Life Insurance and Annuities Quiz

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Questions and Answers

Which feature distinguishes Adjustable Life from other life insurance policies?

It provides a decreasing death benefit over time.

It guarantees the policy remains active until the insured is 100.

It offers fixed premiums regardless of the insured's age.

It allows adjustments to coverage, premium, and policy type. (correct)

What does the Needs Approach in life insurance primarily assess?

Future investment growth and interest rates.

The insured's overall health and life expectancy.

Debts, income, mortgage, and family expenses. (correct)

The premium costs associated with different policies.

Which classification indicates an individual is at higher risk and may incur greater premiums?

Preferred

Substandard (correct)

Standard

Optimum

What is the defining characteristic of a Whole Life insurance policy?

It accumulates cash value and provides a level death benefit. Signup and view all the answers

What does the term 'Decreasing Term' life insurance typically address?

A death benefit that reduces with declining debt obligations. Signup and view all the answers

In which life insurance policy does the death benefit get paid when the last insured dies?

Survivorship Life Signup and view all the answers

Which component is typically NOT part of the Life Insurance Application?

Investment Portfolio Signup and view all the answers

Which of the following best describes Limited Pay Whole Life insurance?

Premiums are paid until the insured reaches a specified age. Signup and view all the answers

What defines the role of the annuitant in an annuity contract?

Receives payments based on amount, age, and gender Signup and view all the answers

Which of the following accurately describes the accumulation period of an annuity?

It represents the phase where the policy owner builds their estate. Signup and view all the answers

In a variable annuity, what key characteristic differentiates it from a fixed annuity?

Premiums are invested in a separate account. Signup and view all the answers

Which of the following is true regarding the taxation of a qualified annuity?

Both the premiums paid and the interest accrued are fully taxable. Signup and view all the answers

What happens to the money during the annuity period?

The money belongs to the insurance company. Signup and view all the answers

What is the primary function of an Automatic Premium Loan?

To ensure the policy does not lapse due to unpaid premiums Signup and view all the answers

Which option describes the characteristics of Reduced Paid-Up insurance?

Reduces the face amount while ceasing premium payments Signup and view all the answers

What does the Waiver of Premium rider entail?

Premiums are waived until the insured reaches age 65 after disability Signup and view all the answers

Which rider would allow additional insurance to be purchased without evidence of insurability?

Guaranteed Insurability rider Signup and view all the answers

What is a key feature of the Children's Term rider?

It can convert to a permanent policy after a limited time Signup and view all the answers

Which of the following typically increases or decreases the face value of a policy based on inflation?

Cost of Living rider Signup and view all the answers

What notable feature does Accidental Death rider provide?

Double or triple indemnity for accidental death Signup and view all the answers

What essential benefit does an annuity provide?

Income that prevents the risk of outliving savings Signup and view all the answers

Which non-forfeiture option converts a policy into a term insurance plan maintaining the original face amount?

Extended Term option Signup and view all the answers

How is the cash value from a partial surrender typically treated for tax purposes in universal life insurance?

Taxed based on the amount exceeding loans Signup and view all the answers

Which statement correctly differentiates between primary and contingent beneficiaries?

The primary beneficiary is the main recipient, while the contingent beneficiary is an alternate if the primary dies. Signup and view all the answers

What is a characteristic of an irrevocable beneficiary designation?

Changing the beneficiary requires written consent from the irrevocable beneficiary. Signup and view all the answers

Which of the following accurately describes the implications of a spendthrift clause?

Creditors cannot pursue the beneficiary's death benefit after the insured's death. Signup and view all the answers

Which premium payment mode results in the highest total annual cost?

Monthly Signup and view all the answers

In what scenario does the common disaster provision apply?

When both die within a specified number of days of each other. Signup and view all the answers

Which of the following statements about policy dividends is true?

Dividends can reduce the next year's premium but are not guaranteed. Signup and view all the answers

What outcome is associated with the fixed amount settlement option?

The beneficiary receives fixed payments until the funds are exhausted. Signup and view all the answers

Which statement about collateral assignment is accurate?

