Under a Modified Endowment Contract, what are the likely tax consequences?
Interest on policy loans is tax deductible
Premium payments are tax deductible
Pre-death distributions will become taxable
Cash value cannot be surrendered early
answer
Pre-death distributions will become taxable
question
The statement which best describes the relationship between the premiums of a whole life policy and the premium payment period is
The shorter the payment period, the lower the premium
The longer the payment period, the higher the premium
The shorter the payment period, the higher the premium
The payment period has no affect on the premium payment
answer
The shorter the payment period, the higher the premium
question
Which of these riders will pay a death benefit if the insured's spouse dies?
Guaranteed Insurability rider
Family term insurance rider
Family whole insurance rider
Payor benefit rider
answer
Family term insurance rider
question
All of these are characteristics of a universal life insurance policy EXCEPT
Flexible death benefit
All of these are characteristics of a universal life insurance policy EXCEPT
Flexible death benefit
Fixed surrender value
Flexible premiums
Builds cash value
answer
Fixed surrender value
question
Variable life insurance and Universal life insurance are very similar. Which of these features are held exclusively by variable universal life insurance?
Policyowner may increase or decrease the premium payments
Policyowner may increase or decrease the face amount
Policyowner can contribute large sums of money
Policyowner has the right to select the investment which will provide the greatest return
answer
Policyowner has the right to select the investment which will provide the greatest return
question
Level premium permanent insurance accumulates a reserve that will eventually
equal the face amount of the policy
pay a dividend to the policyowner
require the policyowner to make periodic withdrawals
become larger than the face amount
answer
equal the face amount of the policy
question
Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive?
Adjustable life policy
Modified life policy
Endowment policy
Universal life policy
answer
Endowment policy
question
Peter has a 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. What kind of policy is this?
Modified Endowment Contract
Current assumptive whole life
Credit life insurance
Equity index whole life
answer
Equity index whole life
question
A Renewable Term Life insurance policy can be renewed
at a predetermined date or age, regardless of the insured's health
only if the insured provides evidence of insurability
anytime at the policyowner's request
typically with no change in premium
answer
at a predetermined date or age, regardless of the insured's health
question
A renewable Term Life insurance policy allows the policyowner the right to renew the policy
at anytime the policyowner chooses
as many times as the policyowner chooses
paying the same premium as before the renewal
without producing proof of insurability
answer
without producing proof of insurability
question
Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test?
Policy loans are disallowed
The premium payments will be tax deductible
Pre-death distributions are typically taxable
Withdrawals will be prohibited
answer
Pre-death distributions are typically taxable
question
What is the automatic continuance of insurance coverage referred to as?
renewal
reinstatement
resumption
renovation
answer
renewal
question
Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)?
Loan against the cash value
Policy withdrawal
Policy dividend
Death benefit
answer
Death benefit
question
A Modified Endowment Contract (MEC) is best described as
A life insurance contract which accumulates cash values higher than the IRS will allow
An annuity contract which was converted from a life insurance contract
A modified life contract which enjoys all the tax advantages of whole life insurance
A life insurance contract where all withdrawals prior to age 65 are subject to a 10% penalty
answer
A life insurance contract which accumulates cash values higher than the IRS will allow
question
A spouse and child can be added to the primary insured's coverage as what kind of rider?
Dependent term
Guaranteed insurability
Primary term
Family term
answer
Family term
question
The premium for a Modified whole life policy is
higher than the typical whole life policy during the first few years and then lower than typical for the remainder
lower than the typical whole life policy during the first few years and then higher than typical for the remainder
normally graded over a period of 20 years
level for the first 5 years then decreases for the remainder of the policy
answer
lower than the typical whole life policy during the first few years and then higher than typical for the remainder
question
Krissa purchases a 10-year level term life insurance policy that has a death benefit of $200,000. Which of these statements is true?
The policy automatically converts to whole life after the 10-year period
The face amount will remain constant and the premium will increase over the 10-year period
The premium will remain constant and the face amount will increase over the 10-year period
The face amount and premium will remain constant over the 10-year period
answer
The face amount and premium will remain constant over the 10-year period
question
A policyowner may change two policy features on what type of life insurance?
Modified Whole Life
Decreasing Term Life
Adjustable Life
Whole Life
answer
Adjustable Life
question
Which of the following are the premium payments for a Universal life policy NOT used for?
Death benefits
Cash value
Loading costs
Separate account investments
answer
Separate account investments
question
A securities license is required for a life insurance producer to sell
modified life insurance
Modified Endowment Contracts (MEC)
variable life insurance
universal life insurance
answer
variable life insurance
question
A life insurance policy written on one contract for two people in which it is payable upon the first death is called
Split
Shared
Joint
Survivorship
answer
Joint
question
All of these statements concerning whole life insurance are false EXCEPT
Policyowner can take out a policy loan up to the face amount
When a whole life policy is surrendered, income taxes may be owed
Coverage is normally temporary
The death benefit is not affected by outstanding loans
answer
When a whole life policy is surrendered, income taxes may be owed
question
Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested?
Adjustable life policy
Variable universal policy
Universal policy
Modified whole life policy
answer
Variable universal policy
question
Joe has a life insurance policy that has a face amount of $300,000. After a number of years, the policy's cash value accumulates to $50,000 and the face amount becomes $350,000. What kind of policy is this?
