Insurance Quiz and Flashcards on Policy Changes

Questions and Answers

What is a Modified Endowment Contract (MEC)?

A life insurance contract which accumulates cash values higher than the IRS will allow.

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

Limited pay policy.

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

Flexible premiums

Borrowing against cash value

Increasing death benefit

Nonforfeiture options (correct)

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

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

Family term insurance rider Signup and view all the answers

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

Survivorship life policy. 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

If Rob purchased a standard whole life policy with a $500,000 death benefit and died at age 60, what would the death benefit be?

500,000. Signup and view all the answers

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

Renewal. Signup and view all the answers

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

The MEC tends to be an investment vehicle. Signup and view all the answers

What is the least expensive option to pay off a 30-year mortgage balance?

Decreasing term life. Signup and view all the answers

When a decreasing term policy is purchased, what is true about its death benefit?

It contains a decreasing death benefit and level premiums. Signup and view all the answers

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

Income taxes may be owed when a whole life policy is surrendered. Signup and view all the answers

What is true about the premium for a Modified whole life policy?

It 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

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

Adjustable Life. Signup and view all the answers

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

Juvenile. 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

What type of life insurance policy did Reggie purchase if it has a face amount of $500,000 after 15 years with a cash value of $100,000?

Universal Life. Signup and view all the answers

What does level premium permanent insurance accumulate that will eventually equal the face amount?

A reserve. 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.

True 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

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

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

How are survivorship life insurance policies helpful in estate planning?

They provide funds to help pay taxes. 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

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

Fixed surrender value Signup and view all the answers

Term insurance is appropriate for someone who seeks what?

Temporary protection and lower premiums. Signup and view all the answers

A single premium cash value policy can be described as?

A policy that is paid up after only one payment. 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

Study Notes

Modified Endowment Contracts (MEC)

A MEC refers to a life insurance contract with cash values exceeding IRS limits.
Pre-death distributions from a MEC are taxable due to its classification as an investment vehicle.
The death benefit of a MEC is not subject to income taxation.

Permanent Life Insurance Policies

A limited pay policy requires premium payments for a specified number of years.
Universal life policies feature a cash value accumulation, with premiums impacting both cash value and death benefit.
Whole life policies generate cash value and may incur taxes upon surrender.

Adjustable Life Policies

An Adjustable Life Policy allows modification of premium, death benefit, or both.
Nonforfeiture options cannot be used to increase the death benefit.

Family and Survivorship Policies

Family term insurance riders extend coverage to the insured’s spouse and children.
Survivorship life policies pay out only upon the last insured’s death.

Policy Benefits and Options

The automatic continuance of insurance coverage is known as renewal.
Decreasing term life insurance is the most cost-effective method for paying off mortgage balances.

Premium Structures

Modified whole life policies have lower initial premiums that increase later.
Level premium permanent insurance builds a cash reserve to equal the face amount.
Universal life and variable universal life policies offer flexibility in premiums and investment options.

Joint and Single Premium Policies

Joint policies are written for two individuals, paying out upon the first death.
Single premium cash value policies require only one payment for full coverage.

Temporary and Flexible Coverage

Term insurance is ideal for individuals seeking temporary protection with lower premium costs.
Variable universal policies allow policyholders to choose cash value investments while maintaining flexible premiums.

Estate Planning

Survivorship life insurance aids in estate planning by providing funds to cover taxes.

Cash Value and Investment Accounts

Premiums for universal life policies are not allocated to separate account investments, which are used in variable life policies.
Fixed surrender values are not a characteristic of universal life insurance, highlighting the policy's flexible nature.

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Description

Test your knowledge on life insurance policies with these flashcards from Chapter 4. Understand terms like Modified Endowment Contract and Limited Pay Policy while exploring the nuances of Adjustable Life Policies. Perfect for students and professionals studying life insurance concepts.

Life Policies Chapter 4 Flashcards