Insurance Chapter 2 Questions Flashcards
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Questions and Answers

Why is an equity index annuity considered to be a fixed annuity?

  • It has a modest investment potential
  • It has a fixed rate of return
  • It is not tied to an index like S&P 500
  • It has a guaranteed minimum interest rate (correct)

    • When would a 20-pay whole life policy endow?

  • At the insured's age 65
  • After 20 payments
  • In 20 years
  • When the insured reaches age 100 (correct)

    • All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy?

  • Higher
  • Lower (correct)
  • Half the amount
  • As high

    • What license or licenses are required to sell variable annuities?

    <p>Both a life insurance license and a securities license</p> Signup and view all the answers

    The death protection component of universal life insurance is always:

    <p>Annually renewable term</p> Signup and view all the answers

    All of the following are true of an annuity owner EXCEPT:

    <p>The owner must be the party to receive the benefits</p> Signup and view all the answers

    What kind of policy allows withdrawals or partial surrenders?

    <p>Universal life</p> Signup and view all the answers

    Which of the following is another term for the accumulation period of an annuity?

    <p>Pay-in period</p> Signup and view all the answers

    All other factors being equal, the least expensive first-year premium payment is found in:

    <p>Annually renewable term</p> Signup and view all the answers

    Twin brothers are starting a new business. They know it will take years to build the business to the point that they can pay off debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?

    <p>Joint life</p> Signup and view all the answers

    Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid:

    <p>For 20 years or until death, whichever occurs first</p> Signup and view all the answers

    Which statement is NOT true regarding a straight life policy?

    <p>Its premium steadily decreases over time, in response to its growing cash value</p> Signup and view all the answers

    An insured purchases a life insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an:

    <p>Interest-sensitive whole life</p> Signup and view all the answers

    All of the following are characteristics of a universal life policy EXCEPT:

    <p>The planned premium pays for mortality charges and expenses and any excess is returned to the policyowner</p> Signup and view all the answers

    All of the following are true regarding a decreasing term policy EXCEPT:

    <p>The payable premium amount steadily declines throughout the duration of the contract</p> Signup and view all the answers

    All of the following entities regulate variable life policies EXCEPT:

    <p>Guaranty association</p> Signup and view all the answers

    What are two components of a universal policy?

    <p>Insurance and cash account</p> Signup and view all the answers

    Which of the following is NOT true regarding the accumulation period of an annuity?

    <p>It would not occur in a deferred annuity</p> Signup and view all the answers

    During a partial withdrawal from a universal life policy, which portion will be taxed?

    <p>Interest</p> Signup and view all the answers

    Which of the following is TRUE regarding the premium in term policies?

    <p>Premium is level</p> Signup and view all the answers

    An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?

    <p>It will increase because the insured will be 5 years older than when the policy was originally purchased</p> Signup and view all the answers

    Which of the following is NOT true regarding equity indexed annuities?

    <p>They earn lower interest rates than fixed annuities</p> Signup and view all the answers

    Which policy component decreases in decreasing term insurance?

    <p>Face amount</p> Signup and view all the answers

    Variable life insurance is based on what kind of premium?

    <p>Level fixed</p> Signup and view all the answers

    All of the following are true regarding a decreasing term policy EXCEPT:

    <p>The payable premium amount steadily declines throughout the duration of the contract</p> Signup and view all the answers

    When an annuity is written, whose life expectancy is taken into account?

    <p>Annuitant</p> Signup and view all the answers

    Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?

    <p>Depreciation period</p> Signup and view all the answers

    The term 'fixed' in fixed annuity refers to all of the following EXCEPT:

    <p>Death benefit</p> Signup and view all the answers

    Which universal life option has a gradually increasing cash value and a level death benefit?

    <p>Option A</p> Signup and view all the answers

    Universal life insurance policy is best described as:

    <p>Annually renewable term policy with a cash value account</p> Signup and view all the answers

    All of the following are true about variable products EXCEPT:

    <p>The premiums are invested in the insurer's general account</p> Signup and view all the answers

    If an annuitant dies before annuitization occurs, what will the beneficiary receive?

    <p>Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount</p> Signup and view all the answers

    Which of the following best describes annually renewable term insurance?

    <p>It is level term insurance</p> Signup and view all the answers

    Which of the following is true for both equity indexed annuities and fixed annuities?

    <p>They have a guaranteed minimum interest rate</p> Signup and view all the answers

    Which of the following features of the indexed whole life policy is NOT fixed?

    <p>Cash value growth</p> Signup and view all the answers

    Equity indexed annuities:

    <p>Seek higher returns</p> Signup and view all the answers

    The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE?

    <p>The beneficiary will receive the greater of the money paid into the annuity or the cash value</p> Signup and view all the answers

    A man purchased a $90,000 annuity with a single premium and began receiving payments 2 months later. What type of annuity is it?

