Variable Life & Annuities

Which of the following statements is TRUE concerning whole life insurance? A: Lump-sum death benefits are not taxable. B: Dividend interest is not taxable. C: Premiums are tax deductible. D: Policy loans are tax deductible.

A: Lump-sum death benefits are not taxable.

Which of the following is NOT one of the four assumptions used in determining future earnings value? A: The projected future decline in earnings B: Current annual after-tax earnings C: The future working lifetime D: An after-tax discount rate

A: The projected future decline in earnings

According to the general guidelines of universal life insurance, how often can policyowners adjust the premiums?

Annually

A new policyowner has a single-premium life insurance policy for which she paid $25,000 in premium. How often should the policyowner expect the interest rate to be applied to the cash value of the policy?

Annually.

An insured is injured while hang gliding. Because he is unable to earn an income for months after the accident, the insurer of his adjustable life insurance policy pays for his premiums. This is an example of what type of option?

Waiver of premium

Angela, age 52, has a variable universal life insurance policy and is thinking of withdrawing some of the cash value to help pay for her child's college tuition. She should expect to pay a penalty of what percent?

10%

Z has a variable whole life insurance policy and likes to manage the asset allocation very closely. What is the maximum number of times a year is Z allowed to change the allocation of the cash value of his policy?

12

What is the maximum sales load that an insurance agent is allowed over 20 years?

9%

Which department is responsible for developing mortality and morbidity tables?

Actuarial

Concerning a Whole Life Policy, which of the following statements is correct? A: The policy always includes guaranteed renewable and convertible provisions. B: There is a maximum age for purchasing whole life. C: Cash value is guaranteed. D: Cash value may be provided by additional rider.

C: Cash value is guaranteed.

Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life? A: Coverage is based on the predicted needs of that family. B: The death of an insured must be premature. C: It must be assumed that the death of the insured will occur immediately. D: Need is predicted using the number of years until the insured's retirement.

D: Need is predicted using the number of years until the insured's retirement.

Ronald's variable life insurance policy allows him to borrow from his cash value at zero net interest cost once the policy has been in effect for a certain period of time. What feature of his policy allows him to do this?

Enhanced policy loan feature

An insured has an adjustable insurance policy that has a cost-of-living provision included. She would like to periodically change the face amount of the policy to better suit her current life situation. How often will the insured be allowed to adjust this?

Every 3-years.

If an adjustable life policy is classified as a Modified Endowment Contract, what is the result?

Faster taxation of investment gains and a possible penalty tax for early receipt of that growth

When there is too much cash value in a universal life insurance policy in relation to the face amount, and the insurance company has to take money out and give it back to the policyowner, this is known as...

Force Out

When utilizing the needs approach in determining the amount of life insurance, you will assume that the insured will die...

Immediately.

In aleatory contracts, who absorbs the risk of the contract?

Insurer

Which of the following departments is responsible for developing mortality and morbidity tables?

It transfers the risk to all persons insured.

Throughout the life of a policy, the premiums for whole life insurance remain what?

Level.

Which settlement option does NOT provide any guarantee that the entire principal amount of the death benefit will be paid to the beneficiary?

Life Annuity

Because of the imposed blackout period, the surviving spouse will NOT receive Social Security benefits until...

Qualifying for retirement benefits.

Total premiums paid (plus dividends used to purchase additional insurance and minus nontaxable distributions) are called the...

Tax basis

On a long-term basis, what is the danger of allowing a universal life insurance policy's cash value account drop to zero by paying insufficient premiums?

The cost of insurance increases as the consumer ages, potentially becoming unaffordable.

A policyowner has a life insurance policy with and is interested in applying for a loan using the cash value of her policy as collateral. The general procedure of the insurer is to delay the loan request for the allowed 6-month period. What is the only legitimate reason that the company could not do this?

The policyowner is applying for the loan to pay the premiums.

Contracts that legally bind only one of the parties to future performance are classified as...

Unilateral contracts

Which type of policy allows the owner the greatest flexibility for premium payments?

Universal Life Insurance

When a party to a contract issues a statement that they are voluntarily relinquishing a privilege or right, this is known as a(an)

Waiver

Variable life insurance is essentially a form of what type of insurance?

Whole life

Universal life insurance policies are essentially a combination of what types of policies?

