life Flashcards
(30 cards)
A Return of Premium life insurance policy is:
Variable life
interest-sensitive
a Nonforfeiture option
Whole life and Increasing term
The correct answer is “Whole life and Increasing term”. A Return of Premium life insurance policy is whole life insurance with a death benefit rider of increasing term insurance equal to the amount of premiums paid. If the insured dies within the period of term, the beneficiary will receive face amount plus the value of all paid premiums.
A(n) _____ rider may be used to include coverage for children under their parents’ life insurance policy.
Conversion
Term
Payor
Parent
The correct answer is “Term”. A Term rider may be used to include coverage for children under their parents’ life insurance policy.
Which of these is NOT an element of Life insurance premiums?
Mortality (Risk of Death)
Interest Earnings
Operating Expenses
The Common Disaster clause provides that if both the insured and the sole named beneficiary were to die in a common accident, which of the following is true?
This clause provides the payment of proceeds to the insured’s estate
The estate taxes in the insured’s estate may be reduced
This clause provides the payment of proceeds to the beneficiary’s estate
The estate taxes in the beneficiary’s estate may be reduced
Correct. This clause provides the payment of proceeds to the insured’s estate. The Common Disaster clause provides that in the event of simultaneous death, the beneficiary is presumed to die first and therefore the contingent beneficiary would be next in line for proceeds. If no contingent beneficiary, then the proceeds would be paid to the insured’s estate.
An insured’s inability to perform two or more activities of daily living may trigger which type of life policy rider?
Accelerated death benefit
Accidental
Waiver of premium
Long term care
The correct answer is “Long term care”. A long term care rider is triggered by the insured’s inability to perform two or more activities of daily living.
K’s whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policy’s reinstatement EXCEPT
K must pay back interest and premiums
K must provide evidence of insurability
K will forfeit the right to use the automatic loan provision upon reinstatement
K must reinstate within a stated period
All of these statements concerning reinstatement is correct EXCEPT “K will forfeit the right to use the automatic loan provision upon reinstatement”.
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?
Pay face amount minus the past due premium
Collect premium from M’s estate
Deny the claim
Subtract past due premium from cash value
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.
what are the 4 participating policies
Dividends
Uses for Dividends
Permanent Coverage
With-Profits” Policy
Participating policies are life insurance contracts—usually whole life insurance—that allow policyholders to share in the insurer’s profits through dividends. These dividends are typically paid out annually and are based on the insurance company’s financial performance each year.
M has an insurance policy that also has an outstanding policy loan at the time of M’s death. The insurer will deduct the outstanding loan balance from the:
cash value
nonforfeiture value
policy proceeds
estate of the insured
policy proceeds
If M has an outstanding policy loan at the time of death, the insurer will deduct the loan balance (plus any accrued interest) from the policy proceeds—that is, from the death benefit paid to the beneficiary. The remaining amount after the deduction is what the beneficiary receives.
Main Types of Life Insurance
Term Life Insurance
Whole Life Insurance
Universal Life Insurance
Variable Life Insurance
Final Expense Insurance
How are policyowner dividends treated in regards to income tax?
Taxed as capital gains
Dividends are not taxable
Interest on accumulations is taxed
Taxed as ordinary income
Interest on accumulations is taxed
Policyowner dividends from life insurance are generally not taxable because the IRS treats them as a return of premiums you paid into the policy, not as income. However, there are two important exceptions:
If the total dividends you receive ever exceed the total premiums you have paid, the excess is taxable as income.
If you leave dividends with the insurer to accumulate interest, the interest earned on those dividends is taxable as ordinary income in the year it is credited to your account.
Which statement is true regarding a minor beneficiary?
Normally, the death proceeds are required to be held in trust until the beneficiary reaches the age of 21
The minor must pay the debts of the insured’s estate before receiving any of the proceeds
The minor is entitled to receive the death proceeds immediately
Normally, a guardian is required to be appointed in the Beneficiary clause of the contract
The correct answer is “Normally, a guardian is required to be appointed in the Beneficiary clause of the contract”. In most cases, insurers require that a guardian be appointed in the Beneficiary clause of the policy or that a guardian be designated in the will.
How are surrender charges deducted in a life policy with a rear-end loaded provision?
Deducted when assigned to another policyowner
Deducted from the death benefit
Deducted when the policy is discontinued
Deducted from policy’s cash value
The correct answer is “Deducted when the policy is discontinued”. In a policy with a rear-end loaded provision, surrender charges are deducted when the policy is discontinued.
A whole life insurance policyowner does not wish to continue making premium payments. Which of the following enables the policyowner to sell the policy for more than its cash value?
Cash surrender
Life settlement contract
1031 Exchange
Buy-sell arrangement
The correct answer is “Life settlement contract”. A Life settlement contract allows a policyowner to sell a life insurance policy for more than its cash value.
What is the underlying concept regarding level premiums?
The early years are charged more than what is needed
Level premiums can only be paid annually
The early years are charged less than what is needed
Level premiums build cash value quicker in the early years
The correct answer is “The early years are charged more than what is needed”. The concept of level premiums charges more than needed in early years.
What are Nonforfeiture
Cash Surrender Value
Reduced Paid-Up Insurance
Extended Term Insurance
Automatic Premium Loan (if available)
In a Life insurance contract, an insurance company’s promise to pay stated benefits is called the:
Consideration clause
Insuring clause
Owner’s rights
Entire Contract
The correct answer is “Insuring clause”. The insuring clause in a Life insurance contract establishes the basic promise of the insurance company.
S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy?
Term rider
Family income rider
Return of premium rider
Accelerated death benefit rider
The correct answer is “Return of premium rider”. In this situation, a return of premium rider was included on the policy.
Which of the following statements is CORRECT about accelerated death benefits?
Must have a terminal illness to qualify
Those on Social Security disability automatically qualify for this benefit
The full face amount is available as an accelerated benefit
This provision is usually provided with an increase in premium
The correct answer is “Must have a terminal illness to qualify”. Accelerated death benefits provide for the early payment of some portion of the policy face amount should the insured suffer from a terminal illness or injury.
K owns a Whole Life policy. If K wants an increasing Death Benefit to protect against inflation, which Dividend Option should she chose?
Cash Option
Accumulate with Interest
Reduced Premiums
Paid-Up Additional Insurance
The correct answer is “Paid-Up Additional Insurance”. In this situation, Paid-Up Option should be selected.
A policyowner would like to change the beneficiary on a Life insurance policy and make the change permanent. Which type of designation would fulfill this need?
Revocable
Contingent
Irrevocable
Primary
The correct answer is “Irrevocable”. An irrevocable designation may not be changed without the written consent of the beneficiary.
S has a Whole Life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made?
Waiver of Premium
Grace Period
Assignment
Automatic Policy Loan
The correct answer is “Automatic Policy Loan”. The Automatic Policy Loan provision will keep a Whole Life policy in force if a required premium payment is not made and there is sufficient cash value.
The free-look provision begins
upon the date of the sales presentation
upon receipt of the policy by the policyowner
upon receipt of the policy by the producer
upon the completion of the application
The correct answer is “upon receipt of the policy by the policyowner”. When delivering the policy, the agent needs to explain that the free-look provision begins upon receipt of the policy by the policyowner.
The advantage of reinstating an original life policy is
the interest charged on policy loans will be lowered
the premiums are based on a younger age
a new incontestable period will begin
the premiums are based on the current age of the insured
The correct answer is “the premiums are based on a younger age”. The advantage of reinstating an original life policy is the premiums are based on a younger age.
