Life Insurance Ch. 3 – Life Policies & Life Provisions

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

C. Modified Endowment Contract (MEC)

What kind of life insurance product covers children under their parent’s policy?
A. Family Maintenance rider
B. Term rider
C. Family Income rider
D. Payor benefit

B. Term Rider

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

A. both an insurance and securities product

When is the face amount paid under a Joint Life and Survivor policy?
A. when policy reaches maturation
B. upon death of the first insured
C. upon death of the last insured
D. when one of the insureds becomes disabled and no longer able to make premium payments

C. upon death of last insured

K is looking to purchase Renewable Term insurance. Which of these types of Term insurance may be renewable?.
A. Increasing
B. Decreasing
C. Adjustable
D. Level

D. Level

F needs life insurance that provides coverage for only a limited amount of time with a death benefit that changes regularly according to a schedule. What kind of policy is needed?
A. Level term policy
B. Whole life policy
C. Limited-pay policy
D. Decreasing term policy

D. Decreasing term policy

What type of policy would offer a 40-year old the quickest accumulation of cash value?
A. Paid-up at 65
B. 20-pay life
C. 30-pay life
D. Straight whole life

B. 20-pay life

Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?
A. Joint Life
B. Adjustable Life
C. Variable Universal Life
D. Universal Life

C. Variable Universal Life

Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?
A. Modified Whole Life
B. Variable Life
C. Universal Life
D. Adjustable Life

B. Variable Life

A Family Income Policy is a combination of Whole Life and
A. Decreasing Term insurance
B. Level Term insurance
C. Deposit Term insurance
D. Increasing Term insurance

A. Decreasing Term insurance

Life insurance that covers an insured’s whole life with level premiums paid over a limited time is called
A. Adjustable Life
B. Renewable Term
C. Limited Pay Life
D. Joint Life

C. Limited Pay Life

What type of life policy covers two people and pays upon the death of the last insured?
A. Shared
B. Survivorship
C. Adjustable
D. Joint

B. Survivorship

What kind of life insurance starts out as temporary coverage but can be later modified to permanent coverage without evidence of insurability?
A. Endowment policy
B. Limited-Pay Whole life
C. Convertible Term
D. Decreasing Term

C. Convertible Term

L, aged 50, and L’s spouse, 48, have one natural child and one adopted child. They purchase a Family Policy that covers L’s spouse to age 65. A death benefit will NOT be paid in which of the following circumstances?
A. L’s spouse dies at age 62.
B. L’s spouse dies at age 66.
C. Their natural child dies at age 18.
D. Their adopted child dies at age 18.

B. L’s spouse dies at age 66

When a policyowner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply?
A. Extended term option
B. Conversion provision
C. 1035 Exchange
D. Incontestable period

B. Conversion provision

A life policy with a death benefit that can fluctuate according to the performance of its underlying investment portfolio is referred to as
A. Adjustable Life
B. Graded-Premium Life
C. Variable Life
D. Modified Whole Life

C. Variable Life

S is close to retiring and would like to purchase a policy that will yield greater gains than bonds, but will still protect the principal with a minimum level or risk. Which product would S be advised to purchase?
A. Equity index insurance
B. Endowment
C. Graded whole life policy
D. Return of premium policy

A. Equity index insurance

A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct?
A. Straight life accumulates faster than Limited-pay Life
B. 20-Pay Life accumulates cash value faster than Straight Life
C. Cash value accumulation of both 20-Pay Life and Straight Life depend on the insurer’s financial rating
D. 20-Pay Life and Straight Life accumulate cash value at the same rate

B. 20-Pay Life accumulates cash value faster than Straight Life

Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling?
A. Variable Life
B. Credit Life
C. Universal Life
D. Interest-Sensitive Whole Life

A. Variable Life

A variable insurance policy
A. guarantees a minimum rate of return
B. does not allow the policyowner to assume the investment risk
C. does not guarantee a return on its investment accounts
D. does not guarantee an assignment provision