Whole life and term life

Which of the following is NOT one of the four assumptions used in determining future earnings value? A: The projected future decline in earnings B: Current annual after-tax earnings C: The future working lifetime D:An after-tax discount rate

A: The projected future decline in earnings

Which of the following are the types of needs in insurance? A: Mandatory and optional B: Permanent, temporary, and savings C: Maintenance and emergency D: Estate, income, and human life

B: Permanent, temporary, and savings

In which of the following situations would Social Security Disability benefits NOT cease? A: The individual has undergone therapy and is no longer disabled. B: The individual's son gets a part-time job to help support the family. C: The individual reaches age 65. D: The individual dies.

B: The individual's son gets a part-time job to help support the family.

Which of the following is an advantage that policyowners of adjustable life plans hold over other life insurance plans? A: Fixed interest rates for additional loans B: Ability to distribute dividends to new policies C: Reduced policy fees for new coverage D: No policy fees for new coverage added

D: No policy fees for new coverage added

When can a misrepresentation void a policy?

When material to the issuance of the insurance

Which of the following is NOT considered to be a party to an insurance contract? A: The policyowner B: The insurer C: The insured D: The agent

D: The agent

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following terms best describes what the insurer has violated? A: Consideration B: Good faith C: Representation D: Adhesion

A: Consideration

Which of the following is guaranteed in a variable life insurance policy? A: Death benefit only B: Surrender value C: Cash value only D: Cash value and death benefit

A: Death benefit only

Virginia is considering various life insurance policies and is mostly interested in retaining the level of enjoyment she currently possesses in her life. What type of objective is she using in her needs analysis?

Living objective

A lottery winner recently purchased a whole life insurance policy that enabled him to pay the entire premium in one lump sum. What type of policy did he select?

Single-premium whole life

Which of the following is NOT one of the three objectives of planning for the later years of life insurance? A: Retirement objectives B: Living objectives C: Death objectives D: Tax objectives

A: Retirement objectives

When does the annuity period begin?

At the conclusion of the accumulation period

Which financial indicator is tied to variable interest rates?

Moody's long-term bond rate

In an adjustable life policy, which provision allows an individual to increase the face amount of the policy in order to help keep pace with inflation?

The Cost of Living Provision

The difference between the cash value and the death benefit of a universal life insurance policy is called a...

corridor

During the accumulation period of a deferred variable annuity, what is the value of the individual account based upon?

the investment results

In general, current-assumption whole life insurance policies guarantee a competitive interest rate for at least

1- year

Which of the following is NOT an example of how dividends from an adjustable life insurance plan are typically applied? A: Paid out in selected cash increments B: Paid out through U.S. Treasury bonds C: Added to the overall cash value of the policy D: Used to shorten the payment period

B: Paid out through U.S. Treasury bonds

With a variable annuity, which of the following factors is NOT involved in determining the amount of an annuitant's first annuity payment? A: The settlement option selected B: The value of the annuitant's interest in the separate account C: An actuarial factor base on the annuitant's life expectancy D: The number of annuity units

D: The number of annuity units

When an insurer subtracts the interest rate of an outstanding loan from the amount of the dividend paid out from the insurance policy used as collateral on the loan, what is this called?

Direct recognition

When a loan is taken out on a universal life insurance policy using the policy as collateral, and the interest charged on the loan cancels out the interest paid on the cash value, what type of loan is this?

Wash Loan

If the interest earnings in a policy and the policyowner's contribution cover only the amount of the mortality and expense charges for that policy year, the policy has reached...

Minimum funding level.

How often do insurance companies deduct costs of mortality, riders, and supplemental benefits in universal life policies?

Monthly.

In a universal life policy, if the policyowner increases the death benefits, what other component will increase in reaction to this?

Mortality charges

Attempting to determine how much insurance a family would require based upon their financial objectives is known as which approach?

Needs Approach

Attempting to determine how much insurance a family would require based upon their financial objectives is known as?

Needs approach.

K has recently divorced his estranged wife and is in need of cash. He has a variable annuity from which he is considering withdrawing several thousand dollars. What penalty, if any, should he expect to pay in this situation?

No penalty (0%)

Which of the following is established in a valid living will? A: Beneficiary objectives B: Death transfer objectives C: Tax objectives D: Living objectives

B: Death transfer objectives

Which of the following is NOT a reason why sales loads of single-premium variable policies are lower than those of other normal life insurance policies? A: Greater sum of initial money to invest B: Lower fixed interest rates C: Only one premium is required to be paid D: No recurring premium charges

B: Lower fixed interest rates

Which of the following is NOT one of the elements that determine the rate at which dividends are credited in an adjustable life policy? A: Expenses B: The company's investment performance C: Earned interest D: Mortality assumptions

C: Earned interest

When using the needs approach, which of the following is NOT a type of information that needs to be gathered in order to determine the value of someone's life? A: Mortgages B: Expenses C: Estimated longevity D: Outstanding debt

C: Estimated longevity

If an insurer adds a provision into the contract that is specifically stated, this is known as a(n)

Express warranty.

