Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Insurance Sales Exam > Chapter 5: Beneficiaries and Settlement > Flashcards

Chapter 5: Beneficiaries and Settlement Flashcards

1
Q

TF: Beneficiaries….

The policyowner may name any person or legal entity as beneficiary.
More than one beneficiary may be named.
An estate, trust, charitable organization, institution or other legal entity may be named as a beneficiary.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

TF: the beneficiary must have an insurable interest in the life of the insured

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

TF: if the beneficiary is found guilty of murdering the insured, the death benefit pays out to the insured’s estate

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

One disadvantage to the beneficiary being the insured’s estate is that policy proceeds must go through _____ _____.

A

Probate Court

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

TF: a minor can be named as a beneficiary and receive policy proceeds upon the death of the insured

A

False - guardian or trustee appointed to manager the proceeds until the minor reaches legal age

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

If a guardian cannot be relied upon to manager a minors proceeds, a _____ can be set up.

A

Trust

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

TF: 3 options for insurers when dealing with minor beneficiaries: payments to adult guardian, keep the proceeds to accrue interest until the minor is old enough, or put proceeds in a trust for the minor.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

A _____ is a secure way to establish a scholarship fund, give money to an institution, or to ensure proceeds are disbursed exactly as the policyowner intends

A

Trust

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are examples of class designations for beneficiaries?

A

ALl my children
All my living siblings
All living and active players of the Wildcats team

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Two types of class designations for beneficiaries?

A

Per capita
Per Stirpes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

____ _____ is defined as “by the head”. Under this class designation, only the living heirs receive a portion of the policy proceeds.

A

Per Capita

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

____ ______ is defined as “by the root”. Under this class designation, deceased beneficiaries would have their portion of the policy proceeds distributed to their children. This means that the insured’s grandchildren are eligible to receive policy proceeds if the insured’s child predeceases the insured.

A

Per Stirpes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

TF: Primary = First in Line, Contingent = Second in Line

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Two types of beneficiaries?

A

Revocable
Irrevocable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

_______ beneficiaries - policyowner can change them without their consent

A

Revocable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

______ beneficiaries - policyowner must receive the beneficiary’s written consent to exercise any ownership rights (except for paying premiums), including changing beneficiaries.

A

Irrevocable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Two types of irrevocable beneficiaries?

A

Absolute
Reversionary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Considering irrevocable beneficiaries, ________ beneficiaries have a vested interest in the policy, even if they pre-decease the insured

A

Absolute

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Considering irrevocable beneficiaries, with ______ beneficiaries, the policyowner is NOT required to get the beneficiary’s written consent if the beneficiary predeceases the insured

A

Reversionary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

TF: Revocable beneficiaries can be removed at any time.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

TF: Changing a designated beneficiary can be done using a will.

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Two ways to request a change to beneficiary:

A

By filing with insurer
By an endorsement (changing the policy)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

In addition to a change in revocable beneficiary, the owner of a life insurance policy also has the power to make a policy loan or surrender the policy for its cash value, without the beneficiary’s consent. However, the policyowner may not increase the amount of the insurance without the beneficiary’s consent.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

_______ _____ ____ act - policy proceeds will be paid as if the primary beneficiary died first and the insured died last, in which case the policy proceeds are paid to the contingent beneficiaries or to the insured’s estate.

A

Uniform Simultaneous Death Act (when both the insured and primary beneficiary die at the same time)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

The ____ ____ clause protects the contingent beneficiaries’ rights by stipulating a certain number of days the primary beneficiary must outlive the insured after a common accident causing near-simultaneous death in order for the primary beneficiary to receive the policy proceeds; otherwise, the contingent beneficiaries receive the policy proceeds.

A

Common Disaster Clause

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Common Disaster Clause - the beneficiary must outlive the insured by _________ days

A

15-30 (otherwise, the contingent beneficiaries will get policy proceeds)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

The ______ clause is used to prevent creditors from seizing life insurance policy proceeds, provided there is at least one named beneficiary, excluding the insured’s estate. This clause protects the policy proceeds from the claims of the policyowner’s or beneficiary’s creditors.

A

Spendthrift (only protects policy proceeds paid in installments over time; it does NOT stop creditors from reaching benefits received in a lump sum payment)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

_____ of ____ provision: allows the insurer to choose a beneficiary if the insurer cannot get in contact with the named beneficiaries after a certain amount of time.

