Life Insurance Policies

Question 1

Any employee insured under a group life insurance plan is normally

required to show proof of insurability
covered with term life insurance
given a master certificate
covered on a noncontributory basis

Answer 1

Employees covered under a group life plan are normally insured with term insurance.

Question 2

Group life insurance is typically issued as

whole life insurance
level term insurance
increasing term insurance
decreasing term insurance

Answer 2

Group life insurance is typically issued as level term insurance, which provides a fixed amount of coverage throughout the term of the contract.

Question 3

What are premiums for group credit life insurance based on?

The average age of the borrower over the life of the debt
The age of the borrower at the time debt is incurred
The age of the borrower when debt is paid off
Flat rate unrelated to the borrower’s age

Answer 3

Premiums for group credit life insurance are based on claims experience and expense factors, not necessarily the borrower’s age.

Question 4

What minimum percentage of all eligible employees must participate in a group life insurance plan if the premiums are completely paid for by the employer?

50%
100%
0%
75%

Answer 4

correct answer is “100%”. If group life insurance premiums are completely paid for by the employer, the minimum percent of eligible employees required to be covered is 100%.

Question 5

If an employer pays for accidental death and dismemberment insurance for its employees, the amount paid by the employer is generally

considered taxable income to each employee
tax deductible to the business
partially deductible to the business
non-deductible to the business

Answer 5

The amount that an employer pays for their employees’ accidental death and dismemberment insurance is deductible to the business.

Question 6

Which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)?

claim on a death benefit
policy loans
extended term settlement option
policyowner reaching the age of 70 1/2

Answer 6

If a policy is classified an MEC, policy loans will be subject to penalty taxes.

Question 7

What typically changes at the re-entry option date found in some term life policies?

contestable period
amount of coverage
beneficiary
premium

Answer 7

A re-entry option gives the insured the opportunity to provide evidence of insurability at the end of the term to qualify to renew the policy at a lower premium.

Question 8

What is an insurance contract that identifies individuals by relationship to a specific organization?

Industrial insurance
COBRA plan
Employer insurance
Group insurance

Answer 8

An insurance policy that covers individuals of a particular organization is called group insurance.

Question 9

When would evidence of insurability be required for a person already covered with a variable universal life policy?

When the premium is increased
When policy is being converted to permanent coverage
When the policy has renewed
When the death benefit is increased

Answer 9

Evidence of insurability is normally required when the death benefit is increased in a variable universal life policy.

Question 10

Which statement about group life insurance is INCORRECT?

A minimum number of employees participating may be required
Each participant requires evidence of insurability
Employer is issued a master policy
Cost can be shared between employer and employee

Answer 10

Evidence of insurability is NOT normally required of each participant in group life insurance.

Question 11

Which of the following would NOT be a reason for purchasing life insurance on a child’s life?

Provide benefits for the child if the parents die
Help provide funds for the child’s education
Provide a start on the child’s personal insurance
Pay for the child’s funeral expenses

Answer 11

An insurance policy on a child would not pay any benefits if one or both of the parents died. All of the other answers are valid reasons for buying life insurance on a child.

Question 12

Which of the following statements about universal life insurance is NOT true?

Premiums are flexible
Universal life insurance normally has a minimum guaranteed cash value for duration of the policy
Death benefit can be increased
The cash value interest rate must equal or exceed a guaranteed minimum value

Answer 12

All of these statements about universal life insurance are true EXCEPT “Universal life insurance normally has a minimum guaranteed cash value for duration of the policy”.

Question 13

Which statement regarding the certificate of insurance is accurate?

It indicates evidence of an employee’s insurance coverage
It is an insurance contract between the employer and insurer
It is issued by the employer to the employee
Each certificate of insurance is underwritten on an individual basis

Answer 13

It indicates evidence of an employee’s insurance coverage”. The certificate of insurance serves as evidence of an employee’s coverage in a group life plan.

Question 14

Which of these statements accurately portrays an adjustable life insurance policy?

Cash value loans are not permitted
Evidence of insurability required for conversion
Settlement options are limited
Policy can alternate between forms of term and whole life insurance

Answer 14

Adjustable life insurance allows the policyowner to adjust the policy’s face amount, premium, and type of protection without having to complete a new application or exchange policies. Example: converting a term policy to whole life or vice versa.

