Life Insurance Policies - Provisions and Riders

Questions and Answers

Under a Modified Endowment Contract, what are the likely tax consequences?

Interest on policy loans is tax deductible

Pre-death distributions will become taxable (correct)

Cash value cannot be surrendered early

Premium payments are tax deductible

The statement which best describes the relationship between the premiums of a whole life policy and the premium payment period is?

The longer the payment period, the higher the premium

The shorter the payment period, the higher the premium (correct)

The payment period has no effect on the premium payment

The shorter the payment period, the lower the premium

Which of these riders will pay a death benefit if the insured's spouse dies?

Family whole insurance rider

Payor benefit rider

Guaranteed Insurability rider

Family term insurance rider (correct)

All of these are characteristics of a universal life insurance policy EXCEPT?

Fixed surrender value Signup and view all the answers

Variable life insurance and Universal life insurance are very similar. Which of these features are held exclusively by variable universal life insurance?

Policyowner has the right to select the investment which will provide the greatest return Signup and view all the answers

Level premium permanent insurance accumulates a reserve that will eventually?

Equal the face amount of the policy Signup and view all the answers

Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive?

Endowment policy Signup and view all the answers

Peter has a policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index. What kind of policy is this?

Equity index whole life Signup and view all the answers

A Renewable Term Life insurance policy can be renewed?

At a predetermined date or age, regardless of the insured's health Signup and view all the answers

A renewable Term Life insurance policy allows the policyowner the right to renew the policy?

Without producing proof of insurability Signup and view all the answers

Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test?

Pre-death distributions are typically taxable Signup and view all the answers

What is the automatic continuance of insurance coverage referred to as?

renewal Signup and view all the answers

Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)?

Death benefit Signup and view all the answers

A Modified Endowment Contract (MEC) is best described as?

A life insurance contract which accumulates cash values higher than the IRS will allow Signup and view all the answers

A spouse and child can be added to the primary insured's coverage as what kind of rider?

Family term Signup and view all the answers

The premium for a Modified whole life policy is?

Lower than the typical whole life policy during the first few years and then higher than typical for the remainder Signup and view all the answers

Krissa purchases a 10-year level term life insurance policy that has a death benefit of $200,000. Which of these statements is true?

The face amount and premium will remain constant over the 10-year period Signup and view all the answers

A policyowner may change two policy features on what type of life insurance?

Adjustable Life Signup and view all the answers

Which of the following are the premium payments for a Universal life policy NOT used for?

Separate account investments Signup and view all the answers

A securities license is required for a life insurance producer to sell?

Variable life insurance Signup and view all the answers

A life insurance policy written on one contract for two people in which it is payable upon the first death is called?

Joint Signup and view all the answers

All of these statements concerning whole life insurance are false EXCEPT?

When a whole life policy is surrendered, income taxes may be owed Signup and view all the answers

Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested?

Variable universal policy Signup and view all the answers

Joe has a life insurance policy that has a face amount of $300,000. After a number of years, the policy's cash value accumulates to $50,000, and the face amount becomes $350,000. What kind of policy is this?

Universal Life policy Signup and view all the answers

A life insurance policy that has premiums fully paid up within a stated time period is called?

Limited payment insurance Signup and view all the answers

Which type of life insurance is normally associated with a Payor Benefit rider?

Juvenile insurance Signup and view all the answers

What happens to the coverage under a children's term rider when that child reaches a certain specified age?

Coverage is eliminated Signup and view all the answers

Shawn, Mike, and Dave are brothers who have a $100,000 'first to die' joint life policy covering all three of their lives. If Mike dies first, the policy proceeds?

Will no longer provide insurance protection Signup and view all the answers

A life insurance policy which contains cash values that vary according to its investment performance of stocks is called?

Variable Whole Life Signup and view all the answers

All of these are valid options for an Adjustable Life Policy EXCEPT?

A nonforfeiture option can be used to increase the death benefit Signup and view all the answers

The least expensive option to pay off a 30-year mortgage balance would be?

Decreasing term life Signup and view all the answers

How are survivorship life insurance policies helpful in estate planning?

Provide funds to help pay taxes Signup and view all the answers

Index whole life insurance contains a securities component that acts as a(n)?

Hedge against inflation Signup and view all the answers

Term insurance is appropriate for someone who?

Seeks temporary protection and lower premiums Signup and view all the answers

The type of multiple protection coverage that pays on the death of the last person is called a(n)?

Survivorship life policy Signup and view all the answers

A life insurance policy that is subject to a contract interest rate is referred to as?

