Primerica Exam 6 Flashcards

Questions and Answers

The death benefit is payable to the named beneficiary only during the insured's lifetime.

True

What is the primary function of the assignment form in an insurance policy?

It transfers the owner's rights under the policy. (correct)

It is the same as a beneficiary designation.

It allows the beneficiary to designate recipients.

It is valid after the insured's death.

In Universal Life Insurance, what allows the policyowner to skip a premium payment?

Sufficient cash value

Annuities provide death benefits.

False Signup and view all the answers

Which of the following is NOT fundable by annuities?

Death benefits Signup and view all the answers

Which of the following best defines the target premium in a universal life policy?

The recommended amount to keep the policy in force Signup and view all the answers

Which of the following determines the length of time benefits are received under the Fixed Amount settlement option?

Size of each installment Signup and view all the answers

What is true about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income. Signup and view all the answers

In comparison with other primary types of term insurance sold, what kind of premium does level term have?

Highest Signup and view all the answers

To meet the Entire Contract provision, a policy must contain:

A copy of the original application for insurance Signup and view all the answers

Which of the following helps prevent a universal life policy from lapsing?

Target premium Signup and view all the answers

Which of the following is true regarding variable annuities?

The annuitant assumes the risks on investment. Signup and view all the answers

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the:

Other-insured rider Signup and view all the answers

Under an extended term insurance policy, the policy cash value is converted to:

The same face amount as in the whole life policy Signup and view all the answers

Which premium mode would result in the highest annual cost for a life insurance policy?

Monthly Signup and view all the answers

A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called:

1035 exchange Signup and view all the answers

What type of policy allows a policyowner to skip premium payments without lapsing the policy due to sufficient cash value?

Universal life Signup and view all the answers

Which of the following provisions would not be allowed as a part of a life insurance policy issued in Michigan?

A provision that allows the effective date of the policy to be backdated up to 8 months in order to effect a lower premium rate for the insured Signup and view all the answers

A temporary license in this state is valid for how many days?

180 days Signup and view all the answers

What describes the specific information about a policy?

Policy summary Signup and view all the answers

Which of the following is the basis for a claim against an insurance policy?

Loss Signup and view all the answers

When replacing a policy, how long must an insurer maintain the documents related to the replacement?

3 years Signup and view all the answers

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen?

The insurer will pay the full death benefit from the group policy to the beneficiary. Signup and view all the answers

Credit Life insurance

Insures the life of a debtor. Signup and view all the answers

All of the following information about a customer must be used in determining annuity suitability EXCEPT:

Beneficiary's age. Signup and view all the answers

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up Signup and view all the answers

Lyle has a $10,000 term life policy. He paid his annual premium on February 1. Lyle fails to renew the policy and dies on February 28 of the following year. Accounting for the $200 of earned premium, how much will the beneficiary receive from Lyle's insurance company?

$9,800 Signup and view all the answers

All of the following would be different between qualified and nonqualified retirement plans EXCEPT:

Taxation on accumulation. Signup and view all the answers

Which of the following is true regarding a level term insurance policy?

It provides temporary protection. Signup and view all the answers

What does 'level' refer to in level term insurance?

Face amount Signup and view all the answers

A group's reported losses are more likely to become equal to the statistical probability of loss,

The larger the group. Signup and view all the answers

The following areas are regulated by the Insurance Department EXCEPT:

Producer commission schedules. Signup and view all the answers

If Tom's policy allows him to make periodic additions to the face amount at standard rates, without proving insurability, his policy includes a:

Guaranteed insurability option. Signup and view all the answers

A life insurance policyowner has the flexibility to increase the amount of premium and then decrease it at a later date. What type of policy is this?

Universal life Signup and view all the answers

What type of life insurance is most commonly used for group plans?

Annually renewable term Signup and view all the answers

Which of the following is NOT a way to determine the interest rate in a Universal Life Policy?

