Quiz: Policy Dividend Options
Phil selected the uncommon paid-up insurance option for his participating whole life insurance policy. Which of the following best describes the purpose for this type of dividend option? A. purchase additional units of term life insurance coverage B. reduce the policy face amount so that the dividend is sufficient to pay up the policy in the year that the dividend is issued C. purchase additional units of paid-up whole life insurance D. pay up the whole life insurance policy several years early
D. pay up the whole life insurance policy several years early It is the paid-up additions option, not the paid-up insurance option, that uses the dividend to buy additional paid-up insurance of the same type as the base policy.
Regarding policy dividends, which type of insurance is used with the so-called fifth dividend option? A. extended-term insurance B. one-year permanent insurance C. one-year term life insurance D. renewable term insurance
C. one-year term life insurance Combination dividend options involve one-year term insurance.
Which type of life insurance company pays taxable dividends to its stockholders? A. mutual company B. privately traded company C. stock company D. universal insurance company
C. stock company Mutual companies are owned by the policyowners.
All the following statements about the accumulate at interest dividend option are correct EXCEPT: A. Participating policy dividends are not generally taxable. B. The dividends are retained in the insurer's general account. C. The insurer credits a rate of interest to the dividends as they remain on deposit with the insurer. D. The policyowner can only withdraw the accumulated dividends and interest on the policy's anniversary date.
D. The policyowner can only withdraw the accumulated dividends and interest on the policy's anniversary date. The policyowner does not have to wait to the anniversary date to withdraw the accumulated dividends and interest.
Which of the following correctly describes a life insurance policy dividend? A. an insurer's revenues in excess of costs B. an amount returned to a policyowner out of an insurance company's surplus funds, effectively representing unused premiums C. a distribution of insurer profit to those holding stock in the company D. an amount paid to insurance company stockholders annually if profit margins are met
B. an amount returned to a policyowner out of an insurance company's surplus funds, effectively representing unused premiums A policy dividend is an amount returned to a policyowner out of an insurance company's surplus funds, effectively representing unused premiums.
What type of life insurance company is owned by the policyowners? A. mutual company B. universal insurance company C. privately traded company D. stock company
A. mutual company Stock companies are owned by stockholders, just like other public companies
Gloria chooses to take her life insurance policy dividends in cash. The insurance company sends a check for the amount of the declared dividend on the anniversary date of the policy. What is the tax consequence to Gloria for receiving cash dividends? A. Her dividends are income tax free only if Gloria is over age 59½. B. Her dividends are not income taxable. C. Her dividends are tax deferred until the policy is surrendered. D. Her dividends are fully taxable.
B. Her dividends are not income taxable. Cash dividends are not taxable.
Sue's annual premium is $1,500 and the declared dividend was $200. If Sue chooses the premium reduction dividend option, she will receive a premium notice for which of the following? A. $1,700 B. $200 C. $1,500 D. $1,300
D. $1,300 Under the premium reduction option, the insurance company keeps the dividend and uses it to reduce the next premium due. Sue's next premium notice will be for $1,300.