Chapter 4: Type of Insurance Policies – Flashcards
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Which of the following statements about universal life insurance is NOT true?
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Universal life insurance normally has a minimum guaranteed cash value for duration of the policy
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A material change in a modified endowment contract (MEC) results in
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the seven pay test, adjusted for cash value, being applied again
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Which statement concerning an adjustable life insurance policy is FALSE?
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Evidence of insurability is required when there is a change in premium
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Under an adjustable life insurance policy, which of the following may NOT be changed without further underwriting?
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The person insured
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A nonparticipating whole life insurance policy was surrendered for its $20,000 cash value. The total premiums paid had totaled $16,000. What were the federal income tax consequences to the policyowner on receipt of the cash value?
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$16,000 was received tax-free and $4,000 as ordinary income
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Which of the following would NOT be a reason for purchasing life insurance on a child's life?
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Provide benefits for the child if the parents die
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All of these statements concerning group credit life insurance are false EXCEPT
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The face amount is determined by the outstanding loan balance
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How long does protection normally extend to under a limited pay whole life policy?
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Until age 100
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What kind of life insurance policy allows a policyowner the choice of investments along with flexible premium payments?
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Variable universal life
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The insurance coverage in a variable life insurance policy may vary based on the value of
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its underlying investments
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What kind of life policy typically offers mortgage protection?
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Decreasing term
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Laura added a children's rider to her life insurance policy. What type of coverage was added?
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Level term
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How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies?
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Survivorship life policy is lower
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Which is an accurate description of the premium in a graded premium life insurance policy?
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Annual increases in premium for a stated number of years then levels off for the remainder of the contract
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What is the guaranteed cash value of a whole life insurance policy when the insured turns 65 years old?
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Less than the policy's face amount
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When does the insured stop making payments under a thirty-payment whole life policy?
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At the time of death or 30 years after the policy's inception, whichever comes first
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Which of these is NOT considered a type of limited payment whole life insurance?
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Endowment at age 70
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What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?
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Joint life
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What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?
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Joint life
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Which statement concerning a decreasing term life policy is accurate?
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Face amount decreases over the policy period
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An advantage of owning a flexible premium life insurance policy would be
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The policyowner can make policy changes without difficulty
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Which of these is NOT an advantage of term life insurance?
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A cash benefit will be provided if the insured is alive at the end of the policy period
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At what point are death proceeds paid in a joint life insurance policy?
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When the first insured dies
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Which statement regarding the cash value of a whole life insurance policy is correct?
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Available to the policyowner when policy has been surrendered
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All of these are considered features of whole life insurance EXCEPT
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Initial premium is lower than for an equivalent amount of term insurance
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Which statement regarding whole life insurance is accurate?
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Insurance coverage can continue for life
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Which statement concerning adjustable life insurance is accurate?
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The face amount and premiums can be changed simultaneously by the policyowner
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Which of the following is generally a form of group credit life insurance?
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Decreasing term insurance
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Which of the following combinations best describe a universal life insurance policy?
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A flexible premium deposit fund and a monthly renewable term insurance policy
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How does a continuous premium whole life policy differ from a limited pay whole life policy?
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The time period in which premiums will be paid
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Which statement regarding an adjustable life insurance policy is NOT true?
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Policy loans are not permitted
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Which of these policies is considered a whole life policy?
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Single premium life
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Which of these statements accurately portrays an adjustable life insurance policy?
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Policy can alternate between forms of term and whole life insurance
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Which of these is NOT a reason to buy a term life policy?
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To accumulate savings
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Which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)?
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policy loans
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Rick owns a variable universal life policy and chooses a variable death benefit option. What will typically happen to the death benefit as a result of this selection?
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Fluctuate with changes in the cash account
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A life policy that has premiums that are lower than normal during the early years is called
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Modified life
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John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?
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100%
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Taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for
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The policy is surrendered for less than what was paid into it
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Which of these must be disclosed in a universal life policy?
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The surrender charges
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Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes?
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The gain is treated as taxable income and a penalty tax is imposed on the gain
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When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for
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Ten year term insurance for a person aged 55
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An individual who purchases a modified life insurance policy expects
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an improvement in future income
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Straight whole life insurance can be accurately described in all of these statements EXCEPT
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Policy protection normally expires at age 65
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Which statement regarding a single premium life insurance policy is NOT correct?
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Additional premiums may be required under certain conditions
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What is a juvenile life insurance policy?
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A life policy that covers the life of a minor
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An insurance policy that can also be classified as a securities product is called
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variable life
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These are all accurate statements regarding universal life insurance EXCEPT
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Policy loans are not permitted
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A policyowner has just borrowed from a life insurance policy's cash value. Which of these statements is true?
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In the event of death, the loan amount is deducted from the policy proceeds
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What type of premiums are associated with individual mortgage protection life insurance policies?
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Level premiums
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All of these statements concerning universal life insurance are false EXCEPT
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Policy indicates how much of the premium is used toward company expenses
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Assets that back the non-guaranteed values of variable life insurance products are held in which account?
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Separate account set up by the insurer
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A survivorship life insurance policy usually covers how many lives?
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2
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Which of these life insurance policies do NOT contain cash value provisions?
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Decreasing term life
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Which statement regarding universal life insurance is correct?
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Cash value accumulations have a guaranteed minimum interest rate
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What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued?
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Under $50,000 initially, but increases over time
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What would be considered an advantage of purchasing term life insurance?
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The initial premium is lower compared to the same amount of whole life coverage
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How are level term policies able to provide level premiums?
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Premiums are averaged over the term of the policy
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How long does one premium payment cover in a single premium whole life policy?
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Entire life of the policy
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When would evidence of insurability be required for a person already covered with a variable universal life policy?