Question 15

Why do insurers require a minimum number of employees participate in a group insurance plan?

Profits are maximized
Efficiency is maximized
Minimize adverse selection
Claims are minimized

Answer 15

The larger the group to be insured, the more predictable will be the expected losses from the group.

Question 16

Which statement regarding universal life insurance is correct?

Policyowner can change the premium but not the face amount
Cash value accumulations have a guaranteed minimum interest rate
Partial withdrawals cannot be made from the policy’s cash value
Policyowner can change the face amount but not the premium

Answer 16

The correct answer is “Cash value accumulations have a guaranteed minimum interest rate”. Cash value accumulations are subject to a minimum interest guarantee in universal life insurance.

Question 17

An employer has a group life coverage for his employees. How would an employee in poor health be treated in this situation?

Eligible for the same type of coverage as the other employees
Must pay a rating based on risk
Approved on a graded basis
Not eligible for insurance on this plan

Answer 17

Group insurance policies are not written on an individual basis so an employee in poor health is eligible for the same coverage as the other employees in the group

Question 18

Which type of life insurance policy allows a policyowner the choice of investments along with flexible premium payments?

Variable universal life
Graded premium whole life
Modified endowment contract
Adjustable life

Answer 18

Variable universal life involves a guaranteed death benefit plus premium and investment flexibility.

Question 19

The conversion option for group term insurance may be exercised by an employee

at any time while still employed
after providing proof of insurability
within 2 years of the hire date
within 31 days of terminated employment

Answer 19

An employee has 31 days after terminated employment to exercise the conversion option.

Question 20

Which type of policy can group term life insurance normally be converted to?

An individual permanent life insurance policy
An individual renewable policy
An individual level term policy
A group permanent life insurance policy

Answer 20

Group term insurance can typically be converted to a permanent individual life insurance policy.

Question 21

Which statement regarding the cash value of a whole life insurance policy is correct?

Starts growing with the initial premium
Available to the policyowner when policy has been surrendered
Can be borrowed against, starting in the policy’s fifth year
Cash value accumulation is based on the performance of a separate investment account

Answer 21

Cash value is available to policyowners when policies are surrendered.

Question 22

A “premature” distribution from a modified endowment contract (MEC) incurs a penalty tax of

17.50%
5%
20%
10%

Answer 22

Penalty taxes (10%) on premature distributions prior to age 59 1/2 from a modified endowment contract (MEC) normally apply to policy loans.

Question 23

A life policy that has premiums that are lower than normal during the early years is called

Decreasing term
Variable life
Limited-pay life
Modified life

Answer 23

Modified life has premiums that are lower than normal during the early years of the policy.

Question 24

Which type of life insurance policy is best suited for paying off the outstanding balance of a 30-year mortgage in the event of the insured’s death?

30-year increasing term
30-year decreasing term
30-year whole life
30-year endowment

Answer 24

Decreasing term life insurance provides a death benefit that gradually decreases over the span of the policy. Decreasing term life insurance is commonly used for paying off an outstanding mortgage balance in the event of an insured’s death (mortgage insurance).

Question 25

A nonparticipating whole life insurance policy was surrendered for its $20,000 cash value. The total premiums paid had totaled $16,000. What were the federal income tax consequences to the policyowner on receipt of the cash value? $20,000 was received as ordinary income $20,000 was received as a capital gain $16,000 was received as ordinary income and $4,000 as tax-free $16,000 was received tax-free and $4,000 as ordinary income

Answer 25

In this situation, the policyowner would receive $16,000 tax free and $4,000 as ordinary income.

Question 26

All of these statements concerning group credit life insurance are false EXCEPT The face amount is based on the outstanding loan balance Cash value loans are allowable Dividends can reduce the premium payments The face amount and premiums are flexible

Answer 26

The amount of credit life insurance applied for is based on the outstanding loan balance amount.

Question 27

A survivorship life insurance policy usually covers how many lives? 2 3 1 4

Answer 27

Survivorship life insurance policies insure the lives of two people. It is a variation of a joint life policy that also insures the lives of two people.

Question 28

How are level term policies able to provide level premiums? Policy dividends Premiums are averaged over the term of the policy Yearly reductions in face amount Yearly policy fees

Answer 28

Level term policies are able to offer level premiums because the premiums are averaged over the term of the policy.