Ted and Janet are taking out a variable second-to-die life insurance policy, and both are insured. What is required before the policy can take effect?

Medical examination

A longtime policyowner has paid the premiums on his universal life insurance policy, and now it has enough cash value to pay the interest and mortality charges for the remainder of his life. He is now electing to not pay any more premiums. What is this called?

Offset

Mortality risk fees and operating expense risk fees are designed to protect who?

The insurance company by offsetting unexpected costs

What will happen if a whole life insurance policyholder cannot pay the premium in a given year?

The policy will lapse, and the policyowner will get the cash value back minus any cancellation fees.

Under an adjustable life insurance policy, for which of the following actions must the insured usually prove insurability? A: Changing the beneficiary B: Increasing the death benefit C: Decreasing the premium amount D: Taking a policy loan

B: Increasing the death benefit

Which of the following statements describes one of the reasons individuals purchase life insurance? A: It provides income an insured cannot outlive. B: It creates an immediate estate. C: It helps liquidate an estate through death proceeds. D: It always accumulates cash value.

B: It creates an immediate estate.

A policyowner has a variable universal life insurance policy and wants to transfer funds from one of his investment portfolios to three other portfolios. What percent will he be charged in tax liabilities for this move?

0%

A married applicant is considering taking out a basic term life insurance policy on himself, but he has an aversion to releasing personal information to unfamiliar people. Which of the below should he NOT expect to have to divulge to the insurer? A: Marital status B: Medical conditions or treatment C: Other life insurance in force D: Occupation

A Marital status

Which of the following is an indeterminate-premium life policy with cash values being credited at current interest rates? A: Variable whole life B: Enhanced ordinary life C: Current assumption D: Equity index

C: Current assumption

If a universal life policy has enough cash value to cover mortality and expense charges, the policyowner may A: Request that the policy be rewritten based on a different mortality table. B: Convert the policy to a whole life insurance. C: Vary premiums at will or skip premium payments altogether. D: Completely cease making payments before the policy is in paid-up status.

C: Vary premiums at will or skip premium payments altogether.

Analyzing a client's needs, identifying general financial problems/deficiencies, determining how life insurance can best meet those needs, and figuring out how much life insurance to purchase is an example of what method of determining the ample amount of life insurance to cover the insured?

Capital needs analysis

Which of the two cash accounts of a universal life insurance policy holds the money that the policyowner has access to?

Cash value account

What does "liquidity" refer to in a life insurance policy?

Cash values can be borrowed at any time.

A policyowner is considering exchanging her universal life policy for another universal life policy. To be considered a no gain or loss exchange, by how much can the policyowner reduce her debt?

0%

Variable life policy premiums... A: Are paid in fixed amounts at specified intervals. B: Increase with the insured's age. C: Are similar to whole life premiums for the same age and face amount. D: Increase or decrease, depending on the performance of the separate account.

A: Are paid in fixed amounts at specified intervals.

What does the application of contract of adhesion mean?

Any ambiguities would be resolved in favor of the party accepting the contract.

When might a policyowner of a life insurance policy be able to receive accelerated benefits from a payout of the policy? A: Refinancing of one's estate B: Diagnosis of a terminal illness C: Impending foreclosure of a property D: The amount of the premiums exceeds the payout

B: Diagnosis of a terminal illness

Which of the following describes a benefit available to policyowners in adjustable life insurance? A: Have cash value greater than in traditional whole life policies B: Increasing and decreasing policy premiums as needed C: Making retroactive adjustments in policy provisions and options D: Being able to skip premium payments as long as there is enough cash value in the policy

B: Increasing and decreasing policy premiums as needed

Which of the following is true regarding the annuity period? A: It is also referred to as the accumulation period. B: It is the period of time during which the annuitant makes premium payments into the annuity. C: It may last for the lifetime of the annuitant or for a shorter period of time. D: During this period of time the annuity payments grow interest tax deferred.

C: It may last for the lifetime of the annuitant or for a shorter period of time.

Which of the following is NOT an example of a factor considered when establishing the costs of a life insurance policy? A: Age B: Health habits C: Amount of insurance D: Number of dependents

D: Number of dependents

As cash value of a whole life insurance policy grows, the risk to the insurance company does what?

Declines