It is a temporary transfer of some ownership rights. Signup and view all the answers

What happens under the interest-only settlement option?

The insurer retains the death benefit while providing interest to the beneficiary. Signup and view all the answers

Which dividend option increases the overall policy death benefit?

Paid-up additions Signup and view all the answers

What document is usually awarded to the member in a group life insurance policy?

Certificate of Insurance Signup and view all the answers

Which type of group life insurance is funded solely by the employer?

Noncontributory Signup and view all the answers

What happens during the conversion period under group life insurance?

The member can obtain an individual policy at higher premiums. Signup and view all the answers

What is the primary purpose of a Mortgage Redemption insurance policy?

To pay off the mortgage loan upon the borrower's death. Signup and view all the answers

What distinguishes a Family Income Policy from other family policies?

It has a decreasing term component. Signup and view all the answers

How long is the grace period typically allowed after a premium due date?

30 days Signup and view all the answers

What does the incontestable period refer to in a life insurance policy?

The duration within which the insurer can deny a claim based on misrepresentation. Signup and view all the answers

In a Family Protection policy, what is the primary advantage of combining different types of insurance?

Single policy administration for multiple family members. Signup and view all the answers

What determines the premiums for a group life insurance policy?

Previous group claims experience. Signup and view all the answers

What is the essence of the 'Free Look' provision in insurance policies?

It provides a full refund during a specific period after purchase. Signup and view all the answers

Study Notes

Application

Human Life Value Approach: Predicts future earnings of the insured using wages, inflation, and time until retirement. Considers the time value of money.
Needs Approach: Predicts financial needs of the family using debt, income, mortgage, and expenses.
Parts of the application include: general information, medical information, agent's report, and risk classifications.
Risk Classifications: Preferred risks are healthier than standard risks and usually get discounted premiums. Standard risks are normal or average risks with no special conditions. Substandard risks require special conditions or higher premiums due to higher risk.

Life Insurance Policies

Level Term: Pure protection for a specific term. Premiums remain the same throughout the term.
Annual Renewable Term: Renews yearly without proof of insurability. Premiums increase each year based on attained age.
Decreasing Term (Credit Life): Coverage decreases as debt decreases. Ideal when protection needs decline.
Straight Life: Basic whole life policy with level death benefit until death or age 100.
Limited Pay: Premiums paid for a specific length of time or age. Coverage continues until death or age 100.
Single Premium: One lump-sum premium payment and coverage remains until death or age 100.

Flexible Premium Policies (Cash Value)

Adjustable Life: Three adjustable parts: coverage, premiums, and plan type (insured selects two, insurer selects one).
Universal Life: Interest-sensitive cash value, flexible coverage and premiums, and two death benefit options, A & B.

Specialized Policies

Joint Life (First-to-Die): Two or more insureds on the same policy, benefit paid when the first insured dies.
Survivorship Life (Second-to-Die): Two or more insureds on the same policy, benefit paid when the second insured dies.
Group Life: Usually written for employer-employee groups. Members pay premiums through a master contract; certificate of insurance given to each member.

Special Coverages

Mortgage Redemption: Insures the borrower for the amount equal to the mortgage. If the insured dies, insurer pays the loan balance.
Family Maintenance: Combines whole life with level term insurance to cover family members. Provides coverage for each family member.
Family Income Policy: Combines decreasing term and whole life insurance to provide income for the family.
Jumping Juvenile: Life insurance for a minor with a face amount that increases at a pre-determined age (often 21).

Policy Provision Terms

Insuring Clause: The company's promise to pay benefits.
Consideration Clause: The application and initial premium constitutes consideration.
Grace Period: 30-31 days after due date during which the policy is still active if premium isn't paid.
Reinstatement Clause: Allows a lapsed policy to become active again under specific terms.
Payback Clauses: Include any loans or interest in the payoff.
Misstatement of Age/Sex: The policy can make adjustments based on a misrepresentation of these.
Free Look Period: Specific time period the insured has to review the policy and request a full refund if not satisfied.
Ownership Clause: Explains rights and responsibilities of the policy owner.
Assignment Clause: Allows the owner to assign the policy to another person.
Incontestable Period: Insurer can't dispute the policy within a specified period (often 2 years).