Estimate market conditions for the life of the policy Signup and view all the answers

On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. The company is guilty of:

Misrepresentation Signup and view all the answers

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history 1 year later. What will probably happen?

Because the insured is currently not a drug user, his policy will not be affected. Signup and view all the answers

What is the penalty for IRA distributions that are below the required minimum for the year?

50% Signup and view all the answers

Which of the following is a feature of a variable annuity?

Benefit payment amounts are not guaranteed. Signup and view all the answers

Which of the following is NOT true regarding Equity Indexed Annuities?

They earn lower interest rates than fixed annuities. Signup and view all the answers

What does 'liquidity' refer to in a life insurance policy?

Cash values can be borrowed at any time. Signup and view all the answers

What are the personal uses of life insurance?

Survivor protection, estate creation and conservation, cash accumulation and liquidity Signup and view all the answers

The risk of loss may be classified as:

Pure risk and speculative risk. Signup and view all the answers

An insurer publishes intimidating brochures that portray the insurer's competition as financially and professionally unstable. Which of the following best describes this act?

Illegal under any circumstances Signup and view all the answers

An insurer is helping a married couple determine their children's needs, assets, and liabilities, in the event that one or both of the spouses should die. What is the term most closely associated with this?

Survivor protection Signup and view all the answers

All of the following statements are true regarding group insurance EXCEPT:

Participants in the policy each receive a policy. Signup and view all the answers

Which of the following would NOT be true regarding a $100,000 20-year level term policy?

At the end of 20 years, the policy's cash value will equal $100,000. Signup and view all the answers

Equity Indexed Annuities:

Seek higher returns. Signup and view all the answers

What does the policy assignment involve?

It transfers the owner's rights under the policy to the extent expressed in the assignment form. Signup and view all the answers

Study Notes

Life Insurance Backdating

Life insurance policies can be backdated up to 6 months to secure a lower premium for the insured.
A provision allowing up to 8 months of backdating is not permissible in Michigan.

Temporary License Validity

Temporary licenses are valid for 180 days.

Policy Summary

A policy summary outlines specific features and details of the life insurance policy being applied for.

Claim Basis

The basis for a claim against an insurance policy is termed a "loss," resulting from a peril covered by the policy.

Document Retention for Replacements

Insurers must retain documents related to a policy replacement for a minimum of 3 years.

Group Life Insurance Conversion

An employee has 31 days post-termination to convert their group life policy to an individual one, retaining coverage under the original policy during this period.

Credit Life Insurance

Credit life insurance specifically covers the life of a debtor, ensuring loan repayment in the event of death.

Annuity Suitability Information

Relevant information for determining annuity suitability includes customer's income, financial status, and tax status; beneficiary's age is not factored in.

Nonforfeiture Options

The reduced paid-up nonforfeiture option allows coverage with a reduced benefit until the insured turns 100.

Death Benefit Calculation

If a policyholder dies within the grace period, the past due premium is deducted from the death benefit; e.g., a $10,000 policy minus $200 will result in a $9,800 payout.

Retirement Plans Tax Differences

Taxation on accumulation is deferred in both qualified and nonqualified retirement plans, while other taxation aspects differ.

Level Term Insurance

Level term insurance is temporary protection with a stable premium, ensuring the death benefit is paid out as long as the insured dies within the policy period.

Law of Large Numbers

The larger the insured group, the easier it is to predict financial losses, influencing premium settings.

Commission Regulation

The Insurance Department oversees financial requirements, policyholder rights, and regulations but does not regulate producer commission schedules.

Guaranteed Insurability Option

A policy featuring a guaranteed insurability option allows for additional insurance purchases without proving insurability at designated times.

Universal Life Policy Flexibility

Universal life insurance allows policyholders to adjust premium payments, skip payments as long as there is sufficient cash value, and still maintain coverage.

Group Insurance Type

The most common type of group life insurance is annually renewable term insurance.

