Life Insurance Policies Chapter Exam 1
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Questions and Answers

What do term life insurance policies issued until a certain age provide?

Coverage from their date of issue until the insured reaches the specified age.

Industrial life insurance is characterized by?

Comparatively small issue amounts, i.e., $1,000.

What happens when a modified endowment contract fails to meet the seven-pay test?

Pre-death distributions are typically taxable.

How is a single premium cash value policy best described?

<p>A policy that is paid up after only one payment.</p> Signup and view all the answers

What is a permanent life insurance policy where the policy owner pays premiums for a specified number of years called?

<p>Limited pay policy.</p> Signup and view all the answers

Term insurance is appropriate for someone who?

<p>Is seeking temporary protection and lower premiums.</p> Signup and view all the answers

What type of life insurance policy contains a guaranteed interest rate with the chance to earn a higher rate?

<p>Universal life policy.</p> Signup and view all the answers

What kind of policy does Joe have if his life insurance face amount is $300,000 and cash value accumulates to $50,000, becoming $350,000?

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

What is the premium structure of a Modified whole life policy?

<p>Lower than typical whole life premiums during the first few years and then higher than typical thereafter.</p> Signup and view all the answers

Which of the following are the premium payments for a Universal life policy?

<p>All of the above</p> Signup and view all the answers

Which type of multiple protection policy pays on the death of the last person?

<p>Survivorship life policy.</p> Signup and view all the answers

What happens to Shawn, Mike, and Dave's policy if Mike dies first under their joint life policy?

<p>Will no longer provide insurance protection.</p> Signup and view all the answers

What feature differentiates a universal life policy from a whole life policy?

<p>A flexible premium schedule.</p> Signup and view all the answers

What kind of policy does Peter have where 80% to 90% of the premium is invested in traditional fixed income securities?

<p>Equity index whole life.</p> Signup and view all the answers

Why do pre-death distributions from a modified endowment contract receive different tax treatment?

<p>Because it tends to be an investment vehicle.</p> Signup and view all the answers

What is required for a life insurance producer to sell variable annuities?

<p>A securities license.</p> Signup and view all the answers

Which of these are valid options for an Adjustable Life Policy?

<p>All of the above.</p> Signup and view all the answers

What is Ordinary Life Insurance?

<p>Individual life insurance that includes many types of temporary, permanent, and variable universal life insurance.</p> Signup and view all the answers

How are premiums typically paid on an ordinary life insurance policy?

<p>Monthly, quarterly, semi-annually, or annually.</p> Signup and view all the answers

What types of coverage does Ordinary life insurance include?

<p>All of the above.</p> Signup and view all the answers

What characterizes Industrial life insurance?

<p>By comparatively small issue amounts, i.e., $1,000.</p> Signup and view all the answers

How does Industrial life insurance collect premiums?

<p>On a weekly or monthly basis by the agent at the policy owner's home.</p> Signup and view all the answers

Group life insurance is written for?

<p>Employer, employee groups, associations, unions, and creditors.</p> Signup and view all the answers

What does Group life insurance provide?

<p>Coverage for a number of individuals under one contract.</p> Signup and view all the answers

On what basis is group life insurance underwriting done?

<p>The group, not the individuals who are insured.</p> Signup and view all the answers

Group life insurance has not grown tremendously over the past few decades.

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

What is term life insurance?

<p>The simplest type of life insurance plan.</p> Signup and view all the answers

Term life insurance pays a benefit only if the insured dies during that period.

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

Term life insurance policies build cash value.

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

Term life insurance has the advantage of a lower initial premium than whole life insurance.

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

What does term life provide?

<p>The greatest amount of death benefit per dollar of initial cash outlay.</p> Signup and view all the answers

Term life insurance is also called permanent life insurance.

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

The period for which term life insurance policies are issued can be defined in terms of ______ and by certain age.

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

Study Notes

Life Insurance Policies Overview

  • Term life insurance policies provide coverage until the insured reaches a specified age.
  • Industrial life insurance policies typically offer small issue amounts, often around $1,000.
  • Modified endowment contracts that fail the seven-pay test lead to taxable pre-death distributions.
  • Single premium cash value policies require only one payment to be fully paid up.
  • Limited pay policy requires premiums to be paid for a specified number of years.
  • Term insurance is ideal for those seeking temporary protection with lower premiums.
  • Universal life insurance combines a guaranteed interest rate with potential higher earnings.
  • A Universal Life policy can have a cash value that exceeds the initial face amount.

Policy Features and Tax Implications

  • Modified whole life policies have lower initial premiums that increase over time.
  • Premium payments for a Universal life policy include death benefits, cash value, and loading costs.
  • Survivorship life policies pay benefits only after the death of the last insured person.
  • "First to die" joint life policies stop coverage after the first insured's death.
  • Universal life insurance features a flexible premium schedule compared to whole life insurance.
  • Policies that invest primarily in fixed income securities with some in stock indexes are termed equity index whole life.
  • Modified endowment contracts are treated differently for tax purposes due to their investment nature.

Licensing and Premium Payment Details

  • A securities license is needed to sell variable annuities.
  • Adjustable Life Policies allow modifications in premiums, death benefits, and protection periods.

Ordinary and Group Life Insurance Concepts

  • Ordinary life insurance encompasses individual plans, including term, whole life, universal, and variable universal life insurance.
  • Premiums for ordinary life insurance are typically paid monthly, quarterly, semi-annually, or annually.
  • Group life insurance is designed for groups like employers, unions, and associations.
  • This type of insurance provides coverage under a single contract and is underwritten based on the group rather than individuals.
  • Group life insurance has seen significant growth over recent decades.

Additional Aspects of Term Life Insurance

  • Term life insurance is recognized as the simplest insurance plan, paying benefits only if the insured dies within the policy period.
  • It does not accumulate cash value and offers lower initial premiums than whole life insurance.
  • Term life provides the highest death benefit for the least initial cash outlay.
  • Also referred to as temporary life insurance, it covers specific time frames defined in years or till a certain age.

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Description

Test your knowledge on various life insurance policies with this quiz based on Chapter Exam 1. Explore terms such as term life, industrial life, and modified endowment contracts. Perfect for students preparing for their insurance examinations.

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