Ronald (With a class designation the beneficiary is defined as a class or group of individuals easily identified by membership in a defined group. By definition, identifying a beneficiary by individual name means it is not a class designation).
Kevin, the insured of a $200,000 life insurance policy, and his sole beneficiary, Lynda, are killed instantly in a car accident. Under the Uniform Simultaneous Death Act, to whose estate will the policy proceeds be paid?
Kevin's Estate (Under the Uniform Simultaneous Death Act, if the insured and Primary Beneficiary are killed in the same accident and there is no sufficient evidence to show who died first, the policy proceeds are to be distributed as if the insured died first. Kevin's estate would receive the proceeds because Lynda, the beneficiary, was deemed to have predeceased Kevin, and no other beneficiary was named).
A policy loan is generally available with all of the following types of life insurance policies EXCPET: -Level term life insurance -Universal life insurance -variable life insurance -Modified premium whole life insurance
Level Term Life Insurance (while cash value withdrawals are available only with universal life insurance policies, policy loans are available with any type of permanent life insurance policy. Because they have no cash value, term life insurance policies do not accommodate policy loans).
Which of the following causes of death is generally NOT covered by a life insurance policy?
War (Life insurance policies generally exclude death resulting from warlike actions, such as riots and insurrections. A life insurance policy might exclude death due to piloting an aircraft as a hazardous hobby, but typically would not exclude death of a passenger in a commercial airline accident).
Maggie took out a $100,000, ten year, convertible term policy at age 30. At age 36, she decides to convert the policy to permanent insurance of the same amount on an original age basis. Which of the following statements regarding this situation is NOT correct? -Conversion will be contingent on her evidence of insurability -A higher premium will be charged for the new policy -At conversion she must make up the cash value accumulation for the period between her original age and her attained age -The new policy will build cash values faster than if she converts on an attained age basis
Conversion will be contingent on her evidence of insurability (A convertible term insurance contract may be converted to a permanent form of insurance without a medical examination)
Equity index life insurance policy values are determined by a specified participation rate and:
Indirect links to a stock market index (Equity index life insurance links policy values, based on a specified participation rate, to potential increases in a particular market index, such as the Standard & Poor's 500 Index. The life insurance policy is not participating in actual stock market index nor in the actual stocks that are in that index. Consequentially, it does not benefit from the dividends of those stocks. Equity index or equity linked universal life insurance allows a conservative indirect link to a stock market index and allows a certain participation percentage of increase based on the increase in the stock market index. While it is true that the premium payments are flexible, this question is about how equity index life insurance policy values are determined. this question is not about how policy values might be affected, which is where the flexible premiums come into play).
All of the following statements regarding limited-pay life insurance are correct EXCEPT:
Limited-pay policies mature more quickly than do continuous premium whole life (Limited pay policies emphasize savings than straight life policies. These policies also make it possible for an insured to stop premium payments at the expiration of a specified period without any reduction in the amount of the insurance for as long as the inured survives. The most common types of limited pay policies are 10-pay life, 20-pay life paid up at age 65)
An individual life insurance policy must contain all of the following provisions EXCEPT:
An accelerated benefit (all individual life insurance policies must contain an entire contract provision stating that the policy and the application constitute the entire insurance contract. Policies also must provide a 10 - day, free-look provision during which the owner may return the policy and have the premiums refunded. An incontestability provision is mandatory and states that a policy is incontestable after being in force for two years, except for nonpayment of premiums. An accelerated benefit provision is an optional provision that may be included in a life insurance policy).
A universal life insurance policy is currently crediting its cash value with 4% interest. Policy loans are presently charged 5% interest. Based on these facts, at what interest rate is tis policy's cash value accumulating? -4% on the entire cash value -1% on the entire cash value -1% on the cash value equal to the non-loaned amount, and 4% on loaned amount -1% on the cash value equal to the loaned amounts, and 4% on non-loaned amounts
4% on the entire cash value (Policy loans (including accrued interest) are a lien against the policy, but they do not have a direct impact on the policy's cash value. The entire cash value in this example continues to earn 4% interest).
