Which of these is NOT considered a type of limited payment whole life insurance?
Life paid-up at 65
20 payment life
15 payment life
Endowment at age 70
answer
Endowment at age 70
question
What kind of life policy typically offers mortgage protection?
Whole life
Decreasing term
Increasing term
Level term
answer
Decreasing
question
Which of these policies is considered a whole life policy?
Credit life
Single premium life
Renewable life
Convertible life
answer
single premium life
question
What kind of life insurance policy allows a policyowner the choice of investments along with flexible premium payments?
Variable universal life
Modified endowment contract
Adjustable life
Graded premium whole life
answer
Variable universal life
question
Straight whole life insurance can be accurately described in all of these statements EXCEPT
Policy protection normally expires at age 65
Nonforfeiture values are available to the policyowner
Provides level protection with level premiums
Cash value loans are permitted
answer
Policy protection expires at age 65
question
Which of these is NOT an advantage of term life insurance?
The greatest amount of coverage can be provided for the initial premium paid
It can be provided as a rider to another policy
A cash benefit will be provided if the insured is alive at the end of the policy period
Temporary insurance needs can be met
answer
cash benefit
question
Taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for
A cash value loan is taken out
Automatic premium loan provision is utilized
The policy is surrendered for less than what was paid into it
Dividend is issued
answer
the Policy is surrendred for less than what was paid into it
question
What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?
Joint and survivorship
Survivorship life
Universal life
Joint life
answer
JOINT
question
At what point are death proceeds paid in a joint life insurance policy?
When the first insured dies
When the second insured dies
Only after insurable interest has been confirmed to still exist
If both insureds die from the same accident
answer
when first dies
question
What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued?
$0
$50,000
Under $50,000 initially, but decreases annually over time
Under $50,000 initially, but increases over time
answer
under 50,000 increase over time
question
Which statement concerning a decreasing term life policy is accurate?
Cash value decreases over the policy period
Premium decreases over the policy period
Face amount decreases over the policy period
Face amount stays the same over the policy period
answer
face amount decreasees over the policy period
question
Which statement regarding whole life insurance is accurate?
Cash value loans are not permitted
Insurance coverage can continue for life
Policy normally matures at retirement
No cash value accumulations
answer
insurance coverage can continue forlife
question
When would evidence of insurability be required for a person already covered with a variable universal life policy?
The premium is increased
The policy has renewed
The death benefit is increased
The policy is being converted to permanent coverage
answer
the death benefiit is increased
question
Which of the following combinations best describe a universal life insurance policy?
A mutual fund and an endowment policy
A term insurance policy and a whole life policy
A modified endowment policy and an annual term insurance policy
A flexible premium deposit fund and a monthly renewable term insurance policy
answer
A flexible premium deposit fund and a monthly renewable term insurance policy
question
What would be considered an advantage of purchasing term life insurance?
Cash value can be borrowed against
The coverage is permanent
Nonforfeiture values are available
The initial premium is lower compared to the same amount of whole life coverage
answer
the initial premium in lower
question
A survivorship life insurance policy usually covers how many lives?
1
2
3
4
answer
2
question
Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes?
The gain is treated as taxable income and a penalty tax is imposed on the gain
The gain is treated as taxable income but no additional penalties are applied
The gain is not taxable but a penalty is assessed
Surrendering an MEC is considered a tax and penalty-free transaction
answer
The gain is treated as taxable income and a penalty tax is imposed on the gain
question
How long does one premium payment cover in a single premium whole life policy?
Until the policy's first renewal date
One month
One year
Entire life of the policy
answer
Entire life of policy
question
An insurance policy that can also be classified as a securities product is called
variable life
modified life
universal life
a Modified Endowment Contract
answer
variable life
question
A life policy that has premiums that are lower than normal during the early years is called
Decreasing term
Modified life
Variable life
Limited-pay life
answer
modified
question
Which of these life insurance policies do NOT contain cash value provisions?
Modified whole life
Universal life
Decreasing term life
Adjustable life
answer
decreasing
question
How are level term policies able to provide level premiums?
Policy dividends
Yearly policy fees
Yearly reductions in face amount
Premiums are averaged over the term of the policy
answer
Premiums are averaged over the term of the policy
question
When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for
Ten year term insurance for a person aged 55
Ten year term insurance for a person aged 45
Yearly renewable term insurance for a person aged 55
Yearly renewable term insurance for a person aged 45
answer
ten year for 55
question
Which of these is NOT a reason to buy a term life policy?