Universal Life Interest Rate Determination

Interest rates in a Universal Life policy can be linked to market conditions, specified spreads, or declared by the company's board.

Misrepresentation in Insurance

Claims about non-existing funds for losses by an insurer are categorized as misrepresentation, which is illegal.

Fraud and Policy Impact

If an insurer discovers undisclosed past issues after issuing a policy, and the applicant did not intentionally commit fraud, the policy is unlikely to be voided.

IRA Distribution Penalty

A penalty of 50% is assessed on IRA distributions that fall below the required minimum annual amount.

Variable Annuity Features

Variable annuities do not guarantee market interest rates or minimum benefit payment amounts; they require a securities license for sales agents.

Equity Indexed Annuities

Equity Indexed Annuities invest aggressively aiming for higher returns, and they possess guaranteed minimum interest rates.

Liquidity in Life Insurance

Liquidity indicates that cash values can be accessed by the insured through borrowing against their policy at any time.

Personal Uses of Life Insurance

Life insurance serves multiple personal purposes including survivor protection, estate creation, conservation, cash accumulation, and liquidity.

Types of Risk

Pure risks, which are insurable, involve the possibility of loss with no chance of gain. In contrast, speculative risks are generally uninsurable due to their uncertain outcomes.

Defamation in Insurance

Publishing unstable or intimidating narratives about competitors falls under illegal practices like defamation.

Survivor Protection Planning

Survivor protection helps assess needs, assets, and liabilities to care for dependents in the event of a wage earner's death.

Group Insurance Characteristics

Participants in group insurance receive certificates rather than individual policies, with the group sponsor controlling the policy.

Term Policy Characteristics

A term life insurance policy does not accumulate cash value; it expires at the end of its term without any cash payout.

Equity Indexed Annuities Objective

The primary goal of equity indexed annuities is to seek higher returns while still providing a guaranteed minimum interest rate.

Policy Assignment Types

Policy assignment can be done through collateral or absolute assignments, transferring rights as specified.

Universal Life Cash Value

A Universal Life policy allows premium skipping if there is enough cash value to cover the cost of insurance during that period.

Annuities and Fundability

Annuities do not provide death benefits; they are used primarily for retirement funding and cash accumulation.### Insurance Policies and Options
The corridor of insurance refers to maintaining the policy throughout its lifetime with a recommended amount.
The target premium is the advisable amount to keep a universal life policy active and cover insurance costs.
In fixed amount settlement options, the size of each installment influences the duration of benefits received; larger installments result in shorter benefit periods.

Cash Surrender and Taxes

Cash surrender of a policy results in the insurer relinquishing it at its cash value; only the funds above the premium paid are taxable as ordinary income, rendering the policy inactive immediately after surrender.

Term Insurance Premiums

Level term insurance has the highest premiums compared to other types of term insurance sold.

Entire Contract Provision

An insurance contract must include a copy of the original application to satisfy the Entire Contract provision.

Variable Annuities

In variable annuities, the annuitant takes on investment risks as payments are made into the insurer's separate account, providing various investment options.

Riders and Coverage

The other-insured rider allows coverage for multiple family members, typically providing term insurance convertible to permanent insurance.
Extended term insurance uses the cash value of a whole life policy to convert to term insurance at the same face amount.

Premium Payment Modes

Monthly premium payments result in the highest annual cost due to additional charges for more frequent billing and lack of investment capital.

Tax-Free Exchanges

A 1035 exchange allows for the nontaxable transfer of cash value from a canceled life insurance policy to an annuity, as per Section 1035 of the Internal Revenue Code.

Premium Flexibility in Universal Life

Universal life insurance policies allow policyowners to adjust premium payments, including skipping payments, as long as sufficient cash value is maintained to cover costs.

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Test your knowledge with these flashcards from Primerica Exam 6. This quiz covers essential life insurance provisions, including backdating policies and settlement options. Perfect for anyone preparing for a career in insurance.