Question 29

Assets that back the non-guaranteed values of variable life insurance products are held in which account? General account of the insurer Separate account set up by the insurer Money market account Trust account set up by the insured

Answer 29

Assets that back the non-guaranteed values of variable life insurance products are held in a separate account set up by the insurer. The assets that back the non-guaranteed values of variable life insurance products are held in a separate account managed by the insurance company, which functions similarly to a mutual fund and allows policyholders to choose from various investment options like stocks and bonds; the performance of these investments directly impacts the cash value of the policy.

Question 30

How long does protection normally extend to under a limited pay whole life policy? It depends on the performance of the underlying investment account Until age 100 When premiums are no longer required as stated in the contract Until age 65

Answer 30

Under a limited payment whole life insurance policy, protection usually continues to age 100.

Question 31

The insurance coverage in a variable life insurance policy may vary based on the value of the AM Best rating the company has received its underlying investments the total premiums paid the consumer price index

Answer 31

The amount of insurance protection in a variable life insurance policy may vary according to the value of its underlying investments.

Question 32

These are all accurate statements regarding universal life insurance EXCEPT Mortality charge is deducted from the policy's cash value each month Flexible premiums as long as the cost of insurance protection is covered Policy loans are not permitted Policy states what percentage of the premium is contributed to the cash value and which pays for the cost of insurance

Answer 32

Policy loans are allowed in universal life insurance policies.

Question 33

A policyowner has just borrowed from a life insurance policy's cash value. Which of these statements is true? A policyowner must pre-qualify for the loan to determine creditworthiness The policy lapses if not repaid within 5 years Interest on the loan amount is prohibited In the event of death, the loan amount is deducted from the policy proceeds

Answer 33

If a life insurance policyowner borrows the cash value of a policy, the amount of the loan outstanding is deducted from the policy proceeds.

Question 34

What is the guaranteed cash value of a whole life insurance policy when the insured turns 65 years old? Equal to the policy's face amount Less than the policy's face amount Depends on the performance of the separate underlying investment account Greater than the policy's face amount

Answer 34

When an insured reaches the age of 65, the guaranteed cash value of a whole life policy will be less than the face amount of the policy.

Question 35

An insurance policy that can also be classified as a securities product is called modified life universal life variable life a Modified Endowment Contract

Answer 35

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

Question 36

John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income? 50% 0% 100% 25%

Answer 36

Funds withdrawn from an MEC are subject to last-in first-out (LIFO) tax treatment, which assumes that the investment or earnings portion of the contract's values is withdrawn first (making these funds fully taxable as ordinary income).

Question 37

Which of these must be disclosed in a universal life policy? The commissions earned from the sale of the policy The producer's license expiration date The policy's surrender charges Maximum coverage that can be purchased

Answer 37

The surrender charges of a universal life policy must be disclosed.

Question 38

At what point are death proceeds paid in a joint life insurance policy? If both insureds die from the same accident Only after insurable interest has been confirmed to still exist When the second insured dies When the first insured dies

Answer 38

A joint life policy covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured, at which time the policy terminates.

Question 39

Which of these policies is considered a whole life policy? Renewable life Single premium life Credit life Convertible life

Answer 39

A single-premium life policy is considered a type of whole life insurance.

Question 40

How does a continuous premium whole life policy differ from a limited payment whole life policy? The availability of nonforfeiture options The time period in which premiums will be paid The settlement options The availability of cash value loans

Answer 40

The feature that separates a continuous premium whole life policy from a limited payment whole life policy is the length of time premiums will be paid.

Question 41

Which statement concerning adjustable life insurance is accurate? The face amount and premiums can be changed simultaneously by the policyowner Cash value loans are not permitted Settlement options are limited Only the face amount can be changed by the policyowner

Answer 41

Adjustable life insurance combines features of both term and whole life coverage. Length of coverage, accumulated cash value, and the premiums can be adjusted to fit specific needs.

Question 42

Rick owns a variable universal life policy and chooses a variable death benefit option. What will typically happen to the death benefit as a result of this selection? Fluctuate with changes in the cash account Decrease but never increase Remain the same Increase but never decrease

Answer 42

When a variable universal life policyowner selects a variable death benefit option, the death benefit generally will fluctuate with changes in the cash account.