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The death benefit is increased
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Who normally pays the premiums for group credit life insurance?
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Borrower
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Which of these is NOT an allowable deduction made from premium payments of the cash value of a variable life insurance policy?
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Federal premium taxes
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Which of these would NOT be a valid reason to add the waiver of premium rider to a life insurance policy?
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Allows a policyowner to take out a policy loan to cover premium payments in the event of total disability
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Which statement regarding the life insurance premium for a children's term rider is true?
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Premium remains the same no matter how many children
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Which benefit supplement added to a life insurance policy insures an entire family?
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Family term rider
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What happens to a life insurance policy when the policy loan balance exceeds the cash value?
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Policy will no longer be in force
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A life insurance policyowner would like a dividend option that results in a limited current outlay of funds. Which dividend option would be chosen?
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Reduction of premium payment
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In what way is a life insurance policy affected by an accelerated benefit payment?
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Decreases the death benefit
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Which of the following is true regarding a person receiving a waiver of premium benefit?
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The insured must be disabled for a period of time
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What happens when a policyowner borrows against the cash value of his life insurance policy?
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The death benefit would be reduced by the outstanding loan balance
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A life insurance policy's waiver of premium rider has the ability to
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relieve the insured of premium payments following an initial waiting period after the insured becomes totally disabled
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The automatic premium loan provision can be accurately described as a
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provision that provides a policy loan to pay an overdue premium by the end of the grace period
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Which life insurance policy would be eligible to include an automatic premium loan provision?
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Whole life
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If an insured dies during the grace period without having paid the premium, how much will the insurer pay?
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Policy's face amount minus any premiums due
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The absolute assignment of a life insurance policy results in
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the assignee receives all incidents of ownership
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A source of additional income for a life insurance policyowner can be derived from the
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cash value
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Which of the these is NOT a true statement of the war exclusion?
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Civil insurrections apply
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A life insurance policy that includes a return of premium rider will pay the beneficiary how much upon the insured's death?
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Total premiums paid plus the policy face amount
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What could be the potential result of taking out a cash value loan on a life insurance policy?
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Cash surrender value will be reduced if policy is forfeited
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A life insurance policy provision that has the potential to reduce the death benefit is called the
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accelerated (living) benefit
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How long can an insurer legally defer paying the cash value of a surrendered life insurance policy?
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6 months
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Which of these is NOT a common life insurance nonforfeiture option?
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Life income annuity
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An insured that has a guaranteed insurability rider attached to his life insurance policy has the right, without proving insurability, to
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periodically purchase additional insurance
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Which benefit is normally payable to a life insurance policyowner when the insured's life expectancy has been severely limited?
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Accelerated (living) benefit
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What is the name of the rider that provides an additional purchase option in a life insurance policy?
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Guaranteed insurability rider
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Scott has a life insurance policy in which the dividends are left with the insurance company. This particular policy may be paid up when the cash value plus accumulated dividends
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equal the net single premium for the same face amount at the insured's attained age
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In the event of premium default, which life insurance provision will use the cash value to keep the policy in force?
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Automatic premium loan
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Which life insurance clause prohibits an insurance company from questioning the validity of the contract after a stated period of time has passed?
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Incontestable clause
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An insured has a $25,000 whole life insurance policy with $6,000 cash value available. Under the extended term nonforfeiture option, what is the amount of insurance available to the insured?
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$25,000
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Joe is a life insurance policyowner who has failed to pay interest on his policy loan. What will result from this nonpayment?
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Loan amount is increased to reflect the amount of interest due
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Which of these statements is NOT true regarding a cash value loan against a life insurance policy?
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Interest payments made by policyowner are deductible
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What is considered the collateral on a life insurance policy loan?
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The policy's cash value
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Which of the following is NOT a condition that must be met for an accidental death benefit to be paid?
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Cause of death must be from a job-related injury
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Which of the following is NOT subject to the promise to pay in an insuring clause?
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How the premium is calculated
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How is a collateral assignment used in a life insurance contract?
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Transfers specific ownership rights to a creditor
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Which of the following is NOT guaranteed in a whole life policy?
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Dividend scale
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Which situation is an accelerated (living) benefit rider suited for?
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Insured expected to be confined to a nursing home for life
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Which life insurance policy option allows the policyowner to have coverage equal to the net death benefit of the lapsed policy?
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Extended term nonforfeiture option
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What happens to the death benefit of a life insurance policy if the insured elects a partial payment from the accelerated (living) benefit provision?
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Reduced
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Which statement regarding the waiver of premium rider is accurate?
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Cash payment is not directly provided to the policyowner
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Which of these statements regarding the extended term insurance nonforfeiture option is accurate?
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The premium to purchase the coverage comes from the policy's cash value
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When a lapsed policy's premium has been paid current, it has the potential of being
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reinstated
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Which of the following is NOT a dividend option for a life insurance policy?
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Surrender the policy's cash value
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What is payable to a policyowner if a whole life policy is surrendered prior to its maturity date?
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The cash value
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Which life insurance policy provision allows a policyowner to cancel the policy within a limited time period and be given a full refund?
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Free-look period
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A policyowner is permitted to take out a policy loan on a whole life policy at what point?
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When the policy has a cash value
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After the extended term life nonforfeiture option is chosen, the available insurance will be
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level term for a stated period of time
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How may an insurance company classify an accidental death benefit on a life policy?
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As an optional policy rider
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How is the insured protected if a payor benefit rider is attached to the life insurance policy?
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Premium payments are waived in the event the premium payor dies or becomes disabled
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A policyowner has a life insurance policy where she had listed her age on the application as 5 years younger than her actual age. If she dies and the insurer discovers the misstatement of age, how much will the insurance company pay?
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Less than the face amount