Universal life Signup and view all the answers

Julie has a $100,000 30-year mortgage on her new home. What type of life insurance could she purchase that is designed to pay off the loan balance if she dies within the 30-year period?

Decreasing term insurance Signup and view all the answers

A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called?

Universal life Signup and view all the answers

Which type of policy combines the flexibility of a universal life policy with investment choices?

Variable universal life policy Signup and view all the answers

When a decreasing term policy is purchased, it contains a decreasing death benefit and?

Level premiums Signup and view all the answers

Which of the following policies does NOT build cash value?

Term Signup and view all the answers

A permanent life insurance policy where the policyowner pays premiums for a specified number of years is called a(n)?

Limited pay policy Signup and view all the answers

Decreasing term life insurance is often used to?

Provide coverage for a home mortgage Signup and view all the answers

Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be?

$500,000 Signup and view all the answers

The type of policy which pays on the death of the last person is called?

Survivorship life Signup and view all the answers

Which policy feature makes a universal life policy different from a whole life policy?

A flexible premium schedule Signup and view all the answers

What does the word 'level' in Level Term describe?

The face amount Signup and view all the answers

A business will typically use which type of life insurance to cover their employees?

Group policy Signup and view all the answers

What types of life insurance are normally used for key employee indemnification?

Term, whole, and universal life insurance Signup and view all the answers

Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider?

Can be converted to permanent coverage without evidence of insurability Signup and view all the answers

Which of these would be the best example of a limited pay life insurance policy?

Whole life policy with premiums paid up after 20 years Signup and view all the answers

What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death?

Last Survivor Life insurance Signup and view all the answers

Study Notes

Life Insurance Policy Provisions

Modified Endowment Contracts (MEC): Pre-death distributions subject to taxation.
Premium Payment Relationship: Shorter payment periods result in higher premiums for whole life policies.
Family Term Insurance Rider: Provides death benefits upon the death of an insured’s spouse.
Universal Life Policy Characteristics: Includes flexible death benefits, flexible premiums, and cash value accumulation. Fixed surrender value is not a characteristic.

Types of Life Insurance Policies

Variable Universal Life Insurance: Policyholders can select investments for cash value growth.
Level Premium Permanent Insurance: Accumulates a reserve equal to the policy's face amount.
Endowment Policy: Pays the face amount at the end of a specified period if the insured is alive.
Equity Index Whole Life Policy: Blends traditional fixed income and stock index investments.

Renewable Term Life Insurance

Renewal Right: Can be renewed without proof of insurability at predetermined ages or dates.
Taxation on MEC Failures: Pre-death distributions become taxable if the MEC fails the seven-pay test.

Coverage and Riders

Family Term Rider: Allows coverage for spouses and children under the primary insured's policy.
Juvenile Insurance: Often associated with Payor Benefit riders.
Children's Term Rider: Coverage is eliminated when the child reaches a certain age.

Joint Life and Survivorship Policies

"First to Die" Joint Life Policy: Insurance protection ceases after the first death among the insured.
Survivorship Life Policy: Pays upon the death of the last insured person, useful in estate planning.

Cash Value and Premium Features

No Cash Value Policies: Term insurance does not accumulate cash value, unlike whole life or universal life policies.
Limited Pay Life Insurance: Requires premiums to be paid up within a specified number of years.

Key Employee Indemnification

Commonly covered by term, whole, and universal life insurance.

Policy Features and Flexibility

Universal Life Features: Unlike whole life, universal life offers a flexible premium schedule.
Decreasing Term Insurance: Typically associated with mortgage protection.

Death Benefits and Taxation

Death Benefits on MECs: The death benefit is not subject to income taxation under MEC provisions.
Surrendering Whole Life Policies: May incur income taxes upon surrender.

Unique Product Features

Variable Whole Life Policy: Contains an investment component that varies according to market performance.
Adjustable Life Insurance: Allows adjustments to premium and death benefit features as per policyholder needs.

Overall Insurance Product Comparisons

Whole vs. Universal Life Policies: Whole life has fixed premiums and cash value, while universal life offers flexibility in both premiums and death benefits.
Convertible vs. Decreasing Term Life: Convertible policies allow conversion to permanent coverage, while decreasing term is often used for specific coverage needs like mortgages.

Additional Notes

Limited Payment Policies: Example includes whole life insurance with premiums paid up after a designated period.
Children’s Term Rider Benefits: Provides the ability to convert to permanent insurance without further proof of insurability.

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Description

Dive into the intricacies of life insurance policies with our flashcards on provisions, options, and riders. Test your understanding of Modified Endowment Contracts and their tax implications, among other key concepts. Perfect for anyone looking to enhance their knowledge in life insurance.