NC Life Insurance - Types of Individual Life Insurance Chapter Quiz

A Universal Life Insurance policy is best described as a/an A. Variable Life with a cash value account B. Whole Life policy with two premiums: target and minimum C. Flexible Premium Variable Life policy D. Annually Renewable Term policy with a cash value account

D. Annually Renewable Term policy with a cash value account A universal policy has two components: an insurance component and a cash account. The insurance component ( or the death protection) of a universal life policy is always annual renewable term insurance

In Modified Life policies, what happens to the premium? A. It varies at the beginning, but levels out by the end of the third year B. It is level at the beginning and increases after the first few years. C. It always remains level D. It is higher during the first policy years

B. It is level at the beginning and increases after the first few years. Modified Life policies charge lower premiums (similar to term rates) during the first few policy years, usually the first 3 to 5 years, and then higher level premiums for the remainder of the insured's life. The higher subsequent premiums are typically higher than straight life premiums would be for the same age and amount coverage.

In a survivorship life policy, when does the insurer pay the death benefit? A. Upon the last death B. Upon the first death C. Half at the first death, and half at the second death D. If the insured survives to age 100

A. Upon the last death Survivorship life pays on the last death rather than upon the first death

Which of the following terms best describe the coverage provided by term policies, as compared to any other form of protection? A. Least B. Most comprehensive C. Longest D. Greatest

D. Greatest Term policies provide the greatest amount of coverage for the lowest premium, as compared to other form of protection

If an agent wishes to sell variable life policies, what license must the agent obtain? A. Surplus Lines B. Personal Lines C. Securities D. Adjuster

C. Securities Variable products are governed in part by the Securities and Exchange Commission; therefore, agents selling variable life policies must also secure a securities license.

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? A. Variable B. Term C. Securities D. Stock

A. Variable Variable- life policies vary in value, as the name suggests, because the value is based on the stocks that support the policy. If a policyholder wants a more stable, reliable value, he/she should invest in a fixed policy.

A policy will pay the death benefit 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? A. term to specified age B. ordinary life policy C. limited pay whole life D. level term

D. level term A 20-year term policy is written to provide a level death benefit for 20 years.

Which type of life insurance policy generates immediate cash value? A. Single premium B. Level term C. Decreasing term D. Continuous premium

A. Single premium Like other types of whole life policies, Single Premium Whole Life (SPWL) endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing features of a SPWl is the fact that is generates immediate cash value, due to the lump-sum payment made to the insurer

Which universal life option has a gradually increasing cash value and a level death benefit? A. Option A B. Juvenile life C. Term insurance D. Option B

A. Option A Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures

A universal life insurance policy has two types of interest rates that are called A. fixed and variable B. minimum and target C. guaranteed and current D. option A and B

C. guaranteed and current The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled? A. Payor Benefit B. Jumping Juvenile C. Juvenile Premium Provision D. Waiver of Premium

A. Payor Benefit If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Both Universal Life and Variable Universal Life have a A. Increasing premium B. Flexible premium C. Level fixed premium D. Decreasing premium

B. Flexible premium Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, so long as there is enough value in the policy to fund the death benefit.

Graded-Premium Whole Life policy premiums are typically lower initially, but gradually increase for a period of 5 to 10 years. After the period of increase, the premiums will? A. Return to the initial premium amount B. Decrease again C. Be level thereafter D. Continue to increase

C. Be level thereafter When a Graded-Premium Whole Life policy begins, the premium amounts are typically 50% lower than premiums for straight life policies. The premium then gradually increases each year for a period of usually 5 or 10 years and then remains level thereafter.

What is the purpose of establishing the target premium for a universal life policy? A. To pay up the policy faster B. To cover all policy expenses C. To keep the policy in force D. To accumulate cash value faster

C. To keep the policy in force The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? A. Universal Life - Option B B. Equity Indexed Universal Life C. Variable Universal Life D. Universal Life - Option A

D. Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.