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Life Insurance Policies Overview
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Life Insurance Policies Overview

Created by
@SkilledAzalea

Questions and Answers

Which type of policy is considered to be overfunded, as stated by IRS guidelines?

  • Term Life
  • Modified Endowment Contract (correct)
  • Universal Life
  • Whole Life

    • A(n) _______ _______ Life policy combines investment choices with a form of Term coverage.

    Variable Universal

    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 ___

    cost of insurance

    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

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

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

    A policy that becomes a Modified Endowment Contract (MEC) will lose many of its tax advantages. True or False?

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

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

    <p>Partial Withdrawal Features</p> Signup and view all the answers

    Variable Life products require a producer to have what licenses?

    <p>Life Insurance license and a Securities license</p> Signup and view all the answers

    A father who dies within 3 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

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

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

    Which of these statements describe a Modified Endowment Contract (MEC)?

    <p>It 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

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

    <p>Universal Life</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

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

    <p>Face amount can be adjusted using policy dividends</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>Variable Life</p> Signup and view all the answers

    Under a Graded Premium Whole Life policy, the premium changes how?

    <p>The premium increases each year during the early years of the contract and remains the same after that time</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

    What kind of policy is described as having a fixed premium for the first 5 years, then increases?

    <p>Modified Whole Life</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

    Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?

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

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

    <p>Joint Life Policy</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

    At what point does a Whole Life Insurance policy endow?

    <p>When the cash value equals the death benefit</p> Signup and view all the answers

    The most important factor to consider when determining whether to convert term insurance is:

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

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

    <p>Premiums may be applied as a credit against income tax</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 type of life insurance are credit policies issued as?

    <p>Term</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

    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

    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?

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

    Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling?

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

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

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

    Which of the following types of permanent life insurance policies offers the highest initial cash value?

    <p>Single Premium</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

    A company that owns a life insurance policy on one of its key employees may do all of the following EXCEPT:

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

    S, age 40, is looking to buy a Life Insurance policy that allows 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

    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 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

    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, remaining level thereafter. Which type of Life Insurance policy is this?

    <p>Modified Premium Life</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

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

    <p>age 100</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

    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

    The incontestable clause allows an insurer to:

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

    How are surrender charges deducted in a life policy with a rear-end loaded provision?

    <p>Deducted when the policy is discontinued</p> Signup and view all the answers

    How are policyowner dividends treated in regards to income tax?

    <p>Interest on accumulations is taxed</p> Signup and view all the answers

    A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached?

    <p>Waiver of Premium</p> Signup and view all the answers

    Which of these Nonforfeiture Options continue a build-up of cash value?

    <p>Reduced Paid-Up</p> Signup and view all the answers

    The free-look provision begins

    <p>upon receipt of the policy by the policyowner</p> Signup and view all the answers

    An insurer may normally delay the payment of a cash value loan or surrender value for up to

    <p>6 months</p> Signup and view all the answers

    Which of the following statements is CORRECT about accelerated death benefits?

    <p>Must have a terminal illness to qualify</p> Signup and view all the answers

    N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?

    <p>Claim will be denied</p> Signup and view all the answers

    Which of the following provisions guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled?

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

    When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?

    <p>at future dates specified in the contract with no evidence of insurability required</p> Signup and view all the answers

    P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?

    <p>Beneficiary will be paid the Death Benefit</p> Signup and view all the answers

    Study Notes

    Life Insurance Policies Overview

    • Modified Endowment Contract (MEC): A policy is classified as a MEC if it fails the 7-pay test due to excessive funding, thus losing many tax advantages.
    • Variable Universal Life Insurance: Combines investment options with Term insurance, allowing policyholders considerable flexibility in premiums and investment strategies.
    • Universal Life Policy: Considered an unbundled product, providing transparency in interest earned, cost of insurance, and expense charges.
    • Decreasing Term Policy: Commonly used for credit life insurance; it may not come with the Automatic Premium Loan provision. Death benefit decreases over time, aligning with diminishing loan balances.

    Key Features of Policies

    • Whole Life Insurance: Guaranteed to provide certain features, but does not typically allow partial withdrawals beyond a set period without penalties.
    • Premium Structure: Whole Life policies typically have level premiums, while Graded Premium policies feature initially low premiums that increase yearly.
    • Policy Loans: In policies with rear-end loaded provisions, surrender charges are deducted when the policy is discontinued.

    Special Provisions and Riders

    • Payor Provision: Waives premiums on a juvenile policy if the adult payor dies or becomes disabled.
    • Family Maintenance Policy: Provides monthly income to beneficiaries for a specified period, followed by a lump sum death benefit.
    • Waiver of Premium Rider: Guarantees that premiums will be paid if the insured becomes disabled for a certain period.
    • Guaranteed Insurability Rider: Allows the insured to purchase additional coverage at specified future dates without needing to provide evidence of insurability.

    Cash Value and Dividends

    • Investment Gains: Gains from Universal Life policies generally contribute to the cash value.
    • Excess Dividends: If dividends exceed total premium payments, the excess amount is taxable as income.

    Policy Types and Characteristics

    • Joint Life Policy: Covers two lives and pays out the death benefit after the first insured passes.
    • Single Premium Policy: Offers the highest initial cash value among permanent life insurance options.
    • Term Insurance: The best option for those needing temporary coverage at minimal cost, typically utilized in decreasing coverage scenarios.

    Claims and Contestability

    • Incontestability Clause: Insurers can contest claims within a set period (often two years) after issuance; after this, claims are generally upheld unless fraud is proven.
    • Claim Denial: If the insured fails to pay required premiums by the policy's lapse date, the claim will be denied.

    Coverage Duration and Limits

    • Limited-Pay Life Policy: Offers coverage up to age 100, where premiums are paid for a limited time.
    • Nonforfeiture Options: Include Reduced Paid-Up Options which allow the policy to still accumulate cash value after stopping regular premium payments.

    Investment and Securities Licensing

    • Variable Life: Requires a securities license due to the investment component of the policy. Agents must register with NASD to sell these products.

    Essential Features to Note

    • Face Amount Adjustments: Some policies, like Adjustable Life, allow face amounts to change according to dividends.
    • Mortality Charge: Variable Universal Life policies include monthly mortality charges and offer self-directed investment choices.
    • Accelerated Death Benefits: Typically available only for terminal illness, allowing access to benefits before death.

    Each of these points summarizes crucial aspects of life insurance policies, their features, provisions, and unique characteristics that are important for understanding their functions and implications.

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    Description

    Explore the various types of life insurance policies, including Modified Endowment Contracts, Variable Universal Life, and Whole Life Insurance. This quiz will help you understand the key features, benefits, and limitations of each policy type. Test your knowledge and uncover the essential aspects of life insurance.

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