    <p>Immediate</p> Signup and view all the answers

    Annually renewable term policies provide a level death benefit for a premium that:

    <p>Increases annually</p> Signup and view all the answers

    A return of premium term policy is written as what type of term coverage?

    <p>Increasing</p> Signup and view all the answers

    An insured owns a life insurance policy. To pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?

    <p>Universal life</p> Signup and view all the answers

    Both universal life and variable life have a:

    <p>Flexible premium</p> Signup and view all the answers

    A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?

    <p>Level term</p> Signup and view all the answers

    Annually renewable term policies provide a level death benefit for a premium that:

    <p>Increases annually</p> Signup and view all the answers

    An agent selling variable annuities must be registered with:

    <p>FINRA</p> Signup and view all the answers

    The main difference between immediate and deferred annuities is:

    <p>When the income payments begin</p> Signup and view all the answers

    The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?

    <p>The death benefit can be increased by providing insurability</p> Signup and view all the answers

    What does 'level' refer to in level term insurance?

    <p>Face amount</p> Signup and view all the answers

    Which of the following is a feature of a variable annuity?

    <p>Benefit payment amounts are not guaranteed</p> Signup and view all the answers

    A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?

    <p>Immediate annuity</p> Signup and view all the answers

    Which option for universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?

    <p>Option B</p> Signup and view all the answers

    All of the following are true regarding the convertibility option under a term life insurance policy EXCEPT:

    <p>Upon conversion, the death benefit of the permanent policy will be reduced by 50%</p> Signup and view all the answers

    Periodic payments of accumulated funds best describes:

    <p>Annuity</p> Signup and view all the answers

    An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin after 1 year since the annuity was purchased. What type of annuity is it?

    <p>Deferred</p> Signup and view all the answers

    Who bears all of the investment risk in a fixed annuity?

    <p>Insurance company</p> Signup and view all the answers

    Study Notes

    Annuities and Life Insurance Overview

    • Equity Index Annuity: Considered a fixed annuity due to a guaranteed minimum interest rate, offering safety and modest growth potential.
    • 20-Pay Whole Life Policy: Ends at the insured's age 100, ensuring benefit payment to a beneficiary only if premiums are paid for 20 years or until death.
    • Survivorship Life Policy: Typically has lower premiums compared to joint life policies, making it more economical.
    • Variable Annuities Sales: Require both life insurance and securities licenses for agents to sell.
    • Universal Life Insurance: Contains an annually renewable term as its death protection component and allows for withdrawals or partial surrenders.

    Characteristics of Policies

    • Annuity Owner Rights: Owners can surrender the annuity, pay premiums, and name beneficiaries, but are not required to receive benefits personally.
    • Accumulation Period: Known as the pay-in period; during this time, premium payments accumulate interest until the annuitization period begins.
    • Decreasing Term Policies: Feature a face amount that decreases over time, but premiums remain lower than level term policies.

    Insurance Policy Types

    • Joint Life Policy: Most affordable option providing death benefits for business partners, suited for long-term debt scenarios.
    • Straight Life Policy: Premiums do not decrease; it typically starts to accumulate cash value after three years.
    • Interest-Sensitive Whole Life: Cash values can fluctuate based on company investments and expenses.

    Term Policies and Annuities

    • Level Term Policies: Provide a constant premium and death benefit, increasing annually.
    • Equity Indexed Annuities: Offer guaranteed minimum interest rates and seek higher returns compared to fixed annuities, yet are less risky than variable annuities.
    • Immediate Annuity: Begins payments shortly after purchase, ideal for receiving periodic payments.

    Universal Life Features

    • Universal Life Options: Option A has gradually increasing cash value with a level death benefit, while Option B allows beneficiaries to claim both cash value and death benefit.
    • Flexible Premiums: Available in both universal and variable life policies, allowing policyholders to adjust payments based on their financial situation.

    Regulations and Responsibilities

    • Variable Product Regulation: Governed by federal agencies and state insurance departments; policyowners bear the investment risk.
    • Beneficiary Rights: In case of the annuitant's death before annuitization, beneficiaries receive the greater of the amount paid or the cash value.

    Special Considerations

    • Return of Premium: Offers increasing term coverage where premiums can be returned based on certain conditions.
    • Variable Annuity Payments: Benefit amounts are not guaranteed, emphasizing the potential for growth but also the associated risks.
    • Adjustable Life Policies: Allow changes to the death benefit provided insurability is demonstrated, adding flexibility to coverage as needs change.

    Basic Principles

    • Cash Value in Policies: The cash value of policies like universal life can be withdrawn, but limits and fees may apply.
    • Fixed Annuity Characteristics: Classified by guaranteed interest rates, level payments, and predictable benefit distributions.

    These notes provide an essential understanding of annuity and life insurance principles, vital for students studying insurance policies and regulations.

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    Test your knowledge with these flashcards covering essential concepts from Chapter 2 of Insurance. Explore key terms like equity index annuities and whole life policies. Perfect for students looking to reinforce their understanding of insurance fundamentals.

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