Lesson 4 - Life Insurance Premiums, Proceeds & Beneficiaries

Question 1

An architecture firm would stand to lose a lot of money in the event of the death of its project manager. Which type of policy should the firm purchase on its project manager?

a. universal life insurance
b. key person insurance
c. graded insurance
d. executive insurance

Answer 1

Key person insurance

Key person insurance is a type of life insurance policy that provides a death benefit to a business if its owner or another significant employee passes away.

Question 2

Which of these needs is satisfied by adjustable life insurance?

a. insured’s need for level premiums
b. insured’s need for flexible premiums
c. insured’s need for flexible non-forfeiture options
d. insured’s need for level death benefits

Answer 2

insured’s need for flexible premiums

As financial needs and objectives change, the policy owner can make adjustments to the premium and/or face amount.

Question 3

N is a 40-year old applicant who would like to retire at age 70. He is looking to buy a life insurance policy with level premiums, permanent protection, and be paid-up at retirement. Which of these should N purchase?

a. 30 pay life
b. term to age 70
c. universal life
d. adjustable life

Answer 3

30 pay life

limited pay whole life policies have level premiums that are limited to a certain period.

Question 4

Variable whole life insurance can be described as:

a. both an insurance and securities product
b. an insurance product only
c. a securities product only
d. the insurance company assumes the investment risk

Answer 4

both an insurance and securities product

variable whole life is both an insurance and securities product

Question 5

Credit life insurance is typically issued with which of the following types of coverage?

a. annual renewable term
b. decreasing term
c. individual whole life
d. group term

Answer 5

decreasing term

the type of insurance used for credit life is typically decreasing term, with the term matched to the length of the loan period.

Question 6

Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit?

Universal life
Variable life
Fixed annuity
Modified endowment contract

Answer 6

Variable life

The variable nature of a variable whole life insurance is its death benefit. However, if investment performance is poor, the death benefit will not go lower than the policy’s guaranteed minimum.

Question 7

What type of insurance offers permanent life coverage with premiums that are payable for life?

Credit Life
Renewable Term Life
Whole Life
Endowment

Answer 7

Whole Life

A policy that provides permanent life insurance with premiums payable for life is called Whole Life.

Question 8

K is shopping for a permanent life insurance policy that will offer her the MOST protection per dollar of annual premium. Which of these policies best fits her needs?

Endowment
Straight life
10-Year Renewable Term
Joint life

Answer 8

Straight life insurance

Straight life insurance policies provide an insured the greatest amount of permanent protection per dollar of annual premium.

Question 9

J is 35-years old and looking to purchase a whole life insurance policy. Which of the following types of policies, will provide the most rapid growth of cash value?

Life Paid-up at Age 70
20-pay Life
Increasing Term to age 65
Straight Life

Answer 9

20 pay life

The shorter the pay period, the faster the cash value growth.

Question 10

Term Life Policies that have the ability to be converted to permanent coverage may do so during a specific time period. This conversion period

may be altered by the policyowner
is controlled by the NAIC
is the same in all contracts
varies according to the contract

Answer 10

varies according to the contract

The conversion period varies according to the contracts.

Question 11

What does a Face Amount Plus Cash Value Policy pay upon the insured’s death?

Face amount plus the policy’s cash value

Face amount plus the policy’s dividends

The greater amount of the policy’s death benefit or the cash value

Face amount plus total premium paid throughout the life of the policy

Answer 11

Face amount plus the policy’s cash value

A Face Amount Plus Cash Value Policy is a contract that promises to pay at the insured’s death the face amount of the policy plus a sum equal to the policy’s cash value,

Question 12

Which type of policy is considered to be overfunded, as stated by IRS guidelines?

Modified Whole Life

Modified Endowment Contract

Variable Universal Life

Interest-Sensitive Whole Life

Answer 12

Modified Endowment Contract

A policy that is overfunded to where it does not meet the 7-pay test is considered a Modified Endowment Contract.

Question 13

Additional coverage can be added to a Whole Life policy by adding a(n):

payor rider

accelerated benefit rider

decreasing term rider

automatic premium loan rider

Answer 13

decreasing term rider

A decreasing term rider can add additional coverage to a whole life policy.

Question 14

A variable insurance policy:

guarantees a minimum rate of return

does not allow the policyowner to assume the investment risk

does not guarantee a return on its investment accounts

does not guarantee an assignment provision

Answer 14

does not guarantee a return on its investment accounts

In contrast, variable insurance products do not guarantee contract cash values, and it is the policyowner who assumes the investment risk. Variable life insurance contracts do not make any promises as to either interest rates or minimum cash values.

Question 15

K is looking to purchase Renewable Term insurance. Which of these types of Term insurance may be renewable?

Increasing

Decreasing

Adjustable

Level

Answer 15

Level

A level term policy pays the same benefit amount if death occurs at any point during the term. Level term policies may be renewable.

Question 16

Qis looking to buy a life insurance policy that will provide the greatest amount of protection for a emporary time period. Which of these policies should Q purchase?

Term life

Straight life

Endowment

Annuity

Answer 16

Term life

Term life provides the greatest amount of protection for a temporary period.

Question 17

Under a Renewable Term policy:

the face amount is automatically adjusted at the time of renewal

evidence of insurability must be provided at each renewal

The renewal premium is calculated on the basis of the insured’s attained age

a new application must be completed at each renewal

Answer 17

the renewal premium is calculated on the basis of the insured’s attained age

Under a Renewable Term policy, the renewal premium is calculated on the basis of the insured’s attained age.

Question 18

Which statement is correct regarding the premium payment schedule for whole life policies?

Premiums are payable throughout the insured’s lifetime/ coverage lasts until death of the insured

Premiums are payable for a set period/ coverage expires at that point

Premiums are payable until age 65/ coverage lasts a lifetime

A single premium is paid at time of application/ coverage lasts until retirement

Answer 18

Premiums are payable throughout the insured’s lifetime/ coverage lasts until death of the insured

With whole life insurance, premiums are payable throughout the insured’s lifetime, and coverage continues until the insured’s death.

Question 19

The combination of Whole Life and Term insurance is referred to as a Family Income Policy

Decreasing

Universal

Variable

Level

Answer 19

Decreasing Term insurance

A Family Income Policy is a combination of Whole Life and Decreasing Term insurance.

Question 20

A(n) Life policy combines investment choices with a form of Term coverage

Straight Whole

Variable Universal

Variable Term

Adjustable Universal

Answer 20

Variable Universal

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