To pay a mortgage balance if an insured dies
To offer temporary protection
To offer low-cost insurance coverage
To accumulate savings
answer
to acculste saving
question
An individual who purchases a modified life insurance policy expects
a higher rate of return
coverage for two people
an improvement in future income
a flexible face amount
answer
an improvement in future income
question
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?
Remain the same
Decrease but never increase
Increase but never decrease
Fluctuate with changes in the cash account
answer
flucuate with changes in cash account
question
All of these statements concerning universal life insurance are false EXCEPT
Death benefits are normally taxable
Policy loans are not permitted
Premiums or face amount cannot be changed
Policy indicates how much of the premium is used toward company expenses
answer
Policy indicates how much of the premium is used toward company expenses
question
Who normally pays the premiums for group credit life insurance?
Creditor and borrower share the cost equally
Borrower
Creditor
Beneficiary
answer
borrower
question
What is a juvenile life insurance policy?
Coverage normally sold as a term rider
A life policy that covers the parents of a minor
A life policy that covers the life of a minor
A life policy that covers the lives of both the parents and their children
answer
Covers life of minor
question
An advantage of owning a flexible premium life insurance policy would be
Premiums are fixed for the first 5 years
The insurer can make policy changes without difficulty
The policyowner can make policy changes without difficulty
Evidence of insurability is required with any change in premium
answer
The policy owner can make policy changes without difficulty
question
When does the insured stop making payments under a thirty-payment whole life policy?
At the time of death or 30 years after the policy's inception, whichever comes first
It depends on the performance of the underlying investment account
When the cash value surpasses the face amount
At age 100
answer
At the time of death or 30 years after the policy's inception, whichever comes first
question
Which of these may NOT be deducted from premium payments or the cash value of a variable life insurance policy?
Mortality costs
Administrative charges
Investment management fees
Federal premium taxes
answer
Federal premium taxes
question
Which statement regarding a single premium life insurance policy is NOT correct?
No further premiums are necessary
Policy loans are permitted
Cash value is immediately created
Additional premiums may be required under certain conditions
answer
Additional premium may be required
question
Laura added a children's rider to her life insurance policy. What type of coverage was added?
Level term
Increasing term
Decreasing term
Juvenile term
answer
Level term
question
What is the guaranteed cash value of a whole life insurance policy when the insured turns 65 years old?
Greater than the policy's face amount
Less than the policy's face amount
Depends on the performance of the separate underlying investment account
Equal to the policy's face amount
answer
Less than the policys face amount
question
Which of these must be disclosed in a universal life policy?
Maximum coverage that can be purchased
The surrender charges
The commissions earned from the sale of the policy
The producer's license expiration date
answer
The surrender charges
question
Which of the following would NOT be a reason for purchasing life insurance on a child's life?
Provide benefits for the child if the parents die
Pay for the child's funeral expenses
Provide a start on the child's personal insurance
Help provide funds for the child's education
answer
Provide benefits for the child if the parent dies
question
Which of the following statements about universal life insurance is NOT true?
Death benefit can be increased
Premiums are flexible
Universal life insurance normally has a minimum guaranteed cash value for duration of the policy
The cash value interest rate must equal or exceed a guaranteed minimum value
answer
Universal life insurance normally has a minimum guaranteed cash value for duration of the policy
question
Which of the following is generally a form of group credit life insurance?
Decreasing term insurance
Increasing term insurance
Level term insurance
Whole life insurance
answer
decreasing
question
Which statement regarding an adjustable life insurance policy is NOT true?
Combines term and permanent insurance into a single plan
Allows flexibility as insurance needs change
Plan of coverage may be changed by the policyowner
Policy loans are not permitted
answer
Policy loans are not permitted
question
What type of premiums are associated with individual mortgage protection life insurance policies?
Level premiums
Flexible premiums
Modified premiums
Decreasing premiums
answer
level
question
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?
$16,000 was received as ordinary income and $4,000 as tax-free
$20,000 was received as a capital gain
$20,000 was received as ordinary income
$16,000 was received tax-free and $4,000 as ordinary income
answer
$16,000 was received tax-free and $4,000 as ordinary income
question
How does a continuous premium whole life policy differ from a limited pay whole life policy?
The time period in which premiums will be paid
The availability of cash value loans
The availability of nonforfeiture options
The settlement options
answer
The time period in which premiums will be paid
question
How long does protection normally extend to under a limited pay whole life policy?
It depends on the performance of the underlying investment account
When premiums are no longer required as stated in the contract
Until age 65
Until age 100
answer
until 100
question
Which statement regarding universal life insurance is correct?