For which of the following reasons would a domestic insurer set up separate accounts? -To pay claims to individual claimants for different classes of insurance -To simplify its bookkeeping system and allow for variables -To provide for annuities to be payable in fixed or variable amounts or for variable life insurance -To justify the volatility of investment returns
To provide for annuities to be payable in fixed or variable amounts or for variable life insurance ( The varying market values in a separate account provides income for a variable life insurance products).
What happens if a claim arises during the grace period of an individual life insurance policy?
Benefits will be paid, but unpaid premiums can be deducted from the policy proceeds (The standard life insurance grace period provides that if a claim is made during the grace period, any unpaid premium may be deducted from the policy proceeds).
How can the cash value accumulation in a straight whole life insurance policy be accessed while the insured is living and while keeping the coverage in force? -Through a cash value surrender -Through a partial cash value withdrawal -Through a dividend payment -Through a policy loan
Through a policy loan (the cash values of a straight whole life policy can be accessed through a policy loan or through a complete withdrawal of the entire cash value. A policy loan allows the policy to continue in force (though any amount not paid back with interest at the time of death will be subtracted from the death benefit). A complete withdrawal constitutes a surrender policy and coverage ends).
Collateral Assignment
Under a Collateral Assignment, the policy is assigned to a creditor as security for a debt until the debt is satisfied).
Bob purchases a $50,000 5-year level term policy. All of the following statements about Bob's coverage are correct EXCPET: If the insured dies after the specified five years, only the policy's cash value will be paid
If the insured dies after the specified five years, only the policyowner's cash value will be paid (if the insured lives beyond the 5 year period, the policy expires and no benefits are payable. There are no cash values in term polices)
Which of the following statements about enhanced ordinary life (economatic) products is NOT Correct? -Policy dividends or additional premiums may used to purchase paid-up insurance -Economatic products combine some features of whole life insurance and term insurance -The cash value from existing traditional whole life policy cannot be rolled over into enhanced ordinary life product -Enhanced ordinary life products and universal life products have many similar features
The cash value from an existing traditional whole life policy cannot be rolled over into enhanced ordinary life product (Traditional whole life policies generally accumulate enough cash value to be rolled into an enhanced ordinary life product. An enhanced ordinary life (economatic) policy is a type of whole life policy that uses dividends to provide some form of level constant coverage. The purpose is to provide a whole life participating policy with a low premium. Typically, the face amount is reduced after a few years and dividends are used to purchase deferred paid-up whole life additions to fill the gap when the reduction in face amount occurs. The result is that the face amount remains at lest equal to the original face amount)
Which of the following statements pertaining to variable life insurance is CORRECT? -The benefits of variable life insurance vary according to the amount of premiums paid -In a variable life insurance policy, cash values and the death benefit are not guaranteed -Variable life insurance cannot be proposed in a sales situation unless the proposal is preceded or accompanied by a prospectus -With a variable life insurance policy, the insurance company assumes the investment risk
Variable life insurance cannot be proposed in a sales situation unless the proposal is preceded or accompanied by a prospectus (Because variable life insurance is considered a security, a prospectus must precede any sale of it)
How long does the insurance protection (amount at risk) last in a 30-year endowment policy?
30 years (A 30 year endowment policy provides 30 years of insurance protection)
A contract between one party who will buy the death benefit of life insurance policy from the policyholder is called:
A Viatical Settlement
If a beneficiary has been so designated that she acquires a vested right in the policy immediately upon its issuance, the designation is termed: - Irrevocable -Vested -Primary -Contractual
Irrevocable (If a beneficiary is named irrevocably, the policyowner has given up her right to change that beneficiary, unless otherwise specified in the policy, the owner cannot take any action that would affect the right of that beneficiary to receive the full amount of the insurance at the insured's death. this includes taking out a policy loan or surrendering the policy)
Which of the following statements best describes the nature of a cash value loan?
