CHAPTER 4 LIFE INSURANCE

The correct answer is "Provide funds to help pay taxes". (Survivorship life insurance policies are useful in estate planning because they can provide money to pay taxes on assets.)

survivorship life policy (Under a multiple protective policy, the policy that pays on the death of the last person is called a survivorship life policy.)

Pre-death distributions will become taxable (The tax consequence of a Modified Endowment Contract is pre-death distributions are likely to become taxable.)

A nonforfeiture option can be used to increase the death benefit (Increasing the death benefit by using one of the nonforfeiture options is not an option in an Adjustable Life Policy.)

Adjustable Life (Adjustable Life allows the policyowner to change two policy features: premium and face amount.)

stated payment insurance (Limited payment insurance is characterized by premiums that are fully paid up within a stated period, after which no further premiums are required.)

Last Survivor Life insurance (". Coverage of two or more individuals with the death benefit payable upon the last person's death is a feature of last survivor insurance.)

variable life insurance (A life insurance producer needs to possess a securities license to sell variable annuities.)

Family term insurance rider (A Family Term Insurance rider provides a death benefit if the spouse of the insured dies.)

Variable Whole Life (A Variable Whole Life policy has cash values that vary according to the investment performance of common stocks.)

$500,000 (". In this situation, the death benefit would be the $500,000 face amount.)

Pre-death distributions are typically taxable". (Failing to meet the seven-pay test results in pre-death distributions likely to become taxable.)

Endowment policy (". A type of life insurance policy which provides for the payment of the face amount at the end of the specified period if the insured is still alive is an endowment policy.)

provide coverage for a home mortgage (A common use for decreasing term life insurance is to cover a home mortgage.)

Separate account investments (Premium payments for a Universal life policy are NOT used for separate account investments.)

When a whole life policy is surrendered, income taxes may be owed (When a whole life policy is surrendered, income taxes may be owed". Income taxes may be due when a whole life policy is surrendered. This statement is true.)

decreasing term life (The least expensive option to pay off a 30-year mortgage balance would be decreasing term life.)

hedge against inflation (The securities component of index whole life insurance is considered an effective hedge against inflation.)

universal life (Universal life has a guaranteed interest rate with the possibility to earn an interest rate that is higher than the guaranteed rate.)

"Can be converted to permanent coverage without evidence of insurability". (An advantage of a children's term rider is the ability to convert to permanent insurance without evidence of insurability.)

Provide funds to help pay taxes

Whole life policy with premiums paid up after 20 years

A nonforfeiture option can be used to increase the death benefit

Coverage is eliminated

A modified life contract which enjoys all the tax advantages of whole life insurance (A Modified Endowment Contract (MEC) can be described as a life insurance contract that has accumulated cash values higher than the IRS allows.)

without producing proof of insurability (". If Term Life insurance is renewable, the policyowner is purchasing the right to renew the policy without showing proof of insurability.)

renewal

FAMILY TERM INS RIDER

equal the face amount of the policy

at a predetermined date or age, regardless of the insured's health (, regardless of the insured's health". Renewable Term Life insurance guarantees the policy can be renewed to a predetermined date or age, regardless of the insured's health status.)

When a whole life policy is surrendered, income taxes may be owed (Income taxes may be due when a whole life policy is surrendered. This statement is true.)

The shorter the payment period, the higher the premium

Equity index whole life (The type of policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index is equity index whole life.)

level premiums (A decreasing term policy is issued with a decreasing death benefit and level premiums.)

decreasing term life

Group policy (. A type of life insurance policy most commonly used by businesses for employees is a group policy.)

Which of these is NOT considered to be a common life insurance nonforfeiture option? (. All of these are common life insurance nonforfeiture options EXCEPT a life income annuity.)

accumulate without interest (Policyowner dividends normally accumulate WITH interest.)

Payor benefit (A payor benefit will waive the premium on a juvenile life insurance policy if the parent paying the premium dies.)

Accumulation at Interest Option (The Accumulation at Interest Option invests the policyowner's money and adds interest earnings to the initial amount of the dividends.)

commercial aviation (Life insurance policies routinely cover losses arising from commercial aviation.)

A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age (In this situation, the insurer must pay a prorated amount of the policy based on the amount of insurance the insured's premiums would have been if purchased at the correct age.)

the policy would be payable, minus the premium amount (. If the insured dies during the grace period and premiums have NOT been paid, the policy would be payable, less the premium amount.)

accidental death

revoke an absolute assignment

collateral assignment (A collateral assignment provision allows a person to temporarily give up a portion of their ownership rights to secure a loan.)

disability (Disability is not one of the standard exclusions found in life insurance policies.)

Grace period (The grace period is the amount of time an insurer continues coverage in full force and will accept the premium from the insured as though it was NOT late.)

the policy loan value which the insured may borrow against (The accumulated cash value of a whole life insurance policy becomes the policy loan value upon which the insured may borrow.)

Period of time after the premium is due but the policy remains in force (The grace period is a period of time after the premium is due but the policy remains in force.)

Entire Contract (The provision that the policy and a copy of an application is endorsed upon or attached to the policy when issued is the entire contract provision.)

the insured outlived the beneficiary (A common disaster provision states that if the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if the insured outlived the beneficiary. This allows the proceeds to go to the contingent beneficiary.)

minus indebtedness and without interest (The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid minus indebtedness and without interest.)

provide evidence of insurability to the insurer (. In order to activate the reinstatement clause of a lapsed life insurance policy, the insured must provide evidence of insurability to the insurer.)

nonforfeiture provision (. A nonforfeiture provision in a cash value life insurance policy allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type.)

partial surrender (A partial surrender allows the policyowner to withdraw the policy's cash value interest free.)