Questions and Answers
Which of the following statements about accumulated interest earned on dividends from an insurance policy is true?
How are policyowner dividends treated in regards to income tax?
Interest on accumulations is taxed.
Which of these Nonforfeiture Options continue a build-up of cash value?
When is the face amount of a Whole Life policy paid?
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All of these statements concerning Settlement Options are true, except?
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Which of these types of policies may not have the Automatic Premium Loan provision attached to it?
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What type of policy accumulates cash value faster than a Straight Life policy?
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What provision in a life insurance policy states who may select policy options?
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All of these statements about the Waiver of Premium provision are correct, except?
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An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?
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What feature makes a policy loan possible?
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What provision in a life insurance policy states that the application is considered part of the contract?
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What feature would limit the insurer's obligation if an insured was killed while flying as a student pilot?
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How much will the insurance company pay if K dies from an automobile accident after paying on a $20,000 20 Year Endowment Policy for 10 years?
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What Dividend option should a teacher select for an increasing Death Benefit to protect against inflation?
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Which provision prevents an insurer from changing the terms of the contract with the policyowner?
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Study Notes
Accumulated Interest and Taxes
- Accumulated interest earned from dividends on an insurance policy is taxed as ordinary income.
- Excess dividends over total premium payments are considered taxable income.
Nonforfeiture Options
- The Reduced Paid-Up option allows for continued cash value accumulation.
Whole Life Policy Payout
- The face amount of a Whole Life policy is paid out at the insured's death or at maturity, whichever occurs first.
Settlement Options
- Policyowners, not just beneficiaries, can select settlement options.
Automatic Premium Loan Provision
- Decreasing Term policies do not have the Automatic Premium Loan provision.
Whole Life Policy Cash Value
- 20-Pay Life policies accumulate cash value faster than Straight Life policies during the initial years.
Owner's Rights
- This provision dictates who can select policy options, designate beneficiaries, and receive financial benefits.
Waiver of Premium Provision
- To claim Waiver of Premium, the insured does not need to qualify for Social Security disability.
Long Term Care Rider
- A rider is triggered if the insured cannot perform two or more activities of daily living.
Policy Loan Feature
- The Cash Value Provision allows for the possibility of a policy loan.
Entire Contract Provision
- This provision states the application, policy document, and any attached riders form the complete contract.
Exclusions in Policies
- Exclusions specify hazards that limit insurer obligations in cases such as a student pilot's death.
Death Benefit Payment Example
- Upon death from an accident, the beneficiary receives the full face value, $20,000, of the 20-Year Endowment Policy.
Dividend Options for Inflation Protection
- To maintain an increasing Death Benefit against inflation, selecting Paid-Up Additional Insurance is advisable.
Contract Term Change Protection
- The Entire Contract Provision prevents any changes to the contract by incorporating external documents.
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Description
Test your knowledge on key concepts from Chapter 3 of Life Provisions. This quiz focuses on the taxation of accumulated interest earned on dividends from insurance policies and how policyowner dividends are treated in relation to income tax. Get ready to reinforce your understanding of these important financial principles!