A

Facility of Payment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Abel and Raquel are married. Raquel owns a life insurance policy, naming her husband Abel as the primary beneficiary and her children from a prior marriage as contingent beneficiaries. According to the Uniform Simultaneous Death Act, who receives the death benefit if Abel and Raquel are in a car accident and there is no evidence of who died first?
Select one:
a. Abel’s estate
b. Raquel’s estate
c. Raquel’s children from her prior marriage
d. Abel’s children from his prior marriage

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Abigail and Bob have a joint life insurance policy. They name their three children, Simon, Stacey, and Terry as beneficiaries: Simon is primary, Stacey is secondary, and Terry is tertiary. If Abigail and Bob die in a car accident, who will receive the policy proceeds?
Select one:
a. Simon
b. Simon, Stacey and Terry
c. Terry
d. Stacey and Terry

A

A

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Roberta wants to buy a life insurance policy, naming her son Marvin as beneficiary, but she wants to keep all ownership rights under the policy. How should Roberta name Marvin as beneficiary?
Select one:
a. Roberta should name Marvin as an irrevocable beneficiary.
b. Roberta should name Marvin as a revocable beneficiary.
c. Roberta should name Marvin as a contingent beneficiary.
d. Roberta should not name Marvin as a beneficiary.

A

B

32
Q

It is important to specify beneficiary designations very carefully. Taking care when the policy is written will avoid problems later, such as:
Select one:
a. Litigation
b. Confusion
c. Conflicts
d. All of the above

A

D

33
Q

All of the following statements are true of beneficiary designations in a life insurance policy, EXCEPT:
Select one:
a. The policyowner may name any person or legal entity as a beneficiary.
b. Only one beneficiary may be named.
c. An estate, trust, charitable organization, institution or other legal entity may be named beneficiary.
d. The policyowner is not required to name a beneficiary.

A

B

34
Q

A life insurance policy is a contract between the insurer and the policyowner. After the insured has died, the contractual arrangement is between the insurer and the beneficiary. What responsibilities does the insurer have to the insured’s creditors?
Select one:
a. The proceeds pay creditors first.
b. The proceeds are split between the creditors and the beneficiary.
c. The proceeds stay with the insurer.
d. None

A

D

35
Q

If the primary beneficiary predeceases the insured, the policy proceeds are paid to the ________________ upon the death of the insured.

Select one:
a. Revocable beneficiary
b. Contingent beneficiary
c. Irrevocable beneficiary
d. Tertiary beneficiary

A

B

36
Q

Which of the following statements is not true about a revocable beneficiary on a life insurance policy?
Select one:
a. The policyowner can change without written consent of the beneficiary.
b. The policyowner cannot change the beneficiary without their knowledge.
c. The policyowner can assign a trust as a revocable beneficiary.
d. The policyowner can assign a minor as a revocable beneficiary.

A

B

37
Q

Which of the following types of life insurance beneficiary designations should be used to establish a scholarship fund?
Select one:
a. Estate
b. Trust
c. Minor
d. Named individual

A

B

38
Q

All of the following statements are false regarding the beneficiary designation of a life insurance policy, EXCEPT:
Select one:
a. The beneficiary does not need to have an insurable interest in the life of the insured.
b. The beneficiary must be a person.
c. The insurer names the beneficiary.
d. Only one beneficiary can be named in a life insurance policy.

A

A

39
Q

_____ _____ are the ways, other than lump sum, that life insurance policy proceeds are paid out to beneficiaries upon the insured’s death or when the policy endows.

A

Settlement Options

40
Q

Settlement options allow the policy proceeds to be retained by the ________ and paid out gradually

A

insurer

41
Q

What are the 5 settlement options?

A

Lump sum
Interest only
Fixed-period installments
Fixed-amount installments
Life income

42
Q

_____ ____ or _____ _____ - settlement option which is not taxable to the beneficiary

A

Cash Payment
Lump Sum

43
Q

_____ ____ - settlement option which pays a guaranteed installment as long as the recipient lives. Principal is forfeited upon death.

A

Life Income

44
Q

_____ ____ - settlement option which is temporary, until using one of the other settlement options

A

Interest Only

45
Q

______ ______ installments - Depletes funds over a fixed period (ex. 100k policy can be either 10k/year for 10 years, or 5k a year for 20 years).

A

Fixed Period

46
Q

______ ______ installments - Pays fixed amount until proceeds are exhausted (ex. 100k policy can be 5k/year for 20 years, 10k/year for 10 years, or 20k/year for 5 years).

A

Fixed Amount

47
Q

TF: Lump sum distribution is taxed upon receipt

A

False - no tax is paid on lump sum

48
Q

TR: the insurer assumes risk with the Life Income settlement option, as the beneficiary may live beyond their expected lifespan, and the insurer will have to continue payments out of pocket after the principal is exhausted

A

True

49
Q

What are the 6 main types of Life Income options?

A

Cash refund
Installment refund
Straight life
Life with period certain
Period certain
Joint and survivor

50
Q

What are the 3 qualifiers to receive accelerated benefits?

A

Is unable to perform at least two activities of daily living without assistance,
Has a disability, or
Is cognitively impaired and requires supervision to ensure health and safety.

51
Q

To receive accelerated benefits, a terminally ill person must be expected to die within ____ _____

A

2 years

52
Q

What act requires proceeds from accelerated benefits be exempt from federal income tax?

