Life Insurance Basics Quiz
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Questions and Answers

Which of these needs is satisfied by Adjustable Life insurance?

insured's need for flexible premiums

K is shopping for a permanent life insurance policy that will offer her the most protection per dollar of annual premium. Which of these policies best fits her needs?

  • Straight Life (correct)
  • Universal Life
  • Modified Whole Life
  • Term Life

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

    decreasing term

    K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this?

    <p>Modified Whole Life</p> Signup and view all the answers

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

    <p>conversion</p> Signup and view all the answers

    K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?

    <p>$20,000 death benefit</p> Signup and view all the answers

    A policy that becomes a Modified Endowment Contract (MEC):

    <p>will lose many of its tax advantages</p> Signup and view all the answers

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

    <p>upon death of the last insured</p> Signup and view all the answers

    Which of these statements describe a Modified Endowment Contract?

    <p>Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract</p> Signup and view all the answers

    S is close to retiring and would like to purchase a policy that will yield greater gains than bonds, but will still protect the principal with a minimum level of risk. Which product would S be advised to purchase?

    <p>Equity index insurance</p> Signup and view all the answers

    All of these statements about Equity Indexed Life Insurance are correct, except:

    <p>False</p> Signup and view all the answers

    Under a Renewable Term policy,

    <p>the renewal premium is calculated on the basis of the insured's attained age</p> Signup and view all the answers

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

    <p>Survivorship</p> Signup and view all the answers

    Which of these is an element of a Variable Life policy?

    <p>a fixed, level premium</p> Signup and view all the answers

    D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed?

    <p>Level term</p> Signup and view all the answers

    A Universal Life policy is sometimes referred to as an unbundled Life Policy because the owner can see the interest earned, expense charges, and the

    <p>expense charges</p> Signup and view all the answers

    Term insurance has which of the following characteristics?

    <p>True</p> Signup and view all the answers

    When a policyowner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply?

    <p>Conversion provision</p> 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.

    <p>Variable</p> Signup and view all the answers

    Which statement is true regarding a Variable Whole Life policy?

    <p>a minimum guaranteed death benefit is provided</p> Signup and view all the answers

    Which of the following actions is not possible with a Universal Life policy?

    <p>True</p> 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:

    <p>change the policy's interest rate</p> Signup and view all the answers

    Additional coverage can be added to a Whole Life policy by adding a:

    <p>decreasing term rider</p> Signup and view all the answers

    P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries 20 years after he dies and a lump sum of $20,000 at the end of that 20-year period. What type of policy should P purchase?

    <p>Family Maintenance policy</p> Signup and view all the answers

    A life insurance policy that provides a policyowner with cash value along with a level face amount is called:

    <p>Whole life</p> Signup and view all the answers

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

    <p>Face amount plus the policy's cash value</p> Signup and view all the answers

    A ___________ ____________ Life policy combines investment choices with a form of Term coverage.

    <p>Variable Universe</p> Signup and view all the answers

    Which of the following combination plans is designed to protect an insured from an unpaid mortgage balance upon premature death?

    <p>Joint Life</p> Signup and view all the answers

    Q would like to purchase $100,000 of permanent protection on his wife and $50,000 of Term coverage on himself under the same policy. What kind of policy should Q purchase?

    <p>A Whole Life policy with other insured rider</p> Signup and view all the answers

    A father who dies within three years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision?

    <p>Payor provision</p> Signup and view all the answers

    What kind of life insurance product covers children under their parent's policy?

    <p>A Term rider</p> Signup and view all the answers

    What kind of premium does a Whole Life policy have?

    <p>level</p> 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 at the end of that 30 years?

    <p>Family Maintenance Policy</p> Signup and view all the answers

    Which is true concerning a Variable Universal Life policy?

    <p>Policyowner controls where the investment will go and selects the amount of the premium payment</p> Signup and view all the answers

    Which of the following information is not required to be included in a Whole Life policy?

    <p>Policy's guaranteed dividend table</p> Signup and view all the answers

    P owns a $25,000 Life Policy that pays the face amount to him if he lives to age 70, or to his beneficiary if he dies before age 70. What kind of policy does P own?

    <p>Endowment at age 70</p> Signup and view all the answers

    How long does the coverage normally remain on a limited-pay life policy?

    <p>age 100</p> Signup and view all the answers

    A Universal Life policy is sometimes referred to as an unbundled Life Policy because the owner can see the interest earned, cost of insurance, and the

    <p>expense charges</p> Signup and view all the answers

    Which statement about a whole life policy is true?

    <p>True</p> Signup and view all the answers

    A Limited-Pay Life policy has:

    <p>premium payments limited to a specified number of years</p> Signup and view all the answers

    Which of the following actions require a policyowner to provide proof of insurability in an Adjustable Life policy?

    <p>increase face amount</p> Signup and view all the answers

    Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit?

    <p>True</p> Signup and view all the answers

    Which of these types of policies may not have the Automatic Premium Loan provision attached to it?

