Xcel Lesson 3 - Life Insurance Policies - Provisions, Options & Riders

Question 1

Which of these would be considered a limited-pay life policy?

a. 10-year renewable and convertible term
b. life paid-up at age 70
c. straight whole life
d. renewable term to age 100

Answer 1

life paid-up at age 70

An example of limited-pay life policy is a life paid-up at age 70

Question 2

How does a typical variable life policy investment account grow?

a. tied to price of gold
b. through mutual funds, stocks, bonds
c. based on returns from insurer’s general account
c. tied to treasury bill

Answer 2

through mutual funds, stocks, bonds

A variable life policy has investment values based instruments such as mutual funds, stocks, and bonds

Question 3

Which policy requires an agent to register with the National Association of Securities Dealers (SASD) before selling?

a. variable life
b. credit life
c. universal life
d. interest-sensitive whole life

Answer 3

variable life

because the transfer of investment risk from the insurer to the policyowner, variable insurance products are considered Securities contracts as well as insurance contracts.

Question 4

what type of life insurance gives the greatest amount of coverage for a limited period of time?

a. term life
b. graded premium whole life
c. whole life
d. endowment policy

Answer 4

term life

term insurance would provide the greatest amount of protection for a limited period of time.

Question 5

Who has the option to renew a renewable term policy?

a. agency
b. agent
c. insured
d. beneficiary

Answer 5

insured

a renewable term policy is renewable at the option of the insured

Question 6

y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10-year term coverage for his wife on the same policy. Which of these policies did y purchase?

a. endowment with extended term
b. endowment with a payor benefit
c. whole life policy with an other insured rider
d. family income policy

Answer 6

whole life policy with an other insured rider

in this situation, the applicant purchased a whole life policy with an other insured rider.

Question 7

a company that owns a life insurance policy on one of its key employees may do all the following EXCEPT

a. borrow against cash value
b. change beneficiary
c. cancel policy
d. change the policy’s interest rate

Answer 7

change the policy’s interest rate

the company may do all of these things with a key person insurance policy EXCEPT “change the policy’s interest rate”

Question 8

which of these describe a modified endowment contract (MEC)?

a. falls below the minimum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract
b. exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract
c. the 7-pay test is used to determine the minimum death benefit of the policy
d. the 7-pay test is used to determine the maximum death benefit of the policy

Answer 8

exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract

policies that do not meet the 7-pay test are considered MEC’s and will lose favorable tax treatment. The test is designed to discourage premium schedules that would result in a paid-up policy before the end of a seven year period.

Question 9

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

a. credit life
b. renewable term life
c. whole life
d. endowment

Answer 9

whole life

a policy that provides permanent life insurance with premiums payable for life is called whole life.

Question 10

S, age 40, is looking to buy a life insurance policy that will allow for increases or decreases in coverage as his needs change. The policy best suited for S would be

a. straight life
b. universal life
c. an endowment
d. modified whole life

Answer 10

universal life

universal life insurance is characterized by flexible premiums and an adjustable death benefit

Question 11

when a life insurance policy exceeds certain IRS table values, the result would create which of the following?
a. 1035 exchange
b. an investment
c. modified endowment contract (MEC)
d. endowment

Answer 11

modified endowment contract (MEC)

when a life insurance policy exceeds certain IRS table values, the result would create a modified endowment contract (MEC).

Question 12

which for the following information is NOT required to be included in a whole life policy?

a. policy’s loan interest rate
b. policy’s guaranteed dividend table
c. policy’s premium
d. policy’s cash value table

Answer 12

policy’s guaranteed dividend table

All of this information must be included in a whole life policy EXCEPT for “policy’s guaranteed dividend table”

Question 13

under an interest sensitive whole life policy

a. premiums are determined by the policyowner
b. no cash value ever accrues
c. the policy normally renews every 10 years
d. cash values are determined by interest rates

Answer 13

cash values are determined by interest rates

under an interest sensitive whole life policy, the cash value accrues according to market value, except in the case of some companies which offer a guaranteed interest rate independent of markets

Question 14

The investment gains from a universal life policy usually go toward:

a. the death benefit
b. the dividends
c. the cash value
d. paying off a policy loan

Answer 14

the cash value

in a universal life policy, income is usually directed toward the cash value.

Question 15

When is the face amount of a whole life policy paid?

a. at the policy’s maturity date only
b. when the insured dies or at the policy’s maturity date, whichever happens first
c. only when the insured dies
d. when the policy is surrendered

Answer 15

when the insured dies or at the policy’s maturity date, whichever happens first

The face amount of a whole life policy will be paid when the insured dies or on maturity of the policy, whichever occurs first.

Question 16

How long does the coverage normally remain on a limited-pay life policy?

a. age 65
b. age 100
c. when premium payments stop
d. at the discretion of the insurer

Answer 16

age 100

even though the premium payments are limited to a certain period, the insurance protection extends until the insured’s death, or to age 100

Question 17

Which is true concerning a variable universal life policy?

a. policyowner controls where the investment will go and selects the amount of the premium payment
b. policyowner has no say where the investment will go but can choose the premium mode
c. the investment vehicle for this type of policy is held in the insurer’s general portfolio
d. the death benefit can vary but the policyowner has no say in the premium amount paid

Answer 17

policyowner controls where the investment will go and selects the amount of the premium payment

with variable universal life, the policyowner controls the investment of cash values and selects the timing and amount of premium payments.

Question 18

A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision?

a. payor provision
b. accelerated benefits provision
c. assignment provision
c. waiver of premium provision

Answer 18

payor provision

a payor provision provides that in the event of death or disability of the adult premium payor, the premiums on a juvenile policy will be waived until the insured child reaches a specified age or the maturity date of the contract.

Question 19

A limited-pay life policy has:

a. graded death benefits
b. no cash value
c. premium payments limited to a specified number of years
c. premium payments limited to a specified number of years
d. premium payments that are paid to age 100

Answer 19

premium payments limited to a specified number of years

in a limited-pay life policy, premium payments are limited to a specified number of years

Question 20

the most important factor to consider when determining whether to convert term insurance at the insured’s attained age or the insured’s original age is:

a. the cost
b. the health of the insured
c. the amount of coverage being converted
d. who will be beneficiary

Answer 20

the cost

the cost of insurance is the most important when an insured owner is trying to decide whether to convert term insurance at the insured’s original age or the insured’s attained age.