It is a financial transaction in which the insurer loans the money and attaches a comparable portion of the cash value as collateral (A cash value loan is a loan from the insurer to the policy owner. A comparable portion of the policy's cash value is used as collateral to secure the loan).
All of the following pertaining to the insuring clause in a life insurance policy are correct EXCPET:
It specifies the length of the grace period (The insuring clause explains the promise the insurer has made to the named insured to pay a death benefit to a designated beneficiary. The grace period is separate policy provision).
A form of whole life insurance in which the face amount automatically increases as the Consumer Price Index increases is Called:
Indexed Whole life (The face amount of an indexed whole life policy increases automatically when the Consumer Price Index increases. Either the policyowner or the insurer assumes the risk and pays the additional premium with each face amount increase. if the policyowner assumes the risk, she pays the additional premium. If the insurer assumes the risk, the insurer pays. In either case, the policyowner is not required to furnish evidence of insurability to obtain the face amount increase)
All of the following statements about a modified whole life policy are correct EXCEPT: -It is basically an endowment policy -the premium-paying period continues to age 100 -cash value builds until the insured reaches age 100 so long as the policy is in force -premiums are uniformly lower during the early years of the contract
It is basically an endowment policy (The modified whole life policy is a variation of the traditional whole life policy, not an endowment policy. The premiums in a modified whole life policy are lower in the early years of the policy's term and higher in its later years).
Which of the following statements regarding assignment of a life insurance policy is NOT correct?- To secure a loan, the policy can be transferred to the lender as security for the loan. - The policyowner must obtain approval from the insurance company before a policy can be assigned. - the life insurance company must be notified in writing by the policyowner of an assignment. - The life insurance company assumes no responsibility for the validity of an assignment.
The policyowner must obtain approval form the insurance company before a policy can be assigned. (Policyowners actually own their policies and may do with them as they please. They can even give them away, just as they can give away any other kind of property they own. Nevertheless, they must notify the insurance company in writing of any transfers of ownership (assignments). The company must ten accept the validity of the assignments without question).
Gene, age 20, purchased a $50,000 life insurance policy. The premium at issue is lower than normal whole life rates, and increases each year for the first five years of the policy period. After that, the premium levels off. What type of policy does Gene own? - Limited pay at age 20 whole life -Modified whole life -Minimum deposit whole life -Graded premium whole life
Graded premium whole life (Graded premium whole life, like modified whole life, redistributes the policy premiums. The premium is lower than normal life rates during the preliminary period following issue (usually six to ten years) and increases each year until leveling off after the preliminary period. A modified whole life policy has a level premium during the preliminary period)
Which of the following statements regarding the grace period for life insurance is NOT Correct?
It is usually shorter than 30 days (The grace period during which the premium must be paid and begins with premium due date as specified in the policy. The grace period can vary, but for most ordinary life policies, it is 1 month (30 or 31 days). The insurer may impose an interest penalty on premiums paid during the grace period).
A significant feature of adjustable life insurance is that the:
Premiums may be increased or decreased from time to time by the policyowner (An adjustable life policy is simply a whole life policy with adjustable features, such as premium which may be increased or decreased from time to time by the policyowners. Such adjustments cannot be made retroactively)
Which of the following is a required provision in all individual life insurance policies?
Reinstatement (All individual life insurance policies must include a reinstatement provision stating that if the policyowner defaults on premium payments, the value of the policy can be applied to purchase other insurance. If the insurance is in force and the original policy has not been canceled or surrendered to the company, the policy can be reinstated within three years of default. Satisfactory evidence of insurance must be provided; back payment of premiums with interest and payment of any other indebtedness to the company must be made).
While a policy loan is generally an available option with any form of permanent life insurance, a partial withdrawal of cash value from the policy is available only with which of the following types of life insurance? - Universal Life Insurance Policy - Modified premium whole life insurance policy - Straight whole life insurance policy - Variable life insurance policy
Universal Life insurance policy (While policy loans are available with any type of permanent life insurance policy, partial cash value withdrawals require the policy flexibility that only universal life insurance officers).