C. does not guarantee a return on its investment accounts

What type of life insurance incorporates flexible premiums and an adjustable death benefit?
A. Endowment Policy
B. Modified Whole Life
C. Decreasing Term
D. Universal Life

D. Universal Life

P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20 year period. What type of policy should P purchase?
A. Family Benefit policy
B. Family Maintenance policy
C. Family Income policy
D. Family Survivor policy

B. Family Maintenance policy

K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
A. Return of premiums paid
B. Cash value plus interest
C. $20,000 death benefit
D. Face amount plus interest

C. $20,000 death benefit

Which of these statements 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

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

What type of life insurance are credit policies issued as?
A. Whole
B. Variable
C. Term
D. Universal

C. Term

Which provision allows the policyowner to change a term life policy to a permanent one without providing proof of good health?
A. Modification
B. Conversion
C. Exchange
D. Adjustable

B. Conversion

What kind of life policy either pays the face value upon the death of the insured or when the insured reaches age 100?
A. Term Life
B. Whole Life
C. Credit Life
D. Universal Life

B. Whole Life

D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed?
A. Limited-pay life
B. Graded Premium
C. Level term
D. Endowment

C. Level Term

Which statement is correct regarding the premium payment schedule for whole life policies?
A. Premiums are payable throughout the insured’s lifetime/ coverage lasts until death of the insured
B. Premiums are payable for a set period/ coverage expires at that point
C. Premiums are payable until age 65/ coverage lasts a lifetime
D. A single premium is paid at time of application/ coverage lasts until retirement

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

Which type of policy is considered to be overfunded, as stated by IRS guidelines?
A. Modified Whole Life
B. Modified Endowment Contract
C. Variable Universal Life
D. Interest-Sensitive Whole Life

B. Modified Endowment Contract

Under a Renewable Term policy,
A. the face amount is automatically adjusted at the time of renewal
B. evidence of insurability must be provided at each renewal
C. the renewal premium is calculated on the basis of the insured’s attained age
D. a new application must be completed at each renewal

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

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

A. Policyowner controls where the investment will go and selects the amount of the premium payment

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

B. When the insured dies or at the policy’s maturity date, whichever happens first

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

B. Life Paid-Up at Age 70

A Limited-Pay Life policy has
A. graded death benefits
B. no cash value
C. premium payments limited to a specified number of years
D. premium payments that are paid to age 100

C. premium payments limited to a specified number of years

The Consideration clause in a life insurance contract contains what pertinent information?
A. Summary of benefits
B. Offer and acceptance
C. Entire Contract
D. Amount of premium payments and when they are due

D. Amount of premium payments and when they are due

Whose life is covered on a life insurance policy that contains a payor benefit clause?
A. Parent
B. Beneficiary
C. Child
D. Spouse

C. Child

The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits if the insured
A. dies of natural causes
B. becomes critically ill
C. becomes chronically ill
D. is blinded in an accident

D. is blinded in an accident

How do life insurance companies handle cases where the insured commits suicide within the contract’s stated Contestable period?
A. Claims are denied under the Suicide clause of the policy
B. Company pays twice the face amount under the double indemnity clause
C. Claims are paid in full
D. Premiums are returned under the Consideration clause

A. Claims are denied under the Suicide clause of the policy

Which statement regarding the Misstatement of Age provision is considered to be true?
A. Coverage will be adjusted to reflect the insured’s true age if a misstatement of age is discovered
B. Requires that a new policy must be applied for if a misstatement of age is found on the current policy
C. Misstatement of Age provision is valid only during the contestable period
D. Insurer may void the policy if a misstatement of age is discovered

A. Coverage will be adjusted to reflect the insured’s true age if a misstatement of age is discovered

When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?
A. 10 year increments
B. at future dates specified in the contract with proof of insurability required
C. at future dates specified in the contract with no evidence of insurability required
D. at any time while policy is active

C. at future dates specified in the contract with no evidence of insurability required

Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE?
A. It is not taxable
B. It is tax deductible
C. It is taxed as capital gains
D. It is taxed as ordinary income