Beneficiary

Beneficiary: The person who receives the policy proceeds if the insured dies.
Primary Beneficiary: The first designated beneficiary.
Contingent Beneficiary: The secondary beneficiary if the primary beneficiary dies beforehand.
Revocable Beneficiary: The policy owner can change the beneficiary's designation at any time.
Irrevocable Beneficiary: The policy owner cannot change the beneficiary's designation without written consent.
Common Disaster Provision: The insured must die before the beneficiary.
Spendthrift Clause: Creditors of the insured can't go after the beneficiary's payout.
Premium Modes: Frequency of premium payments (monthly, quarterly, semi-annually, or annually.) More frequent premium payments = higher total annual cost.)

Policy Options

Cash Payment (Lump Sum): Proceeds are paid to the beneficiary in a lump sum and isn't taxable.
Life Income: Pays out guaranteed installments as long as the recipient lives.
Interest Only: Payment until proceeds are paid.
Fixed Period: Payout depletes the funds over a fixed period.
Fixed Amount: Fixed payment amount until all proceeds are exhausted.

Dividend Options

Return of excess premiums: Non-taxable and non-guaranteed returns.
One-year term: Company uses the dividend to buy additional insurance.
Cash option: Insurer sends a check for the dividend.
Reduction of premium: Insurer reduces next year's premium using the dividend.

Policy Loans/ Withdrawal Options

Cash Loans: Loans not subject to income tax.
Automatic Premium Loan: Prevents lapse if premium is not paid on time.
Withdrawal/Partial Surrender: Allows withdrawal of some or all the money in certain policies, may be subject to charges.

Non-forfeiture Options

Reduced Paid-up: Reduces the face amount.
Extended Term: Converts to a term insurance policy with similar coverage for the same face amount as the original policy or part of it.
Cash Value: Interest taxed on withdrawal or surrender.

Policy Riders

Waiver of Premium: Waives premiums if the insured becomes totally disabled (6-month waiting period).
Accelerated Benefit Rider: Provides early payment if the insured is diagnosed with a specified serious illness.
Riders Covering Additional Insureds: Covers spouse and children; usually for a limited time.
Family Term Rider: Covers spouse and children in one rider.
Payor Benefit: Insurer pays premiums if the payor becomes disabled or dies, until the child is no longer a minor.

Riders Affecting Death Benefit Amount

Accidental Death: Usually pays double or triple if accidental death occurs within 90 days of the accident.
Guaranteed Insurability: Allows purchasing additional insurance at predetermined times.
Cost of Living: Increases or decreases death benefit each year based on the cost of living adjustment.
Return of Premium: Refunds premiums previously paid to the beneficiary.

Annuities

Annuity: A retirement plan that liquidates an estate, where earnings grow tax-deferred.
Owner: Purchases the annuity contract and pays the premiums.
Annuitant: Receives payments (based on amount, age, and gender).
Beneficiary: Receives cash or premium if the annuitant dies.
Accumulation Period: Money is built up in the account.
Annuity Period: When the payments are made.
Premium Payments: Can be single or periodic (level).

Annuity Payment Options

Cash one-time payment: Interest is immediately taxed; 10% penalty before age 59 1/2.
Annuity Certain: Guaranteed for a fixed period or fixed amount.
Straight Life: Guarantees payments for life, ceasing at death.
Life with certain period: Guarantees payments for life and a specified time after the annuitant dies.

Annuity classifications

Fixed Annuities: Interest rates are guaranteed, income payments do not vary. Premiums are held in the company's general account.
Variable Annuities: Growth is not guaranteed. Premiums are held in a separate account and are a type of security. Level benefits are based on the policy owner assuming the risk.
Equity Indexed Annuities: Investing in a stock market or other equity. Like fixed annuities that invest, usually aiming for higher returns.

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Description

Test your knowledge with this quiz focused on life insurance and annuity concepts. Explore key features such as Adjustable Life, Whole Life policies, and the role of annuitants. This quiz covers essential terminology and classifications in the life insurance industry.