Cash value accumulations have a guaranteed minimum interest rate
Policyowner can change the face amount but not the premium
Policyowner can change the premium but not the face amount
Partial withdrawals cannot be made from the policy's cash value
answer
cash value accumulations have a guarenteed minimum interest rate
question
These are all accurate statements regarding universal life insurance EXCEPT
Mortality charge is deducted from the policy's cash value each month
Policy loans are not permitted
Flexible premiums as long as the cost of insurance protection is covered
Policy states what percentage of the premium is contributed to the cash value and which pays for the cost of insurance
answer
Policy loans are not permitted
question
ll of these statements concerning group credit life insurance are false EXCEPT
Cash value loans are allowable
Dividends can reduce the premium payments
The face amount and premiums are flexible
The face amount is determined by the outstanding loan balance
answer
Face anount determined by outstanding loan balance
question
A policyowner has just borrowed from a life insurance policy's cash value. Which of these statements is true?
In the event of death, the loan amount is deducted from the policy proceeds
The policy lapses if not repaid within 5 years
A policyowner must pre-qualify for the loan to determine creditworthiness
Interest on the loan amount is prohibited
answer
In the event of death, the loan amount is deducted from the policy proceeds
question
Which is an accurate description of the premium in a graded premium life insurance policy?
Level premium for a stated number of years then increases annually for the remainder of the contract
Level premium for a stated number of years then decreases annually for the remainder of the contract
Annual decreases in premium for a stated number of years then levels off for the remainder of the contract
Annual increases in premium for a stated number of years then levels off for the remainder of the contract
answer
Annual increases in premium for a stated number of years then levels off for the remainder of the contract
question
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?
0%
25%
50%
100%
answer
100% - Funds withdrawn from an MEC are subject to last-in first-out (LIFO) tax treatment, which assumes that the investment or earnings portion of the contract's values is withdrawn first (making these funds fully taxable as ordinary income).
question
Which statement concerning an adjustable life insurance policy is FALSE?
Cash surrender is possible
Evidence of insurability is required when there is a change in premium
Combines term and permanent insurance into a single plan
An extra premium paid is allowable
answer
Evidence of insurability is required when there is a change in premium
question
All of these are considered features of whole life insurance EXCEPT
Cash value accumulation
Permanent coverage
Initial premium is lower than for an equivalent amount of term insurance
Policy loans are allowed
answer
Initial premium is lower than for an equivalent amount of term insurance -Correct. The initial cost of whole life insurance is actually HIGHER than an equivalent amount of term insurance.
question
Assets that back the non-guaranteed values of variable life insurance products are held in which account?
Trust account set up by the insured
Separate account set up by the insurer
General account of the insurer
Money market account
answer
Separate account set up by the insured -Assets that back the non-guaranteed values of variable life insurance products are held in a separate account set up by the insurer.
question
Which statement concerning adjustable life insurance is accurate?
Cash value loans are not permitted
The face amount and premiums can be changed simultaneously by the policyowner
Settlement options are limited
Only the face amount can be changed by the policyowner
answer
The face amount and premiums can be changed simultaneously by the policyowner- Adjustable life insurance combines features of both term and whole life coverage. Length of coverage, accumulated cash value, and the premiums can be adjusted to fit specific needs.
question
A material change in a modified endowment contract (MEC) results in
the contract becoming void
a new contestable period
the seven pay test, adjusted for cash value, being applied again
a tax penalty
answer
The seven pay test, adjusted for cash value, being applied again- Under the rules for an MEC, if there is a material change in the contract, the seven pay test applies again.
question
Which of these statements accurately portrays an adjustable life insurance policy?
Policy can alternate between forms of term and whole life insurance
Cash value loans are not permitted
Evidence of insurability required for conversion
Settlement options are limited
answer
Policy can alternate between forms of term and whole life insurance-Adjustable life insurance allows the policyowner to adjust the policy's face amount, premium, and type of protection without having to complete a new application or exchange policies. Example: converting a term policy to whole life or vice versa.
question
Which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)?
policy loans
claim on a death benefit
extended term settlement option
policyowner reaching the age of 70 1/2
answer
Policy Loans
question
The insurance coverage in a variable life insurance policy may vary based on the value of
the AM Best rating the company has received
its underlying investments
the consumer price index
the total premiums paid
answer
Its underlying investments
question
Under an adjustable life insurance policy, which of the following may NOT be changed without further underwriting?
The person insured
The period of coverage
The payment period
The plan of coverage
answer
The person insured
question
Which statement regarding the cash value of a whole life insurance policy is correct?
Can be borrowed against, starting in the policy's fifth year
Cash value accumulation is based on the performance of a separate investment account
Available to the policyowner when policy has been surrendered
Starts growing with the initial premium
answer
Available to the policy owner when policy has been surrendered
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