Life Insurance Chapter 5 Quiz

Questions and Answers

What is the term for a policyowner being prohibited from making changes to the policy without the beneficiary's written consent?

Irrevocable beneficiary (correct)

Contingent beneficiary

Class designation

Revocable beneficiary

Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident?

Contingent beneficiary

What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured?

Specified amount of money

Which aspect is affected by the frequency of an insurance policy's premium payments?

Cost Signup and view all the answers

Mortality is calculated by using a large risk pool of what?

People and time Signup and view all the answers

If the beneficiary dies from the same accident as the insured individual, what does the insurer consider?

The insured outlived the beneficiary Signup and view all the answers

What type of life insurance policies have premiums that are averaged over the policy period?

Level premium term life insurance Signup and view all the answers

Over the course of a year, which premium payment mode is most expensive?

Monthly Signup and view all the answers

An example of naming a beneficiary by class would be?

'To the children born of my union with Ned Jackson' Signup and view all the answers

Naming a contingent beneficiary as 'all surviving children' is described by which term?

Class designation Signup and view all the answers

A policyowner can receive a percentage payment of the death benefits prior to death by using what kind of contract?

Viatical settlement agreement Signup and view all the answers

A tax-free Section 1035 Exchange of a life insurance policy to a different policy is permitted if it occurs under what conditions?

From insurer to insurer and no cash is received by the policyowner Signup and view all the answers

What would be an expense factor in an insurance program?

Mortality costs Signup and view all the answers

How does life insurance create an immediate estate?

After the first premium is paid, the face amount may be available to the beneficiary Signup and view all the answers

Which type of beneficiary should be named if the insured wants to give explicit directions on how the policy proceeds should be paid?

Individual Signup and view all the answers

Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors?

Spendthrift Clause Signup and view all the answers

What happens to the total amount of premium paid for an insurance policy when the payment frequency increases?

Increases Signup and view all the answers

What is the primary feature of a viatical settlement?

Reduced death benefit prepayment Signup and view all the answers

Which of these is considered a major tax advantage of life insurance?

Income tax is typically not owed on proceeds paid directly to a beneficiary Signup and view all the answers

Study Notes

Life Insurance Key Concepts

An irrevocable beneficiary designation requires written consent from the beneficiary for any policy changes.
If the insured and primary beneficiary die in the same accident, proceeds are paid to the contingent beneficiary.
A life insurance policy guarantees a specified amount of money to the beneficiary upon the insured's death.

Premium Payment Insights

The cost of an insurance policy is influenced by the frequency of premium payments.
Monthly premium payment mode is the most expensive option over one year.
As premium payment frequency increases, the total amount of premium paid increases.

Mortality and Risk Pooling

Mortality is assessed using a large risk pool of people and time to calculate risk.

Beneficiary Designation

Class designation allows naming a beneficiary by class, such as "all surviving children."
Naming an individual as a beneficiary provides explicit directions for payment distribution.

Financial Mechanisms and Agreements

A viatical settlement agreement enables policyowners to receive a percentage of death benefits before death.
A tax-free Section 1035 Exchange allows a life insurance policy to be transferred without cash exchange between insurers.

Immediate Estate Creation

Life insurance creates an immediate estate, making the face amount available after the first premium payment.

Protection from Creditors

The spendthrift clause in life insurance policies protects proceeds from attachment or seizure by creditors of the beneficiary.

Tax Advantages

One major tax advantage of life insurance is that proceeds paid directly to a beneficiary are generally not subject to income tax.

Features of Life Insurance Policies

Level premium term life insurance policies have averaged premiums over the policy duration.
The primary feature of a viatical settlement includes the prepayment of a reduced death benefit.

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Description

Test your knowledge on life insurance concepts from Chapter 5. This quiz covers important terms such as irrevocable beneficiaries and contingent beneficiaries. Reinforce your understanding of policy provisions and payouts.