    <p>Decreasing Term</p> Signup and view all the answers

    A term life insurance policy matures:

    <p>upon the insured's death during the term of the policy</p> Signup and view all the answers

    The combination of Whole Life and _________ Term insurance is referred to as a Family Income Policy.

    <p>Decreasing</p> Signup and view all the answers

    Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?

    <p>policyowner</p> Signup and view all the answers

    The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is:

    <p>the cost</p> Signup and view all the answers

    All of these are characteristics of an Adjustable Life policy, except:

    <p>False</p> Signup and view all the answers

    K is looking to purchase Renewable Term insurance. Which of these types of Term insurance may be renewable?

    <p>Level</p> Signup and view all the answers

    Which of the following actions require a policyowner to provide proof of insurability in an Adjustable Life policy?

    <p>True</p> Signup and view all the answers

    A life policy that contains a monthly mortality charge as well as self-directed investment choices is called a

    <p>Variable Universal Life policy</p> 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 of time?

    <p>Decreasing term</p> Signup and view all the answers

    Under a Graded Premium policy, the premiums

    <p>are lower during the policy's early years</p> Signup and view all the answers

    What type of life insurance are credit policies issued as?

    <p>Term</p> Signup and view all the answers

    Under an Interest Sensitive Whole Life policy, cash values are determined by

    <p>interest rates</p> Signup and view all the answers

    S, age 40, is looking to buy a Life Insurance policy that will allow for increases or decreases in coverage as his needs change. The policy best suited for S would be

    <p>Universal Life</p> Signup and view all the answers

    What type of life policy covers 2 lives and pays the face amount after the first one dies?

    <p>Joint Life policy</p> Signup and view all the answers

    Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit?

    <p>True</p> Signup and view all the answers

    What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies?

    <p>Family Maintenance Policy</p> Signup and view all the answers

    Y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10-year Term coverage for his wife on the same policy. Which of these policies did Y purchase?

    <p>Whole Life policy with an Other Insured Rider</p> Signup and view all the answers

    T would like to be assured $10,000 is available in 10 years to replace a roof on his house. What kind of $10,000 policy should T purchase?

    <p>Ten-Year Endowment</p> Signup and view all the answers

    N is a 40-year old applicant who would like to retire at age 70. He is looking to buy a life insurance policy with level premiums, permanent protection, and be paid-up at retirement. Which of these should N purchase?

    <p>30 Pay Life</p> Signup and view all the answers

    F needs life insurance that provides coverage for only a limited amount of time with a death benefit that changes regularly according to a schedule. What kind of policy is needed?

    <p>Decreasing term policy</p> Signup and view all the answers

    Which of the following types of Term Life policies most likely contains a Renewability feature?

    <p>10 Year Convertible Term</p> Signup and view all the answers

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

    <p>Decreasing term</p> Signup and view all the answers

    The investment gains from a Universal Life Policy usually go toward:

    <p>the cash value</p> Signup and view all the answers

    G purchased a Family Income policy at age 40. The policy has a 20-year rider period. If G were to die at age 50, how long would G's family receive an income?

    <p>10 years</p> Signup and view all the answers

    What type of life insurance incorporates flexible premiums and an adjustable death benefit?

    <p>Universal Life</p> Signup and view all the answers

    Credit life insurance is:

    <p>True</p> Signup and view all the answers

    The amount of coverage on a group credit life policy is limited to:

    <p>the insured's total loan value</p> Signup and view all the answers

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

    <p>Child term rider</p> Signup and view all the answers

    Which of the following policies is characterized by a flexible premium and death benefit and allows the policyowner control of the investment aspect of the plan?

    <p>Variable universal life</p> Signup and view all the answers

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

    <p>without evidence of insurability</p> Signup and view all the answers

    Which of these would be considered a Limited-Pay Life policy?

    <p>Life Paid-Up at Age 70</p> Signup and view all the answers

    Whole Life insurance policies are contractually guaranteed to provide each of the following, except:

    <p>True</p> Signup and view all the answers

    What kind of life insurance starts out as temporary coverage but can be later modified to permanent coverage without evidence of insurability?

    <p>Convertible Term</p> Signup and view all the answers

    J is issued a Life Insurance policy with a death benefit of $100,000. She pays $600 per year in premium for the first 5 years. The premium then increases to $900 per year in the sixth year, and remains level thereafter. The policy's death benefit also remains at $100,000. Which type of Life Insurance policy is this?

    <p>Modified Premium Life</p> Signup and view all the answers

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

    <p>Term life</p> Signup and view all the answers

    An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period?

    <p>Full face amount minus any past due premiums</p> Signup and view all the answers

    Which of the following Nonforfeiture options offers the highest death benefit?

    <p>Extended term</p> Signup and view all the answers

    All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT

    <p>False</p> Signup and view all the answers

    An insured's inability to perform two or more activities of daily living may trigger which type of life policy rider?

    <p>Long term care</p> Signup and view all the answers

    Which of these statements about a Guaranteed Insurability Option rider is not true?