D. It is taxed as ordinary income

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?
A. Automatic Policy Automatic Policy Loan
B. Assignment
C. Grace Period
D. Waiver of Premium

A. Automatic Policy Automatic Policy Loan

What does the insuring agreement in a Life insurance contract establish?
A. An insurer’s basic promise
B. The insurance policy’s grace period
C. An insurer’s required reserve amount
D. The obligations of the beneficiary

A. An insurer’s basic promise

When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?
A. Void the policy if found during the Contestable period
B. Void the policy, no matter when it is discovered
C. Void the policy at any time only if it is found to be material
D. Void the policy only if it is discovered during the Contestable period and proven to be material

D. Void the policy only if it is discovered during the Contestable period and proven to be material

Which of these is NOT considered to be a right given to a policyowner?
A. Surrendering the policy’s cash value
B. Modify a provision in the insurance contract
C. Assignment of ownership
D. Change the beneficiary, if revocable

B. Modify a provision in the insurance contract

N is a student pilot with a large life insurance policy. Which of these features would limit the insurer’s obligation in the event N was killed while flying as a student pilot?
A. Misrepresentation
B. Exclusion
C. Collateral assignment
D. Concealment

B. Exclusion

The incontestable clause allows an insurer to
A. disallow a change of ownership throughout the Contestable period
B. disallow a change of beneficiary during the Contestable period
C. contest a claim at anytime if the cause of death was accidental
D. contest a claim during the contestable period

D. contest a claim during the contestable period

How are surrender charges deducted in a life policy with a rear-end loaded provision?
A. Deducted from the death benefit
B. Deducted when the policy is discontinued
C. Deducted from policy’s cash value
D. Deducted when assigned to another policyowner

B. Deducted when the policy is discontinued

T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?
A. The total premiums paid minus any policy loans
B. Nothing
C. $50,000
D. $100,000

C. $50,000

B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of
A. additional Term Life coverage at any time
B. additional Term Life coverage at specified intervals
C. additional Whole Life coverage at any time
D. additional Whole Life coverage at specified times

D. additional Whole Life coverage at specified times

In a life insurance policy, which feature states that the policy will not cover certain risks?
A. Exception
B. Exclusion
C. Ejection
D. Expulsion

B.Exclusion

A long-term care rider in a life insurance policy may trigger a benefit in the event of which of the following?
A. Critical illness
B. Terminal illness
C. Inability of the insured to perform more than 2 Activities of Daily Living (ADL’s)
D. Double the face amount should the insured be confined to a nursing home

C. Inability of the insured to perform more than 2 Activities of Daily Living (ADL’s)

The Consideration clause in a life insurance policy indicates that a policyowner’s consideration consists of a completed application and
A. the initial premium
B. agreeing to a physical examination
C. delivery of policy
D. disclosure of any medical conditions

A. the initial premium

A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached?
A. Accelerated Benefits
B. Waiver of Premium
C. Cost of Living
D. Return of Premium

B. Waiver of Premium

What action will an insurer take if an interest payment on a policy loan is not made on time?
A. cancel the policy if not paid within the grace period
B. automatically add the amount of interest due to the loan balance
C. subtract from any dividends owed
D. disallow any further loans

B. automatically add the amount of interest due to the loan balance

What is the Suicide provision designed to do?
A. decline an applicant who is contemplating suicide
B. safeguard the insurer from an applicant who is contemplating suicide
C. protect the insurer from ever paying a claim that results from suicide
D. allows the insurer the option to pay a death benefit in the event of suicide

B. safeguard the insurer from an applicant who is contemplating suicide

All of these statements about the Waiver of Premium provision are correct EXCEPT
A. A waiting period must pass before becoming eligible for benefits
B. Waiver of Premium is available on both permanent and term insurance policies
C. Insured must be eligible for Social Security disability for claim to be accepted
D. Insured must be totally disabled to qualify

C. Insured must be eligible for Social Security disability for claim to be accepted

Which of the following Dividend options results in taxable income to the policyowner?
A. Paid-up Additions
B. Cash
C. Accumulation at Interest
D. Reduced Premium

