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Questions and Answers
The interest earned on dividends is:
The interest earned on dividends is:
- Nontaxable
- 40% taxable, similar to a capital gain
- Taxable (correct)
- Tax deductible
Mona let her permanent policy lapse. She discovered there was $2,498 in cash remaining in the policy and decided to reduce her debt load. She exercised which Nonforfeiture Option?
Mona let her permanent policy lapse. She discovered there was $2,498 in cash remaining in the policy and decided to reduce her debt load. She exercised which Nonforfeiture Option?
- Fixed Amount
- Accelerated Endowment
- Cash Surrender (correct)
- Accumulation at Interest
Settlement Options may be used if the insured dies or if the insured:
Settlement Options may be used if the insured dies or if the insured:
- Is covered strictly with Term Insurance
- Exercises the Irrevocable Option
- Is alive at maturity and receives the face amount (correct)
- Pays policy annually
The cash received by the policyowner when he/she terminates a policy is known as what?
The cash received by the policyowner when he/she terminates a policy is known as what?
Which is not a Dividend Option?
Which is not a Dividend Option?
What happens to the nonforfeiture values when a policy lapses for nonpayment of premium?
What happens to the nonforfeiture values when a policy lapses for nonpayment of premium?
Fred owns a 40-Pay Life Policy. He designated his wife, Ethel, as primary beneficiary. Upon Fred's death, Ethel receives a set amount for life. Fred chose which Settlement Option?
Fred owns a 40-Pay Life Policy. He designated his wife, Ethel, as primary beneficiary. Upon Fred's death, Ethel receives a set amount for life. Fred chose which Settlement Option?
There are considerable differences in life insurance policies. Which of the following helps to establish basic continuity?
There are considerable differences in life insurance policies. Which of the following helps to establish basic continuity?
Beth exercised an owner's option on a life policy to stop paying premiums but continue to be covered until she was age 100. Which Nonforfeiture Option did she choose?
Beth exercised an owner's option on a life policy to stop paying premiums but continue to be covered until she was age 100. Which Nonforfeiture Option did she choose?
Beth owns a 20-Pay Life participating policy. She has chosen the Settlement Option that guarantees payments over a specified period and the dividends are applied toward future premiums. Which Dividend Option did she choose?
Beth owns a 20-Pay Life participating policy. She has chosen the Settlement Option that guarantees payments over a specified period and the dividends are applied toward future premiums. Which Dividend Option did she choose?
What effect, if any, does the Dividend Option - Acceleration of Endowment have on a policy?
What effect, if any, does the Dividend Option - Acceleration of Endowment have on a policy?
Which Settlement Option pays a specified dollar amount until benefits are exhausted?
Which Settlement Option pays a specified dollar amount until benefits are exhausted?
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Study Notes
Interest on Dividends
- Interest earned on dividends is taxable.
- Dividends themselves are not taxable.
Nonforfeiture Options
- Cash Surrender allows policyholders to receive cash value upon policy termination.
- Accumulation at Interest is not a Nonforfeiture Option, it refers to dividends accumulating interest.
- If a policy lapses due to non-payment, nonforfeiture values are returned to the policyowner.
Settlement Options
- Can be used when the insured dies or if they are alive at the policy's endowment date.
- Life Income Only guarantees payment for the lifetime of the designated beneficiary.
- Fixed Amount pays benefits at a specified dollar amount until benefits are exhausted.
- The Fixed Period pays benefits over a specified duration.
Cash Surrender Value
- This value is available when the policy is terminated by the owner.
- It signifies the monetary return an owner can receive from a lapsed or surrendered policy.
Dividend Options
- Reduced Paid-Up is a Nonforfeiture Option, not a Dividend Option.
- Paid-Up Additions, Paid in Cash, and Accumulate at Interest are classified as Dividend Options.
- Premium Reduction allows dividends to be applied towards future premiums.
Additional Concepts
- Options in life insurance policies help establish continuity in life insurance interpretations.
- The Acceleration of Endowment option shortens the period until the policy matures, using dividends to achieve this.
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