LI-Premiums and Proceeds Flashcards

Questions and Answers

A policyowner's rights are limited under which beneficiary designation?

Irrevocable (correct)

Revocable

Primary

Contingent

What is the underlying concept regarding level premiums?

The early years are charged more than what is needed.

A policyowner is allowed to pay premiums more than once a year under which provision?

Mode of Premium

If K and her husband are both killed in an automobile accident, where would the death proceeds be directed?

Daughter Signup and view all the answers

The Accidental Death benefits will be paid to whom if P and Q have a car accident and Q and R are killed?

P only Signup and view all the answers

Which of these statements is INCORRECT regarding the federal income tax treatment of life insurance?

Entire cash surrender value is taxable Signup and view all the answers

Which premium schedule results in the lowest cost to the policyowner?

Annual Signup and view all the answers

If the insured and primary beneficiary are both killed in the same accident, where are the death proceeds directed under the Uniform Simultaneous Death Act?

Insured's contingent beneficiary Signup and view all the answers

Which of the following statements is CORRECT regarding the tax treatment of a lump-sum payment to a primary beneficiary?

All proceeds are income tax free in the year they are received. Signup and view all the answers

Which type of designation would allow a policyowner to change the beneficiary permanently?

Irrevocable Signup and view all the answers

Under the Common Disaster provision, what happens if K dies before P?

Proceeds will be payable to K's estate if P dies within a specified time. Signup and view all the answers

Who is qualified to change the beneficiary designation on a life insurance policy?

Policyowner Signup and view all the answers

Which statement regarding the Change of Beneficiary provision is true?

The policyowner can change the beneficiary. Signup and view all the answers

Which beneficiary designation should J use to maintain the right to change beneficiaries?

Revocable Signup and view all the answers

Which type of life insurance beneficiary requires consent when a change is attempted?

Irrevocable beneficiary Signup and view all the answers

What is true regarding a minor beneficiary in a life insurance policy?

Normally, a guardian is required to be appointed in the Beneficiary clause of the contract. Signup and view all the answers

A policyowner can choose the frequency of premium payments through what policy feature?

Premium mode Signup and view all the answers

What allows a whole life insurance policyowner to sell the policy for more than its cash value?

Life settlement contract Signup and view all the answers

What occurs when a primary beneficiary has died before the insured in a life insurance policy?

Proceeds will go to the contingent beneficiary. Signup and view all the answers

What does the Common Disaster clause provide regarding payment of proceeds if both the insured and sole beneficiary die in a common accident?

This clause provides the payment of proceeds to the insured's estate. Signup and view all the answers

Which settlement option pays a stated amount to an annuitant, with no residual value to a beneficiary?

Life Income Signup and view all the answers

When can a policyowner change a revocable beneficiary?

Anytime Signup and view all the answers

A level premium indicates what?

The premium is fixed for the entire duration of the contract. Signup and view all the answers

How much of the death benefit will the mother receive if S dies first and then the father is killed?

$0 Signup and view all the answers

What percent of personal life insurance premiums is usually deductible for federal income tax purposes?

0% Signup and view all the answers

What factor would affect C's decision to convert her convertible term life policy to whole life insurance?

The cost Signup and view all the answers

M purchases an Accidental Death and Dismemberment (AD&D) policy and names his son as beneficiary. What type of beneficiary is his son?

Revocable Signup and view all the answers

Which statement is correct regarding J's monthly premium payment on Whole Life insurance?

The gross premium is higher on a monthly payment mode as compared to being paid annually. Signup and view all the answers

What best describes a contingent beneficiary?

Person designated by the insured to receive policy proceeds in the event that the primary beneficiary dies before the insured. Signup and view all the answers

Why do quarterly premium payments increase the annual cost of insurance?

Interest on the insurer is decreased while the administrative costs are increased. Signup and view all the answers

What will the insurance company do if T requests a change of beneficiary with an irrevocable beneficiary?

Request of the change will be refused Signup and view all the answers

How does a contingent beneficiary receive the policy proceeds in an AD&D policy?

If the primary beneficiary dies before the insured. Signup and view all the answers

Study Notes

Beneficiary Designations

Irrevocable Beneficiary: Policyowner's rights are limited; cannot change the beneficiary without consent.
Revocable Beneficiary: Policyowner can change designation at any time without needing consent.
Contingent Beneficiary: Receives proceeds if the primary beneficiary is deceased at the time of insured's death.

Premiums and Modes

Level Premiums: Early premium charges are higher to cover the lower costs in later years; provides cost stability.
Premium Mode: Policyowners can choose how often to pay premiums; annual payments are the least expensive.
Interest and Administrative Costs: Quarterly payments incur higher total costs due to decreased interest for the insurer and increased administrative fees.

Common Disaster Clause

In situations where both the insured and the beneficiary die simultaneously, proceeds typically go to the contingent beneficiary or estate based on specific timing of deaths.

Policyowner Rights

Changing Beneficiary: Only the policyowner can change their life insurance beneficiary designation.
Minor Beneficiary: Requires a guardian to ensure proper management of proceeds until the minor reaches adulthood.

Life Insurance Proceeds and Taxes

Lump-Sum Payments: All proceeds paid to primary beneficiaries are typically income tax-free in the year received.
Cash Surrender Value: The entire cash surrender value of a policy is not taxable upon death; only gains are taxable.

Life Settlement Contracts

Policyowners can sell their whole life insurance policies for more than the cash value through life settlement contracts.

Policyholder Scenarios

Accidental Death and Dismemberment (AD&D): Benefits go directly to the primary beneficiary unless they predecease the insured; then proceeds go to contingent beneficiary.
If a co-primary beneficiary dies before the insured, the remaining co-primary can still receive the full benefit unless further contingencies exist.

Additional Notes

Monthly Premiums: Generally higher than annual premium due to increased administrative costs.
Convertible Policies: Decisions regarding changing from term to whole life should consider cost differences based on original or attained age.
Income Tax Deductions: Personal life insurance premiums are generally not deductible for federal income tax purposes.

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Description

Test your knowledge on life insurance concepts including beneficiary designations and premium payments. This quiz covers key terms like irrevocable beneficiaries and modes of premium. Perfect for students or professionals in the insurance field.