C. Accumulation at Interest

P is the insured on a participating life policy. Which statement is true if P’s premiums are waived due to a disability?
A. P cannot borrow against the policy’s cash value while disabled
B. P will have to pay income taxes on the amount of premiums waived
C. P will still receive declared dividends
D. P cannot assign ownership of the policy while premiums are being waived

C. P will still receive declared dividends

Which of these are NOT an example of a Nonforfeiture option?
A. Extended Term
B. Reduced Paid-up
C. Cash Surrender
D. Life Income

D. Life Income

What does the ownership clause in a life insurance policy state?
A. Who the policyowner is and what rights the policyowner is entitled to
B. Who the beneficiary is and what rights the beneficiary is entitled to
C. Ownership cannot be assigned after the incontestable period
D. Allows the policyowner to adjust the death benefit and premium amount at anytime

A. Who the policyowner is and what rights the policyowner is entitled to

The Accelerated Death Benefit provision in a life insurance policy is also known as a(n)
A. 1035 exchange
B. Inter vivos gift
C. Non-forfeiture option
D. Living Benefit

D. Living Benefit

The automatic premium loan provision is designed to
A. provide a source of revenue to the insurance company
B. avoid a policy lapse
C. allow a policyowner to request a policy loan
D. allow a policyowner to take out additional coverage without evidence of insurability

B. avoid a policy lapse

What benefit does the Payor clause on a Juvenile Life policy provide?
A. Allows payor to assign ownership in the event payor becomes disabled
B. Allows payor to increase face amount without providing evidence of insurability
C. Premiums are waived if juvenile becomes disabled
D. Premiums are waived if payor becomes disabled

D. Premiums are waived if payor becomes disabled

D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D’s wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?
A. Ex-wife
B. Current wife
C. Estate
D. Split equally between the ex-wife and current wife

A. Ex-wife

What action can a policyowner take if an application for a bank loan requires collateral?
A. Utilize accelerated benefits provision
B. Borrow against policy cash value and use as a down payment
C. Assign policy ownership to the bank
D. Name bank as beneficiary

C. Assign policy ownership to the bank

Which of these provisions require proof of insurability after a policy has lapsed?
A. Insuring
B. Conversion
C. Reinstatement
D. Consideration

C. Reinstatement

Which of the following statements is CORRECT about accelerated death benefits?
A. The full face amount is available as an accelerated benefit
B. Those on Social Security disability automatically qualify for this benefit
C. This provision is usually provided with an increase in premium
D. Must have a terminal illness to qualify

D. Must have a terminal illness to qualify

Which of these Nonforfeiture Options continue a build-up of cash value?
A. Waiver of Premium
B. Extended Term
C. Reduced Paid-Up
D. Cash Surrender

C. Reduced Paid-Up

Which of these life insurance riders allows the applicant to have excess coverage?
A. Automatic Premium Loan rider
B. Waiver of Premium rider
C. Guarantee Insurability rider
D. Term rider

D. Term rider

The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called
A. Reinstatement
B. Grace period
C. Automatic premium loan
D. Waiver of premium

A. Reinstatement

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
A. cash value
B. estate of the insured
C. policy proceeds
D. nonforfeiture value

C. policy proceeds

A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the
A. Policy Loan provision
B. Automatic Premium Loan provision
C. Accelerated Benefits provision
D. Consideration clause

A. Policy Loan Provision

N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?
A. Claim will be denied
B. Claim will be paid in full
C. Claim will be partially paid
D. Claim will be decided by an arbitrator

A. Claim will be denied

Additional coverage can be added to a Whole Life policy by adding a(n)
A. payor rider
B. accelerated benefit rider
C. decreasing term rider
D. automatic premium loan rider

C. decreasing term rider

An insured’s inability to perform two or more activities of daily living may trigger which type of policy rider?
A. Waiver of premium
B. Long term care
C. Accelerated death benefit
D. Accidental

B. Long term care