Questions and Answers
What is investor-originated life insurance (IOLI)?
Used to circumvent state insurable interest statutes by persuading individuals to take out life insurance for the purpose of selling it to investors.
In a contract of adhesion, any confusing language would be interpreted in favor of the insurer.
False
Under a unilateral insurance policy, who makes the legally enforceable promises?
The insurance company.
What happens to cash values as the premium payment period shortens in a Limited Pay life policy?
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Which policy requires a producer to register with the National Association of Securities Dealers (NASD) before selling?
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What is a life policy with a death benefit that can fluctuate according to the performance of its underlying investment portfolio?
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What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time?
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What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies?
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When is the face amount paid under a Joint Life and Survivor policy?
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Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?
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What does the insurance company pay the beneficiary in a $20,000 20-Year Endowment policy if the insured dies after 10 years?
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Which type of policy is considered to be overfunded according to IRS guidelines?
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Which statement describes a Modified Endowment Contract (MEC)?
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All of these insurance products require a producer to have proper FINRA securities registration to sell them EXCEPT for which one?
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Where do the investment gains from a Universal Life policy usually go?
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What kind of policy provides coverage for only a limited amount of time while minimizing premiums?
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What is true concerning a Variable Universal Life policy?
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Study Notes
Investor-Originated Life Insurance
- Investor-originated life insurance (IOLI), also known as stranger-originated life insurance (STOLI), bypasses state insurable interest laws.
- Investors persuade individuals to acquire life insurance policies to later sell them, with the investors covering premiums and receiving death benefits.
Contract of Adhesion
- A contract of adhesion features terms that favor the insured if any confusing language exists.
Unilateral Insurance Policy
- Under unilateral insurance policies, only the insurance company is bound by enforceable promises.
Limited Pay Life
- Shortening the premium payment duration leads to a faster increase in cash values.
Variable Life Policy
- Requires producer registration with the National Association of Securities Dealers (NASD) due to the investment risk transferred to the policyowner.
Fluctuating Death Benefit
- A Variable Life policy's cash value and death benefits can change based on the performance of its investment portfolio.
Decreasing Term Policy
- This type of life policy has a death benefit that periodically adjusts and is effective for a specified time.
Family Maintenance Policy
- Provides an income stream over a defined period starting upon the death of the insured.
Joint Life and Survivor Policy
- The face amount is paid upon the death of the last insured individual.
Variable Universal Life
- Combines monthly mortality charges with self-directed investment choices for policyholders.
Endowment Policy Payout
- If the insured passes away before the endowment matures, the beneficiary receives a lump sum death benefit equal to the policy’s face value.
Modified Endowment Contract (MEC)
- Identified as an overfunded policy under IRS regulations, failing to meet the 7-pay test results in a MEC status, which affects tax treatment.
7-Pay Test
- The test restricts premium schedules that could lead to a paid-up policy within seven years, promoting proper funding of life insurance contracts.
FINRA Securities Registration
- Producers require FINRA registration to sell various insurance products, with the exception of Modified Whole Life.
Universal Life Policy Investment Gains
- Investment gains typically enhance the cash value in a Universal Life Policy.
Level Term Insurance
- Provides coverage for a limited period at the lowest possible premium.
Variable Universal Life Control
- Policyowners have the authority to dictate investment directions and determine premium payment amounts.
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Description
Test your knowledge on investor-originated life insurance (IOLI) and stranger-originated life insurance (STOLI) covered in Chapter 3. This chapter explores how these insurance types can be used to bypass state insurable interest laws. Take this quiz to understand the implications and terminology better.