Question 43

Which statement concerning an adjustable life insurance policy is FALSE? Evidence of insurability is required when there is a change in premium An extra premium paid is allowable Cash surrender is possible Combines term and permanent insurance into a single plan

Answer 43

All of these statements about an adjustable life insurance policy are true EXCEPT "Evidence of insurability is required when there is a change in premium".

Question 44

How does the cost for a survivorship life policy compare to the cost of combining two separate individual life insurance policies? Depends on the investment performance of the underlying accounts Both have the same actuarial costs Survivorship life policy is higher Survivorship life policy is lower

Answer 44

Compared to the combined premium for separate life insurance policies on two individuals, the premium for a survivorship life policy is lower.

Question 45

What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued? Under $50,000 initially, but increases over time Under $50,000 initially, but decreases annually over time $0 $50,000

Answer 45

The correct answer is "Under $50,000, but increases annually until fully insured". The initial face amount of a $50,000 graded death benefit life insurance policy is under $50,000, but increases annually until fully insured.

Question 46

Who normally pays the premiums for group credit life insurance? Creditor and borrower share the cost equally Beneficiary Creditor Borrower

Answer 46

The correct answer is "Borrower". The borrower typically pays the premiums on any credit life insurance policy.

Question 47

What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured? Survivorship life Joint life Universal life Joint and survivorship

Answer 47

A joint life insurance policy covers two or more individuals with the face amount payable upon the death of the first insured.

Question 48

Laura added a children's rider to her life insurance policy. What type of coverage was added? Decreasing term Increasing term Level term Juvenile term

Answer 48

The correct answer is "Level term". Level term is provided by adding a children's rider to a life insurance policy.

Question 49

Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes? The gain is treated as taxable income but no additional penalties are applied The gain is treated as taxable income and a penalty tax is imposed on the gain Surrendering an MEC is considered a tax and penalty-free transaction The gain is not taxable but a penalty is assessed

Answer 49

If an MEC is surrendered prior to age 59 1/2, the gain is taxable as well as a 10% penalty imposed on that gain.

Question 50

What would be considered an advantage of purchasing term life insurance? Cash value can be borrowed against The initial premium is lower compared to an equivalent amount of whole life coverage Nonforfeiture values are available The coverage is permanent

Answer 50

The initial premium is typically lower on a term policy than for the same amount of whole life insurance.

Question 51

A material change in a modified endowment contract (MEC) results in the seven pay test, adjusted for cash value, applies again the contract becoming void a tax penalty a new contestable period

Answer 51

Under the rules for an MEC, if there is a material change in the contract, the seven pay test applies again.

Question 52

Which is an accurate description of the premium in a graded premium life insurance policy? Annual decreases in premium for a stated number of years then remains level Annual increases in premium for a stated number of years then remains level Level premium for a stated number of years then decreases annually for the remainder of the contract Level premium for a stated number of years then increases annually for the remainder of the contract

Answer 52

With a graded premium life insurance policy, the premium increases yearly for a stated number of years then remains level.

Question 53

All of these are considered features of whole life insurance EXCEPT Cash value accumulation Permanent coverage Policy loans are allowed Initial premium is lower than for an equivalent amount of term insurance

Answer 53

The initial cost of whole life insurance is actually HIGHER than an equivalent amount of term insurance.

Question 54

Which of the following combinations best describe a universal life insurance policy? A term insurance policy and a whole life policy A modified endowment policy and an annual term insurance policy A mutual fund and an endowment policy A flexible premium deposit fund and a monthly renewable term insurance policy

Answer 54

The correct answer is "A flexible premium deposit fund and a monthly renewable term insurance policy". A universal life insurance policy can be described most accurately as a combination of a flexible premium deposit fund and a monthly renewable term insurance policy.

Question 55

An advantage of owning a flexible premium life insurance policy would be Premiums are fixed for the first 5 years The insurer can make policy changes without difficulty The policyowner can make policy changes without difficulty Evidence of insurability is required with any change in premium

Answer 55

One advantage of owning a flexible-premium life insurance policy is that changes may be made without difficulty by the policyowner.

Question 56

Under an adjustable life insurance policy, which of the following may NOT be changed without further underwriting? The person insured The payment period The plan of coverage The period of coverage

Answer 56

All of these may normally be changed without further underwriting in an adjustable life insurance policy EXCEPT for "The individual who is insured".

