Chapter 3 Life

Question 1

Credit Life insurance is

Answer 1

issued in an amount not to exceed the amount of the loan

Question 2

What type of life insurance incorporates flexible premiums and an adjustable death benefit?

Answer 2

Universal Life

Question 3

When applied to Whole Life insurance, the word “straight” denotes

Answer 3

The duration of premium payments

Question 4

M purchases a $70,000 Life Insurance Policy with premium payments of $550 a year for the first 5 years. At the beginning of the sixth year, the premium will increase to $800 per year but will remain level thereafter. The face amount will remain at $70,000 throughout the life of the policy. The type of policy that M has purchased is

Answer 4

“Modified Premium Life”. Modified whole life policies are distinguished by premiums that are lower than typical whole life premiums during the first few years (usually five) and then higher than typical thereafter.

Question 5

K purchased a $10,000 Life Policy that will pay the face amount to her if she lives to age 65, or to her beneficiary if she dies before age 65. K purchased which type of policy?

Answer 5

Endowment policy. Characterized by cash values that grow at a rapid pace so that the policy matures or endows at a specified date or (before age 100).

Question 6

A 42-year-old executive wants to purchase life insurance that will allow for increases or decreases to coverage as his/her needs change. Which policy will best meet this need?

Answer 6

Universal life - characterized by flexible premiums and an adjustable death benefit.

Question 7

If X wants to buy $50,000 worth of permanent protection on his/her spouse and $25,000 worth of 10-year Term coverage on X under the same policy, the applicant should purchase

Answer 7

A Whole Life Policy with an Other Insured Rider

Question 8

Which policy BEST identifies one in which the cash value may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors?

Answer 8

Universal Life policy - has a cash value that may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors.

Question 9

A Whole Life Insurance Policy endows when the

Answer 9

Cash value plus dividends equal the death benefit

Question 10

The Universal Life Policy is called an unbundled Life Policy because the policyholder can see the expense charges, the interest earned, and the

Answer 10

Cost of insurance

Question 11

Which policy combines investment choices with a form of Term coverage?

Answer 11

Variable Universal Life - combines investment choices with a form of Term coverage.

Question 12

Interest Sensitive Whole Life

Answer 12

There is a flexible premium payment - An Interest-Sensitive Whole Life policy is characterized by premiums that vary to reflect the insurer’s changing assumptions regarding its death, investment, and expense factors.

Question 13

A Family Income Policy is a combination of Whole Life and

Answer 13

Decreasing Term insurance

Question 14

When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n)

Answer 14

Exclusion

Question 15

J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which provision?

Answer 15

Reinstatement provision - In cases where a policyowner wishes to reinstate a lapsed policy, the reinstatement provision allows the policyowner to do so with some limitations.

Question 16

T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?

Answer 16

$50,000

Question 17

M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take?

Answer 17

Pay face amount minus the past due premium - In this situation, the insurer would pay the death benefit less the past-due premium because death occurred within the grace period.

Question 18

D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D’s wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?

Answer 18

Ex-wife - D’s ex-wife is still the beneficiary of this policy, even though policy ownership has changed to his current spouse.

Question 19

In a life insurance policy, which provision states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy?

Answer 19

Owner’s Rights - states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy.

Question 20

Which Nonforfeiture option continues a build-up of cash value?

Answer 20

Reduced Paid-Up

Question 21

Which policy may NOT have the Automatic Premium Loan provision attached to it?

Answer 21

Decreasing Term

Question 22

A Life Insurance applicant is also a recently licensed pilot. If the insurance company offers an Aviation rider for an additional $5 premium and the applicant refuses it, the company will probably issue a contract that contains a(n)

Answer 22

Aviation Exclusion

Question 23

A Life Insurance Policy can be assigned for use as collateral ONLY by the

Answer 23

Policyowner

Question 24

The Incontestable clause prevents a life insurance company from voiding a life insurance contract after

Answer 24

2 years

Question 25

A purpose of a Grace Period clause in a Life Insurance Policy is to

Answer 25

Avoid an unintentional lapse of the policy