Podcast
Questions and Answers
Which type of policy is considered to be overfunded, as stated by IRS guidelines?
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.
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 ___
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?
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?
Credit life insurance is typically issued with which of the following types of coverage?
Credit life insurance is typically issued with which of the following types of coverage?
A policy that becomes a Modified Endowment Contract (MEC) will lose many of its tax advantages. True or False?
A policy that becomes a Modified Endowment Contract (MEC) will lose many of its tax advantages. True or False?
Whole Life insurance policies are contractually guaranteed to provide each of the following, EXCEPT:
Whole Life insurance policies are contractually guaranteed to provide each of the following, EXCEPT:
Variable Life products require a producer to have what licenses?
Variable Life products require a producer to have what licenses?
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?
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?
A life policy that contains a monthly mortality charge as well as self-directed investment choices is called a(n)
A life policy that contains a monthly mortality charge as well as self-directed investment choices is called a(n)
Which of these statements describe a Modified Endowment Contract (MEC)?
Which of these statements describe a Modified Endowment Contract (MEC)?
What type of life insurance incorporates flexible premiums and an adjustable death benefit?
What type of life insurance incorporates flexible premiums and an adjustable death benefit?
What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time?
What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time?
All of these are characteristics of an Adjustable Life policy, EXCEPT:
All of these are characteristics of an Adjustable Life policy, EXCEPT:
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?
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?
Under a Graded Premium Whole Life policy, the premium changes how?
Under a Graded Premium Whole Life policy, the premium changes how?
The investment gains from a Universal Life Policy usually go toward?
The investment gains from a Universal Life Policy usually go toward?
What kind of policy is described as having a fixed premium for the first 5 years, then increases?
What kind of policy is described as having a fixed premium for the first 5 years, then increases?
The combination of Whole Life and _______ Term insurance is referred to as a Family Income Policy.
The combination of Whole Life and _______ Term insurance is referred to as a Family Income Policy.
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?
What type of life policy covers two lives and pays the face amount after the first one dies?
What type of life policy covers two lives and pays the face amount after the first one dies?
Which of these is an element of a Variable Life policy?
Which of these is an element of a Variable Life policy?
At what point does a Whole Life Insurance policy endow?
At what point does a Whole Life Insurance policy endow?
The most important factor to consider when determining whether to convert term insurance is:
The most important factor to consider when determining whether to convert term insurance is:
Which of the following actions is NOT possible with a Universal Life policy?
Which of the following actions is NOT possible with a Universal Life policy?
What kind of premium does a Whole Life policy have?
What kind of premium does a Whole Life policy have?
What type of life insurance are credit policies issued as?
What type of life insurance are credit policies issued as?
Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?
Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?
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?
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?
Which is true concerning a Variable Universal Life policy?
Which is true concerning a Variable Universal Life policy?
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?
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?
Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling?
Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling?
Additional coverage can be added to a Whole Life policy by adding a(n):
Additional coverage can be added to a Whole Life policy by adding a(n):
Which of the following types of permanent life insurance policies offers the highest initial cash value?
Which of the following types of permanent life insurance policies offers the highest initial cash value?
Under a Graded Premium policy, the premiums:
Under a Graded Premium policy, the premiums:
A company that owns a life insurance policy on one of its key employees may do all of the following EXCEPT:
A company that owns a life insurance policy on one of its key employees may do all of the following EXCEPT:
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:
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:
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?
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?
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 ___
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 ___
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?
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?
Which statement is TRUE regarding a Variable Whole Life policy?
Which statement is TRUE regarding a Variable Whole Life policy?
How long does the coverage normally remain on a limited-pay life policy?
How long does the coverage normally remain on a limited-pay life policy?
Which of these would be considered a Limited-Pay Life policy?
Which of these would be considered a Limited-Pay Life policy?
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?
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?
The incontestable clause allows an insurer to:
The incontestable clause allows an insurer to:
How are surrender charges deducted in a life policy with a rear-end loaded provision?
How are surrender charges deducted in a life policy with a rear-end loaded provision?
How are policyowner dividends treated in regards to income tax?
How are policyowner dividends treated in regards to income tax?
A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached?
A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached?
Which of these Nonforfeiture Options continue a build-up of cash value?
Which of these Nonforfeiture Options continue a build-up of cash value?
The free-look provision begins
The free-look provision begins
An insurer may normally delay the payment of a cash value loan or surrender value for up to
An insurer may normally delay the payment of a cash value loan or surrender value for up to
Which of the following statements is CORRECT about accelerated death benefits?
Which of the following statements is CORRECT about accelerated death benefits?
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?
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?
Which of the following provisions guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled?
Which of the following provisions guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled?
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?
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 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?
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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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