Life Insurance Premiums, Proceeds and Beneficiaries

6 July 2024
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question
Over the course of a year, which premium payment mode is most expensive? Monthly Quarterly Semi-Annually Annually
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Monthly
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Sharon is the policyowner of a $50,000 life insurance policy. Her son, Mike, is the beneficiary. If Sharon MUST obtain Mike's signature in order to change the beneficiary, what kind of beneficiary designation is this? Tertiary Contingent Revocable Irrevocable
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Irrevocable
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Level premium term life insurance policies build cash value in a separate account automatically convert to permanent insurance at a predetermined date automatically renew at predetermined dates have premiums that are averaged over the policy period
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have premiums that are averaged over the policy period
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Which settlement option involves having the proceeds remain with the insurer and earnings paid on a monthly basis to the beneficiary? interest only dividends only extended interest fixed period
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interest only
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If the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if the insured outlived the beneficiary the beneficiary outlived the insured both the insured and beneficiary died at the same time the estate was listed as beneficiary
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the insured outlived the beneficiary
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The premium payment mode that results in the highest overall cost would be monthly quarterly semi-annual annual
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monthlymonthly
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How does life insurance create an immediate estate? Cash value may be borrowed upon at any time Nonforfeiture options are immediately available The insured's estate receives the death benefit After first premium is paid, the face amount may be available to the beneficiary
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After first premium is paid, the face amount may be available to the beneficiary
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Naming a contingent beneficiary as "all surviving children" is described by which term? Contingent designation Primary designation Class designation Tertiary designation
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Class designation
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Which type of beneficiary should be named if the insured wants to give explicit directions on how the policy proceeds should be paid? Individual Group Class Estate
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Individual
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What is created after policy proceeds are obtained in a lump sum and then immediately invested? Viatical Settlement Emergency Fund Lump Sum Fund Estate
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Estate
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Purchasing a life insurance policy in order to avoid the forced sale of assets upon death is called estate funding capital withholding capital gains estate conservation
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estate conservation
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A policyowner is prohibited from making any changes to the policy without the beneficiary's written consent under which beneficiary designation? Contingent beneficiary Tertiary beneficiary Revocable beneficiary Irrevocable beneficiary
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Irrevocable beneficiary
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A policyowner can receive an immediate payment before the insured dies by using a(n) viatical settlement contract buy-sell arrangement adhesion agreement spendthrift plan
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viatical settlement contract
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An example of naming a beneficiary by class would be "To the children born of my union with Ned Jackson: David Jackson, Jennifer Jackson, and Scott Jackson" "To the child born of my union with Ned Jackson: Scott Jackson" "To the children born of my union with Ned Jackson" "To Ned Jackson"
answer
"To the children born of my union with Ned Jackson"
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A policyowner can receive a percentage payment of the death benefits prior to death by using what kind of contract? Viatical settlement agreement Funding medium agreement Split dollar plan Buy-sell plan
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Viatical settlement agreement
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Pat is insured with a life insurance policy and Karen is his primary beneficiary. They are both involved in an automobile accident where Pat dies instantly and Karen dies 5 days later. Which policy provision will protect the rights of the contingent beneficiary to receive the policy benefits? Nonforfeiture clause Common disaster clause Spendthrift clause Accident indemnity clause
answer
Common disaster clause
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Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors? Spendthrift Clause Protection Clause Viatical Clause Settlement Clause
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Spendthrift Clause
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Which of these is considered a major tax advantage of life insurance? Tax credits are available for life insurance premiums paid Annual earnings are tax free Premiums are tax deductible by an employee if paid for by an employer Income tax is typically not owed on proceeds paid directly to a beneficiary
answer
Income tax is typically not owed on proceeds paid directly to a beneficiary
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Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident? primary beneficiary's estate contingent beneficiary insured's estate children of the insured
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contingent beneficiary
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What would be an expense factor in an insurance program? Premiums collected Mortality costs Opportunity costs Investment interest
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Mortality costs
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How is the cost of a policy affected when a policyowner pays premiums more frequently? Not affected Increases Decreases Depends on the type of coverage
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Increases
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Proceeds from a life insurance policy are protected from the beneficiary's creditors by which clause? protection clause creditor clause spendthrift trust clause beneficiary trust clause
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spendthrift trust clause
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Which of these premium payment frequencies is not typically available to a policyowner? Bi-weekly Monthly Quarterly Semi-annual
answer
Bi-weekly
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Which of the following enables a life policy to be replaced with another life policy and results in the postponement of the tax consequence? Section 1040 exchange Section 1035 exchange Nonforfeiture Option Spendthrift Option
answer
Section 1035 exchange
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A tax-free Section 1035 Exchange of a life insurance policy to a different policy is permitted if it occurs in the same state as the original transaction within a 12 month period from insurer to insurer and no cash is received by the policyowner from agent to agent as long as the agents are licensed in the same line
answer
from insurer to insurer and no cash is received by the policyowner
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The premium payment mode that results in the least overall cost would be monthly quarterly semi-annual annual
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annual
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Which of these is affected by the frequency of an insurance policy's premium payments? Settlement options Cash value Death benefit Cost
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Cost
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A beneficiary has just received a claim payment for a life insurance policy. Which of the following is TRUE regarding the federal income tax liability owed? A flat tax of 10% is owed on all proceeds Federal income tax is owed if proceeds exceed $250,000 No federal income tax is owed on life insurance proceeds Tax liability owed depends on the type of life insurance policy
answer
No federal income tax is owed on life insurance proceeds
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What is the primary feature of a viatical settlement? No interest on policy loans Reduced death benefit prepayment Longer contestable period Lower premiums
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Reduced death benefit prepayment
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What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured? Policy Dividend Specified amount of money Policy's cash value Funeral expense fund
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Specified amount of money
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What happens to the total amount of premium paid for an insurance policy when the payment frequency increases? No difference in cost Decreases Increases Depends on the type of coverage
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Increases
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Which of these factors help determine an insured's life insurance premium? insured's salary marital status place of residence avocation (hobby)
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avocation (hobby)