Insurance Chapter 3 Quiz

Questions and Answers

Which of the following policies is characterized by a guaranteed minimum death benefit?

Whole Life

Term Life

Universal Life

Variable Life (correct)

Credit life insurance is typically issued with which of the following types of coverage?

Universal Life

Term Life

Decreasing Term (correct)

Whole Life

Which of the following types of policies will provide the growth of cash value?

20-Pay Life (correct)

Term Life

Whole Life

Universal Life

When is the face amount paid under a Joint Life and Survivor policy?

Upon death of the last insured Signup and view all the answers

Which of these is NOT guaranteed by Whole Life insurance policies?

Partial withdrawal features beyond a surrender charge period Signup and view all the answers

A(n) ____________ term life policy is normally used when covering an insured's mortgage balance.

decreasing Signup and view all the answers

What happens under a Graded Premium Whole Life policy?

The premium increases each year during the early years and remains the same afterwards. Signup and view all the answers

Premiums are payable for as long as there is insurance coverage in force in a Straight Life policy.

True Signup and view all the answers

K purchased a Life insurance policy known as a(n) __________ life policy.

Universal Signup and view all the answers

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

Term life Signup and view all the answers

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

Change the policy's interest rate Signup and view all the answers

Which of these policies should Q purchase for the greatest amount of protection for a temporary period?

Term Life Signup and view all the answers

What advantage does the renewability feature give to a term policy?

The insured may extend the coverage period Signup and view all the answers

What kind of life insurance policy pays a specified monthly income to a beneficiary for 30 years and then pays a lump sum benefit?

Family Maintenance Policy Signup and view all the answers

All of these are characteristics of an Adjustable Life policy EXCEPT: Face amount can be adjusted using policy dividends.

True Signup and view all the answers

What type of life policy covers two people and pays upon the death of the last insured?

Survivorship Signup and view all the answers

What type of policy provides cash values that fluctuate according to the performance of common stocks?

Variable Whole Life Signup and view all the answers

Which policy should N purchase for level premiums, permanent protection, and be paid-up at retirement?

30 Pay Life Signup and view all the answers

Which provision allows the policy owner to change a term life policy to a permanent one without providing proof of good health?

Conversion Signup and view all the answers

Under a Renewable Term policy, how is the renewal premium calculated?

On the basis of the insured's attained age Signup and view all the answers

All of these statements about Equity Indexed Life Insurance are correct EXCEPT: The premiums can be lowered or raised, based on investment performance.

True Signup and view all the answers

What applies when exchanging a term policy for a whole life policy without providing proof of good health?

Conversion provision Signup and view all the answers

Life insurance that covers an insured's whole life with level premiums over a limited time is called:

Limited Pay Life Signup and view all the answers

What does a Face Amount Plus Cash Value Policy pay upon the insured's death?

Face amount plus the policy's cash value Signup and view all the answers

At what point does a Whole Life Insurance policy endow?

When the cash value equals the death benefit Signup and view all the answers

What type of life policy covers two lives and pays the face amount after the first one dies?

Joint Life Policy Signup and view all the answers

Term insurance expires at the end of the policy period.

True Signup and view all the answers

Which policy best fits K's need for permanent life insurance with the MOST protection per dollar of annual premium?

Straight Life Signup and view all the answers

Which feature of a group Term Life policy allows an individual to leave the group and continue insurance without evidence of insurability?

Conversion privilege Signup and view all the answers

A ___________ life policy offers the owner investment in products such as money-market funds, long-term bonds and equities.

Variable Signup and view all the answers

All of these are characteristics of an adjustable life policy, except: Face amount can be adjusted using policy dividends.

True Signup and view all the answers

Under a Renewable Term policy, how is the renewal premium calculated?

On the basis of the insured's attained age Signup and view all the answers

If a 10-Year Term Life policy contains a Renewability provision, the policy will renew:

Without evidence of insurability Signup and view all the answers

What does the word 'straight' indicate in the phrase 'Straight Life'?

The duration of premium payments Signup and view all the answers

What kind of policy does P own if he has a $25,000 Life Policy that pays the face amount if he lives to age 70?

Endowment at Age 70 Signup and view all the answers

Where do the investment gains from a Universal Life Policy usually go?

The cash value Signup and view all the answers

A variable insurance policy guarantees a return on its investment accounts.

False Signup and view all the answers

What is the most important factor when determining whether to convert term insurance?

The cost Signup and view all the answers

Which type of policy should an architecture firm purchase on its project manager?

Key Person insurance Signup and view all the answers

What type of life policy has a death benefit that adjusts periodically and is written for a specific period?

Decreasing Term Signup and view all the answers

How does a typical Variable Life Policy investment account grow?

Through mutual funds, stocks, bonds Signup and view all the answers

What kind of policy does D need if they want coverage for a limited time with the lowest premium?

Level term Signup and view all the answers

What kind of policy has a premium that stays fixed for the first 5 years and then increases in year 6?

Modified whole life Signup and view all the answers

S is covered by a whole-life policy. What insurance product can cover his children?

Child term rider Signup and view all the answers

Which type of Term Life policies most likely contains a Renewability feature?

10 year convertible term Signup and view all the answers

Which statement is correct regarding the premium payment schedule for whole life policies?

Premiums are payable throughout the insured's lifetime / coverage lasts until the death of the insured. Signup and view all the answers

Variable Life products require a producer to hold which licenses?

Life Insurance license and a Securities license Signup and view all the answers

Which of the following is considered an element of a Variable Life Policy?