Question 57

What type of premiums are associated with individual mortgage protection life insurance policies? Level premiums Modified premiums Flexible premiums Decreasing premiums

Answer 57

Decreasing term policies are normally used for mortgage protection life insurance to which the premium remains level, but the coverage decreases over time.

Question 58

An individual who purchases a modified life insurance policy expects a flexible face amount coverage for two people a higher rate of return an improvement in future income

Answer 58

The purpose of modified whole life policies is to make the initial purchase of permanent insurance easier and more attractive, especially for individuals who have limited financial resources, but the promise of an improved financial position in the future.

Question 59

Which of the following could be a future use of the cash value that builds in a recently-purchased whole life insurance policy? Gives policyowner ability to borrow against funds within two years Increases the policy's face amount Provide supplemental income in 35 years Convert the cash value to a paid-up term policy

Answer 59

The correct answer is "Provide supplemental income in 35 years". Whole life policies typically begin to accrue cash value during the 3rd year after issue. The cash value that accumulates can be used to supplement income during retirement years.

Question 60

Which of the following is a TRUE statement regarding universal life insurance? Policy loans are not permitted Premiums or face amount cannot be changed Policy indicates how much of each premium is used toward company expenses Death benefits are normally taxable

Answer 60

Premium payments are separated and paid toward the insurance protection. The loading cost and the remaining balance is used to build the cash value. Unlike other policies, universal life insurance is transparent about how your premiums are allocated, showing you how much goes towards company expenses, cash value accumulation, and the death benefit.

Question 61

When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for Yearly renewable term insurance for a person aged 55 Ten year term insurance for a person aged 45 Yearly renewable term insurance for a person aged 45 Ten year term insurance for a person aged 55

Answer 61

A ten year renewable term policy permits the policyowner to renew the same coverage for another ten years at the end of the first ten-year term. The premiums for the renewal period will be higher than the initial period.

Question 62

Which of these is NOT a reason to buy a term life policy? To pay a mortgage balance if an insured dies To offer low-cost insurance coverage To accumulate savings To offer temporary protection

Answer 62

All of these are valid reasons for purchasing term insurance EXCEPT to accumulate savings.

Question 63

When does the insured stop making payments under a thirty-payment whole life policy? At the time of death or 30 years after the policy's inception, whichever comes first It depends on the performance of the underlying investment account When the cash value surpasses the face amount At age 100

Answer 63

Under a thirty-payment whole life insurance policy, the insured stops paying premiums at the earlier of date of death or 30 years after the policy's inception.

Question 64

Which of these is NOT considered a type of limited payment whole life insurance? 15 payment life Life paid-up at 65 Endowment at age 70 20 payment life

Answer 64

All of these are forms of limited payment whole life insurance policies EXCEPT an Endowment at age 70.

Question 65

What is a juvenile life insurance policy? A life policy that covers the life of a minor A life policy that covers the lives of both the parents and their children Coverage normally sold as a term rider A life policy that covers the parents of a minor

Answer 65

A juvenile life insurance policy is a life insurance policy that insures the life of a minor. Also known as child life insurance, is a permanent life insurance policy that covers a minor. It's a financial tool to protect a family from unexpected costs and to help build a financial foundation for the child. How it works The policy is usually owned by the adult who purchases it. The child is the insured, but they technically don't own the policy. The parent or guardian is the beneficiary. The policy lasts for the child's life, as long as premiums are paid. The policy can be transferred to the child when they become an adult.

Question 66

Which of these may NOT be deducted from premium payments or the cash value of a variable life insurance policy? Administrative charges Federal premium taxes Investment management fees Mortality costs

Answer 66

All of these are allowable deductions to be made from premium payments or the cash value of a variable life insurance policy EXCEPT Federal premium taxes.

Question 67

Which statement regarding a single premium life insurance policy is NOT correct? Additional premiums may be required under certain conditions Policy loans are permitted No further premiums are necessary Cash value is immediately created

Answer 67

Only one premium payment is required with a single premium life insurance policy.

Question 68

Which statement regarding an adjustable life insurance policy is NOT true? Policy loans are not permitted Combines term and permanent insurance into a single plan Plan of coverage may be changed by the policyowner Allows flexibility as insurance needs change

Answer 68

If the adjustable life policy has cash value, the policyowner is permitted to take out a policy loan.