    <p>False</p> Signup and view all the answers

    The incontestable clause allows an insurer to:

    <p>contest a claim during the Contestable Period</p> Signup and view all the answers

    D owns a Whole Life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which Nonforfeiture Option will the insurer likely proceed with?

    <p>Extended term</p> Signup and view all the answers

    P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers 'No'. The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary?

    <p>$50,000 minus any outstanding policy loans</p> Signup and view all the answers

    In a Life insurance contract, an insurance company's promise to pay stated benefits is called the:

    <p>insuring clause</p> Signup and view all the answers

    Which of these are not an example of a nonforfeiture option?

    <p>Life Income</p> Signup and view all the answers

    A Cost of Living rider gives the insured

    <p>additional death benefits</p> Signup and view all the answers

    Dividends paid from a life insurance policy are

    <p>issued by the insurer</p> Signup and view all the answers

    A Return of Premium life insurance policy is:

    <p>Whole life and Increasing term</p> Signup and view all the answers

    A Term Life rider offers the insured

    <p>additional life coverage</p> Signup and view all the answers

    P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability?

    <p>P will still receive declared dividends</p> Signup and view all the answers

    Which statement regarding the Misstatement of Age provision is considered to be true?

    <p>True</p> Signup and view all the answers

    What is the Suicide provision designed to do?

    <p>safeguard the insurer from an applicant who is contemplating suicide</p> Signup and view all the answers

    When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?

    <p>Void the policy only if it is discovered during the Contestable period and proven to be material</p> Signup and view all the answers

    A Nonforfeiture clause gives the policyowner

    <p>guaranteed values even if the policy has lapsed</p> Signup and view all the answers

    A Whole Life insurance policyowner does not have the right to

    <p>True</p> Signup and view all the answers

    What action will an insurer take if an interest payment on a policy loan is not made on time?

    <p>Policy may lapse or incur additional fees</p> Signup and view all the answers

    Study Notes

    Life Insurance Policies and Features

    • Adjustable Life insurance satisfies the need for flexible premiums.
    • Straight life provides the most protection per dollar of annual premium for permanent life insurance.
    • Decreasing term policies have a death benefit that adjusts periodically and are written for specific periods.
    • Modified Whole Life policies have fixed premiums for an initial period, then increase while maintaining the same death benefit.
    • The conversion provision allows policyowners to change term policies to permanent ones without evidencing good health.

    Endowment and Death Benefits

    • A $20,000 20-Year Endowment pays its entire face amount regardless of when the insured passes, as long as it is within the policy period.
    • Policies that become Modified Endowment Contracts (MEC) lose many tax advantages.
    • Death benefits under Joint Life and Survivor policies are paid after the last insured dies.
    • The Face Amount Plus Cash Value Policy provides both the death benefit and the policy's cash value upon the insured's death.

    Premium and Coverage Characteristics

    • Universal Life policies allow for flexible premiums and adjustable death benefits, termed unbundled policies.
    • Term insurance expires at the end of its policy period and is typically characterized by lower premiums.
    • Level term policies provide coverage for a specified period with consistent premiums.
    • Variable Life policies include a fixed, level premium but also offer investment choices in different financial products.

    Policy Riders and Provisions

    • Family Maintenance policies pay specified monthly income for a certain period, then a lump sum afterward.
    • Riders such as the Child term rider extend coverage to children under the parent's policy.
    • Payor provisions allow for premium waivers if a parent dies shortly after purchasing a children's life policy.

    Renewal and Conversion Features

    • Renewable Term policies have renewal premiums based on the insured's attained age.
    • Convertible Term policies allow for modification to permanent coverage without evidence of insurability.

    Special Insurance Types

    • Equity Indexed Life Insurance offers returns based on stock market performance while protecting the principal.
    • Variable Universal Life policies combine flexible premium payments and investment choices, allowing policyowners more control.

    Coverage and Nonforfeiture Options

    • Nonforfeiture options like Extended Term provide guaranteed values even if a policy has lapsed.
    • The Suicide provision protects insurers against claims from individuals contemplating self-harm, generally within the initial years of the policy.

    Policy Loans and Benefits

    • If an insured dies while premiums are overdue but within the grace period, beneficiaries receive the full face amount minus any remaining premiums due.
    • Dividends from participating life policies are issued by insurers and can be used for various purposes, such as reducing premiums.

    Contestability and Adjustment Clauses

    • The Misstatement of Age provision helps ensure coverage is adjusted if the actual age differs from what's stated on the application.
    • Policies can be voided during the contestable period if material misrepresentations are discovered.

    Conclusion

    • Life insurance policies vary significantly in structure and benefits, offering a range of options for flexibility, protection, and savings.
    • Understanding each type of policy, including its features, provisions, and riders, is essential for selecting the most appropriate coverage.

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    Description

    Test your knowledge on life insurance policies with this quiz. Explore concepts such as Adjustable Life insurance, permanent life insurance options, and death benefits. Perfect for anyone looking to understand the fundamentals of life insurance.

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