Underlying equity investment Signup and view all the answers

What would be a correct statement made by a producer regarding a Whole Life policy that accumulates cash faster than Straight Life?

20-pay life accumulates cash value faster than Straight Life. Signup and view all the answers

Which statement about Equity Indexed Life Insurance is incorrect?

The premiums can be adjusted based on market performance. Signup and view all the answers

Y purchased $100,000 worth of permanent protection on himself. What type of policy did Y purchase?

Whole Life policy with an Other Insured Rider Signup and view all the answers

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

Whole life Signup and view all the answers

K and his wife purchase a Family Policy. What situation will NOT pay a death benefit?

K's wife dies at age 66 Signup and view all the answers

What type of policy would offer a 40-year old the quickest accumulation of cash value?

20-Pay life Signup and view all the answers

A(n) _________ Life policy offers the owner investments in products such as money-market funds, long-term bonds and equities.

Variable Signup and view all the answers

The option that provides an additional death benefit for a limited time at the lowest possible cost is called a(n):

Accidental Death and Dismemberment rider (AD&D) Signup and view all the answers

Which provision prevents an insurer from changing the terms of the contract with the policy owner?

Entire Contract Provision Signup and view all the answers

Which life insurance rider allows the applicant to have excess coverage?

Term rider Signup and view all the answers

What action will the insurer take if N misses the required premium payment due August 1 and dies September 15?

Claim will be denied Signup and view all the answers

What does the incontestable clause allow an insurer to do?

Contest a claim during the contestable period Signup and view all the answers

What kind of rider is attached to a life insurance policy that ensures the premium will be paid if the insured becomes disabled?

Waiver of Premium Signup and view all the answers

What are dividends paid from a life insurance policy classified as?

Issued by the insurer Signup and view all the answers

From which dividend option can a policyowner generate taxable income?

Accumulation at interest Signup and view all the answers

What does a cost of living rider provide to the insured?

Additional death benefits Signup and view all the answers

P purchases a $50,000 term life insurance policy in 2005. What will the insurer pay to P's beneficiary?

$50,000 minus any outstanding policy loans Signup and view all the answers

Which provision in a life insurance policy defines who may select options and also designate a beneficiary?

Owner's Rights Signup and view all the answers

K pays on a $20,000 20-Year Endowment policy for 10 years. What will the insurance company pay the beneficiary?

$20,000 Death benefit Signup and view all the answers

S buys a $10,000 Whole Life policy and the insurer pays the beneficiary $10,500 after S's death. What kind of rider did S include on the policy?

Return of premium rider Signup and view all the answers

The advantage of reinstating an original life policy is that the premiums are based on a younger age.

True Signup and view all the answers

Which types of policies may NOT have the Automatic Premium Loan provision?

Decreasing Term Signup and view all the answers

What will the beneficiary receive if the insured dies during the Grace Period?

Full face amount minus any past due premiums Signup and view all the answers

Past-due interest on a policy loan is added to the total debt.

True Signup and view all the answers

What additional benefits does the Accidental Death and Dismemberment (AD&D) provision provide?

Additional benefits if the insured is blinded in an accident Signup and view all the answers

What does the insuring agreement in a life insurance contract establish?

An insurer's basic promise Signup and view all the answers

All of these statements about the waiver of premium provision are correct, EXCEPT the insured must be eligible for social security disability for a claim to be accepted.

True Signup and view all the answers

Study Notes

Life Insurance Types and Characteristics

Life insurance forms an estate immediately upon an insured's death.
Variable Life policies guarantee a minimum death benefit.
Credit life insurance typically uses a Decreasing Term coverage structure.
Whole life insurance offers various types including 20-pay Life for cash value growth, and Straight Life with premiums for lifetime coverage.
Joint Life and Survivor policies pay out on the death of the last insured.
Universal Life insurance can terminate if premiums do not match interest expectations.
Term life insurance provides the most coverage for a limited time and expires at the end of the policy period.

Policy Features and Provisions

Graded Premium Whole Life policies have increasing premiums initially, stabilizing later.
Renewability features allow term policies to extend coverage based on the insured's attained age without proving insurability.
Conversion provisions permit changing term life to permanent policies without health proof.
Whole Life insurance is also known as Straight Life, linking to the duration of premium payments.
Limited Pay Life policies offer permanent coverage with premiums due for a limited period.

Additional Insurance Concepts

Family Maintenance Policies provide both monthly income for 30 years and a lump sum after that term.
The Face Amount Plus Cash Value policy pays the face amount and the accrued cash value upon death.
Equity Indexed Life Insurance premiums cannot fluctuate based on investment performance.
Key Person insurance protects businesses against the loss of essential employees.
Policy loans have implications, including adding past-due interest to the total debt.

Riders and Clauses

Riders such as Waiver of Premium ensure coverage continues if the insured becomes disabled.
Accidental Death and Dismemberment riders offer additional benefits under certain conditions.
Return of premium riders refund premiums if the insured dies before a specific age.
The Entire Contract Provision safeguards against changes outside the policy documentation.

Claims and Benefits

Claims may be denied if premiums were not current at the time of death.
Grace Periods allow for death benefits to be paid minus overdue premiums if the insured dies during this window.
Insurers generally guarantee the premium payments and death benefits as specified, with nuances based on policy type and rider inclusion.

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Description

Test your knowledge on life insurance concepts in Chapter 3. This quiz covers various types of life insurance policies, including variable life and credit life insurance. Challenge yourself with questions about their definitions and features.