Increasing Term Life policy
Nonparticipating policy
Modified Whole Life policy
Universal Life policy
answer
Universal Life policy
question
A life insurance policy that has premiums fully paid up within a stated time period is called
stated payment insurance
limited universal insurance
stated modified insurance
limited payment insurance
answer
limited 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.)
question
Which type of life insurance is normally associated with a Payor Benefit rider?
Juvenile insurance
Family income insurance
Spouse insurance
Term rider
answer
Juvenile insurance
question
What happens to the coverage under a children's term rider when that child reaches a certain specified age?
Coverage decreases automatically
Coverage increases automatically
Coverage remains as long as proof of insurability is provided
Coverage is eliminated
answer
Coverage is eliminated
question
Shawn, Mike, and Dave are brothers who have a $100,000 "first to die" joint life policy covering all three of their lives. If Mike dies first, the policy proceeds
will no longer provide insurance protection
will go to Mike's estate
will be divided by probate
will not be paid until the last brother dies
answer
will no longer provide insurance protection
question
A life insurance policy which contains cash values that vary according to its investment performance of stocks is called
Increasing Term Life
Modified Whole Life
Variable Whole Life
Adjustable Whole Life
answer
Variable Whole Life
question
All of these are valid options for an Adjustable Life Policy EXCEPT
The policy's premium can be increased or decreased
The policy's death benefit can be increased or decreased
A nonforfeiture option can be used to increase the death benefit
The policy's protection period can be modified
answer
A nonforfeiture option can be used to increase the death benefit
question
The least expensive option to pay off a 30-year mortgage balance would be
convertible term life
decreasing term life
adjustable term life
increasing term life
answer
decreasing term life
question
How are survivorship life insurance policies helpful in estate planning?
Provide funds to help fund retirement
Provide funds to help pay taxes
Provide funds for funeral expenses
Provide tax deductions for premium payments
answer
Provide funds to help pay taxes
question
Index whole life insurance contains a securities component that acts as a(n)
hedge against inflation
premium stabilizer
means to lowering taxes on earnings
incentive to purchase more coverage
answer
hedge against inflation
question
Term insurance is appropriate for someone who
seeks living benefits for themselves
seeks a policy that builds cash value
seeks temporary protection and lower premiums
seeks permanent protection and higher premiums
answer
seeks temporary protection and lower premiums
question
The type of multiple protection coverage that pays on the death of the last person is called a(n)
joint life policy
survivorship life policy
annuity joint policy
dual life policy
answer
survivorship life policy
question
A life insurance policy that is subject to a contract interest rate is referred to as
adjustable life
group life
term life
universal life
answer
universal life
question
Julie has a $100,000 30-year mortgage on her new home. What type of life insurance could she purchase that is designed to pay off the loan balance if she dies within the 30-year period?
Adjustable life insurance
Decreasing term insurance
Increasing term insurance
Modified life insurance
answer
Decreasing term insurance
question
A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called
whole life
group life
credit life
universal life
answer
universal life
question
Which type of policy combines the flexibility of a universal life policy with investment choices?
Adjustable universal life policy
Flexible universal life policy
Variable universal life policy
Modified universal life policy
answer
Variable universal life policy
question
When a decreasing term policy is purchased, it contains a decreasing death benefit and
increasing premiums
level premiums
decreasing premiums
variable premiums
answer
level premiums
question
Which of the following policies does NOT build cash value?
Term
Straight Life
Endowment
Variable Life
answer
Term
question
A permanent life insurance policy where the policyowner pays premiums for a specified number of years is called a(n)
adjustable policy
limited pay policy
level term policy
variable universal policy
answer
limited pay policy
question
Decreasing term life insurance is often used to
provide retirement funds
provide coverage for a home mortgage
accumulate cash value
provide coverage for estate taxes
answer
provide coverage for a home mortgage
question
Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be
$250,000
$750,000
$375,000
$500,000
answer
$500,000
question
The type of policy which pays on the death of the last person is called
joint life
survivorship life
dual life
shared life
answer
survivorship life
question
Which policy feature makes a universal life policy different from a whole life policy?
A fixed cash value
A flexible premium schedule
A fixed death benefit
The ability to take out a policy loan
answer
A flexible premium schedule
question
What does the word "level" in Level Term describe?
The period of coverage
The face amount
The premium payments
The cash value
answer
The face amount
question
A business will typically use which type of life insurance to cover their employees?
Group policy
Adjustable life policy
Whole life policy
Endowment policy
answer
Group policy
question
What types of life insurance are normally used for key employee indemnification?
term, whole, and universal life insurance
increasing term insurance
joint, credit, and group life insurance
adjustable, permanent, and limited-pay life insurance
answer
term, whole, and universal life insurance
question
Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider?
Can be converted to permanent coverage without evidence of insurability
Coverage can be different for each child
Premiums on this rider are not required until the limiting age is reached
Increases the policy's overall cash value
answer
Can be converted to permanent coverage without evidence of insurability
question
Which of these would be the best example of a limited pay life insurance policy?
Whole life policy that pays out its cash value over a 20 year period
Whole life policy with premiums paid up after 20 years
Term life policy that returns cash value after 20 years
Term life policy with premiums paid up after 20 years
answer
Whole life policy with premiums paid up after 20 years
question
What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death?
Dual Life insurance
Joint Life insurance
Last Survivor Life insurance
Shared Life insurance
answer
Last Survivor Life insurance
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