A

HIPPA 1996

53
Q

A _____ _____ is when a terminally or chronically ill insured can sell their life insurance policy to a third party in exchange for payment of a large portion of the death benefit.

A

Viatical Settlement

54
Q

What percentage of the death benefit might an insured person receive in a viatical settlement?

A

50-80%

55
Q

Who requires that proceeds from a viatical settlement are exempt from federal income tax?

A

HIPAA 1996

56
Q

_____ ____ works the same as a viatical settlement; however, the insured is NOT terminally or chronically ill

A

Life Settlements

57
Q

TF: Life insurance benefits are paid to a beneficiary tax free, with the exception of interest earned on re-invested policy proceeds, which is subject to taxation

A

True

58
Q

TF: Like interest, dividends are also subject to taxation.

A

False, dividends are a return of overcharged premiums, which were paid using post-tax dollars

59
Q

TF: If a policy contains a double indemnity rider or paid-up additions, those proceeds are also tax exempt

A

True

60
Q

If a life insurance policy is assigned for valuable consideration and the insured under the life insurance policy dies, the new owner of the policy will be responsible for paying taxes on the amount of proceeds paid (including premiums that were paid by the original owner) that exceed the valuable consideration. What is this called?

A

Transfer for Value Rule

61
Q

Exceptions to the Transfer for Value Rule:

A

Transfers to the insured,
Transfers to a business partner of the insured, or
Transfers to a corporation in which the insured is a stockholder or officer.

62
Q

TF: When a life insurance policy is surrendered for its cash value, taxes apply to any portion of the proceeds that exceed the cost basis. Policy proceeds received as an accelerated death benefit or viatical settlement for chronically or terminally ill insureds are not subject to federal income tax.

A

True

63
Q

TF: for chronically ill insureds there is a maximum amount, indexed annually, that may be tax-sheltered for an accelerated benefit.

A

True

64
Q

TF: gains earned on exchanges of life insurance policies, endowments, or annuities are typically subject to taxation

A

True

65
Q

What three exchanges can occur without tax consequences?

A

Life insurance policies may be exchanged for another life insurance policy or endowment.
Endowments may be exchanged for another endowment.
Annuities may be exchanged for another annuity.

66
Q

TF: Upon the insured’s death, life insurance and any accumulated dividends are includable in the insured’s gross estate for federal estate tax purposes.

A

True

67
Q

_______________ allow the policy proceeds to be retained by the insurer and paid out gradually.
Select one:
a. Settlement options
b. Policy loan provisions
c. Policy exclusions
d. Premium payment modes

A

A

68
Q

Which life insurance settlement option uses an annuity to pay policy proceeds to the beneficiary for a set number of years?
Select one:
a. Interest only
b. Period certain
c. Fixed-amount installment
d. Life income

A

B

69
Q

Which of the following is false regarding the period certain life insurance settlement option?
Select one:
a. Longer payment periods result in lower payments.
b. Income is guaranteed for the entire period specified.
c. The fixed-period, or period certain, installment option uses an annuity to pay the policy proceeds to the beneficiary for a certain number of years.
d. If the recipient dies before the period ends, the remaining balance is forfeited.

A

D

70
Q

For period certain settlement option, If the recipient dies before the period ends, then a contingent beneficiary would continue to receive payments until the period lapses.

A

True

71
Q

Which of the following is not a living benefits option for using cash value in a life insurance policy?
Select one:
a. Accelerated benefits
b. Viatical settlements
c. 1035 policy exchange
d. Life Settlement

A

C

72
Q

What life insurance settlement option permits the insurer to retain the policy proceeds, which become principal, and pays out only the growth on the principal to the beneficiary on a regular basis?
Select one:
a. Interest only
b. Period certain
c. Fixed-amount installment
d. Life income

A

A

73
Q

What happens if a policyowner does not specify a settlement option for their life insurance policy?
Select one:
a. The policy will be canceled and marked void.
b. The life income settlement option will be automatically selected.
c. The policy proceeds default to lump-sum payment.
d. The period certain option is used.

A

C

74
Q

Which of the following best describes which individual(s) are permitted to choose the settlement option for a life insurance policy?
Select one:
a. The policyowner
b. The insurance company
c. The beneficiary
d. Both the beneficiary and the policyowner

A

D

75
Q

Which settlement option pays the growth on the principal in installments?
Select one:
a. Interest-only
b. Fixed-period installments
c. Fixed-amount installments
d. Life income

A

A

76
Q

This annuity provides a husband and wife with lifetime income while either spouse is alive:
Select one:
a. Refund life annuity
b. Joint and survivor annuity
c. Life annuity with period certain
d. Life income certain

A

B

77
Q

Which life insurance settlement option uses an annuity to pay policy proceeds in which the payment amount is specified instead of a period of time?
Select one:
a. Interest only
b. Period certain
c. Fixed-amount installment
d. Life income

A

C

Insurance Sales Exam (44 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions