Unit 6: Life Insurance Policy Options

Beth is secondary beneficiary of a life policy, receiving monthly income benefits under an installment refund option. Her mother, the primary beneficiary, received a total of $4,200 in benefits before she died. The original proceeds totaled $22,000. Assuming Beth lives long enough, she will be paid monthly benefits until she has received a total of:

$17,800

At age 60, David decides to stop paying premiums on his $60,000 whole life policy and exchanges it for extended term insurance. What face value will the term insurance have?

$60,000

Betty owns a universal life insurance policy that was issued with a $100,000 face amount and now has total death benefit protection of $110,000. Several months ago she borrowed $15,000 from the policy. The outstanding loan balance (including interest) is $15,200. If Betty dies today, what will be the amount of the death benefit?

$94,800

Which of the following is NOT a standard life insurance policy nonforfeiture option?

1-year term insurance option

Which of the following period certain income options would call of the highest payment rate per $1,000 of life policy proceeds?

5-year period certain

Carl and Laura receive $270 per month under a joint and two-thirds survivor life policy settlement option. What would happen if Carl died within a year after payment started?

Laura would receive $180per month for as long as she lived

Doris and Arnold receive $450 per month under a joint and one-half survivor life insurance option. What would happen if Arnold were to die first after the payments have started?

Monthly payments of $225 would be made to Doris as long as she lived

Norris is the primary beneficiary of a life insurance policy. He dies after receiving $275 per month for six years, under a 10-year period certain income option. His son, Neil, is the secondary beneficiary. Which of the following statements pertaining to this situation is CORRECT?

Neil will receive income checks in the same amount as his father for 4 years

Paul, age 62, is applying for a universal life insurance policy and wants to arrange the beneficiary designation in such a way as to use the proceeds to provide lifetime income to his wife, Marsha. Which of the following settlement options is best suited for this purpose?

Paul, as the owner, can pick life income as the settlement option his spouse must take when he dies. This option will give Marsha a monthly income she cannot outlive

Tammy owns a participating whole life insurance policy for which she has elected the paid-up additions option. If the insurer declares a dividend of $500 in the current year, how will this amount be used with this dividend option?

The insured uses the $500 as if it were a single premium to purchase a unit of paid-up whole life insurance based on Tammy's attained age

Which of the following statements about reduced paid-up insurance option is NOT true?

The new protection is for the same amount as the original policy

A withdrawal from a life insurance policy is also known as

a partial surrender

Unlike corporate dividends, insurance policy dividends

are not considered taxable income

All of the following are dividend options EXCEPT

assigning dividends to pay off a mortgage

Which of the following provisions will protect the insured if he fails to pay the policy premium by the end of the grace period?

automatic premium loan provision

Which of the following options is designed to protect the policy owner should the policy be in danger of lapsing for nonpayment of premiums?

automatic premium loans

With the life with period certain settlement option, if the beneficiary dies before the end of the selected payout period, payments

continue to another person for the rest of the payout period

Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will

continue to increase

Lynn elects to surrender her whole life policy for a reduced paid-up policy. The cash value of her new policy

continue to increase

All of the following statements about policy dividends are true EXCEPT

dividends can be guaranteed to be paid every year

What is the default nonforfeiture option?

extended term

Which of the following is NOT one of the 3 nonforfeiture options?

extended whole life insurance

Carmen has selected to receive $10,000 per month until the principal and interest on her husband's life insurance policy have been paid out. Carmen has selected

fixed amount option

What settlement option is designed to payout a specified amount of income at regular intervals over an unspecified period of time?

fixed-amount option

Emily has chosen to receive the payout from her husband's life insurance policy so that she will receive an income for the next 15 years. At the end of that time, the entire proceeds from the policy will have been paid out. Emily has selected the

fixed-period option

Samantha, a policy owner, did not specifically indicate how she would like her settlement to be paid upon her death. If Samantha dies, how would her life insurance be paid out to a beneficiary?

in a lump sum

Under a fixed-period life insurance settlement option, excess interest will

increase the size of the payments

Which of the following settlement options pays a stated amount of interest on the money at regular intervals?

interest income (only) option

Which settlement option pays only the earnings on the death benefit to a beneficiary?

interest only

Heather wants her $85,000 life insurance policy arranged to pay her spouse a monthly income if she dies first, but most or all of the proceeds to go to their 2 children after her spouse's death. Which of the following settlement options could Heather select to provide income for her spouse and conserve the proceeds for the children?

interest-only option

Hector's spouse was the primary beneficiary of his $250,000 life insurance policy. She received payments of approximately $700 a month as long as she lived and, at her death, their 2 children received lump-sum payments of $125,000 each. What settlement option was in effect on Hector's policy?

interest-only option

Jim has selected to receive only the interest from his mother's life insurance policy. When Jim dies, his children will receive the lump-sum benefit in addition to the benefit from his life insurance policy. Jim has selected the

interest-only option

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

James and his spouse, Paula, have a policy that continues paying a benefit for as long as either beneficiary lives. Which of the following settlement options do James and Paula have?

joint and survivor life settlement option

Walter is the beneficiary of his mother's life insurance policy. He wants to make sure the proceeds will last not only as long as he lives but also as long as his wife is alive. Walter should select the

joint and survivorship life income option

Which of the following dividend options produces a result similar to taking dividends in cash and depositing them in a bank savings account?

leaving dividends to accumulate at interest

Suppose Max wants to arrange the distribution of his life insurance proceeds so that his spouse, as beneficiary, will receive monthly payments for as long as she lives. Which of the following settlement options will meet this need?

life income option

Of all of the life income options, which settlement option has the largest payment?

life only

Heath has chosen to receive the payout from his wife's life insurance policy in such a way that he will have an income for the remainder of his life, regardless of how long he lives. Heath has selected

life-income option

Jeremy did not designate a specific settlement option to be paid upon his death. How will the death benefit proceeds be distributed?

lump-sum payments

In the sale of life insurance, all references to policy dividends

must include a statement that dividends are not guaranteed

Cash surrender, reduced paid up insurance, and extended term insurance are all examples of

nonforfeiture options

The privilege of accessing the cash value of an insurance policy if it is surrendered is known as the

nonforfeiture provision

Susan, the beneficiary on John's $500,000 life policy, chose life-only as her settlement option. Susan received 5 years of settlement checks from the insurance company, totaling $150,000. How much will Susan's beneficiary receive upon her death?

nothing, because life-only states that when the beneficiary dies, any remaining death benefit is kept by the insurance company

Insurance policies that pay dividends are referred to as

participating policies

All of the following statements regarding the life only settlement options are correct EXCEPT

payments continue even if the beneficiary dies shortly after payments begin

Which of the following statements about participating and nonparticipating life insurance policies is NOT correct

policy dividends are considered taxable income

John, age 55, owns a whole life policy with a face amount of $100,000 for which the annual premium is $1,000. John explains to his agent that he lost his job and cannot afford his $1,000 annual premium but still desires to have life insurance to age 100. What nonforfeiture option could John's agent recommend to him?

reduced paid-up policy

Thomas has chosen to receive the settlement from his wife's $100,000 life insurance policy according to the life income option. Under the option he chooses, he will receive an income for his life and his daughter will receive payments if he dies before receiving $100,000 in income. Thomas has selected a

refund annuity option

Which of the following is NOT a factor in determining the amount the beneficiary will receive each time a payment is made under the fixed period option?

the age of the beneficiary

Which of the following is NOT one of the 3 factors used to determine the minimum length of the payment period with the fixed amount settlement option?

the age of the insured

Lisa exercised her automatic premium loan provision to pay her annual premium on her $50,000 life insurance policy. She died four months after the loan was taken, never having a chance to repay it. Given these facts, which of the following is CORRECT?

the amount paid to Lisa's beneficiary as the death proceeds was reduced by the amount of the loan plus interest due

Which of the following is not a factor in determining the amount of the beneficiary will receive each time a payment is made under the fixed amount option?

the capital amount

Which of the following factors is NOT used to calculate each payment with the fixed period option?

the chosen payment amount

Which of the following statements about paid-up additions is TRUE?

the dividends are used to purchase additional insurance protection

The settlement option that will pay the largest amount to the beneficiary regardless how long he lives is

the life only or straight life option

Which of the following statements regarding the paid-up additions life insurance policy dividend option is NOT corret?

the paid-up additions dividend option is only available to insureds that remain insurable

Under an installment refund settlement option, if the primary beneficiary dies, the secondary beneficiary will receive

the same income payments until the total amount paid out to both beneficiaries equals the original amount of proceeds

A policy owner stops paying premiums on a whole life policy with an accidental death benefit and exchanges the policy for extended term insurance. Which of the following statements pertaining to this situation is NOT correct?

the term policy will have a reduced face value

Which of the following statements regarding policy dividends is CORRECT?

they are the difference between the gross premium charged and the actual experience of the insurer

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 policy loan

Most participating whole life insurance policies allow all of the following uses of standard life insurance dividends EXCEPT

to increase the policy's face amount

Which of the following descriptions of life insurance policy settlement options is CORRECT?

under an installment refund option, if the primary beneficiary dies, payments of the same amount continue to the secondary beneficiary until all installments to both beneficiaries equal the original amount of proceeds

Which of the following statements about life insurance policy settlement options is NOT correct?

under the fixed-period option, the payment of excess interest will lengthen the payment period

Wendy has a $100,000 whole life participating policy. She recently married and is planning to have a family. She wants to increase her life insurance coverage but at minimal additional cost. Which of the following dividend options would be most suitable for her needs?

use dividends to buy paid-up additions

Which a participating life insurance policy, a policy owner may do all fo the following with dividends received EXCEPT

use the dividends to pay overdue premiums from previous years

Arnold buys a $25,000 participating whole life policy. He has a definite need for more life insurance, but believes he cannot afford it. Which of the following dividend options would help to solve this problem automatically?

using dividends to buy paid-up additions

All of the following are standard life insurance dividend options EXCEPT

using the dividend to increase the base whole life policy's face amount

Denise, age 52, has a straight whole life policy and decides to stop paying premiums and take a paid-up policy for a reduced amount. Her paid-up policy will be

whole life

All of the following statements are true EXCEPT

withdrawals can be repaid