Question 1

Fred bought life insurance when he was 47, although he told the insurance company that he was 42. He has since died. Which of the following provisions will affect the amount of money his beneficiaries will receive?

Accepted Answer

The misstatement of age provision allows the insurance company to adjust the death benefit payout based on the correct age of the insured at the time the policy was issued. Since Fred provided false information about his age, this provision will likely be applied, potentially resulting in a reduced payout for his beneficiaries. The incontestability clause pertains to the contestability period during which the insurance company can dispute claims due to misrepresentation or fraud, but it does not affect the payout amount. Naming a beneficiary, policy reinstatement, and the grace period are not relevant to this situation.

Question 2

This term life insurance policy will guarantee that you will pay the same premium for the duration of your policy.

Accepted Answer

A multiyear level term policy guarantees that you will pay the same premium for a set number of years, typically between 10-30 years, while providing a level death benefit. It provides affordable & predictable premiums and suits those looking for coverage for a specific period.

Question 3

If you have a multiyear level term policy,

Accepted Answer

A multiyear level term policy means that the premium remains the same throughout the duration of the policy term.

Question 4

Another name for a straight term policy is

Accepted Answer

A straight term policy is also known as a multiyear level term policy because the premium and death benefit remain the same throughout the term of the policy, which is usually 10, 15, or 20 years. Renewable term policies can be renewed at the end of the term, decreasing term policies have a decreasing death benefit over time, limited payment policies have a limited premium payment period, and conversion term policies can be converted to a permanent life insurance policy.

Question 5

If you have a conversion term policy,

Accepted Answer

A conversion term policy allows you to convert your term life insurance policy to a permanent policy without having to go through a medical underwriting process. This means that you can convert your policy to a permanent policy and enjoy its benefits, such as lifetime coverage, cash value accumulation, and access to policy loans.

Question 6

If you have a renewable term policy,

Accepted Answer

Renewable term policies allow you to renew the policy at the end of the term, but the premium may increase due to the policyholder's increased age.

Question 7

Which of the following is NOT a type of permanent life insurance?

Accepted Answer

Decreasing term is not a type of permanent life insurance, it is a type of term life insurance where the death benefit decreases over time. The other choices (A) Whole life, (B) Variable life, (C) Universal life, and (D) Adjustable life are all types of permanent life insurance.

Question 8

Pam just started working at XYZ Widget Company and finally wants to get insurance coverage through her employer. She does not want to take a medical exam to get coverage, because she has some underlying health conditions and is concerned that she might not qualify for a policy. Which of the following life insurance policies should she apply for?

Accepted Answer

Group life insurance is typically offered by an employer and does not require a medical exam for coverage. Pam can get coverage through her employer without worrying about any underlying health conditions. The other options listed require some sort of medical exam or have specific limitations and may not be the best choice for Pam's situation.

Question 9

This life insurance is used to pay off certain debts, such as auto loans, in the event that you die before the debts are paid in full. Which of the following is not the best buy for the amount of protection offered for an individual?

Accepted Answer

Credit life insurance is typically not the best buy for the amount of protection offered because it is designed to pay off a specific debt, like an auto loan, if you die before the debt is paid off. The cost relative to the benefit is generally higher compared to other types of life insurance policies that offer more comprehensive coverage for the premiums paid.

Question 10

Of the following, which one is the most positive feature of whole life insurance for a person who wants a more structured way to save?

Accepted Answer

Whole life insurance builds cash value over time, which acts as a savings and investment component. This means that policyholders can use the cash value to supplement retirement income, fund future expenses or take out loans against the policy's cash value. This makes it a more structured way to save compared to other types of insurance policies.

Question 11

Molly is thinking about buying a type of whole life insurance policy, but she is not sure about how much she will need in the next few years. She may need to change her coverage as her needs change. Which of the following policies would meet her needs?

Accepted Answer

An adjustable life insurance policy allows the policyholder to adjust the coverage amount, premium, and payment period, making it suitable for someone whose needs may change over time.

Question 12

Which of the following provisions requires the policyholder to again qualify as an acceptable risk and pay overdue premiums with interest in order to put a lapsed policy back in force?

Accepted Answer

Policy reinstatement allows a lapsed policy to be put back in force, but the policyholder must meet certain conditions, such as qualifying as an acceptable risk again and paying overdue premiums with interest. The incontestability clause, misstatement of age provision, naming a beneficiary, and grace period do not directly relate to reinstating a lapsed policy.

Question 13

Wendy has had a life insurance policy for five years with her spouse listed as the person who receives the benefit if she dies. She was recently divorced. Which of the following provisions should she take action on?

Accepted Answer

Wendy should update her beneficiary designation since she is no longer married and her ex-spouse should no longer be the beneficiary.

Question 14

Which of the following is NOT a type of permanent insurance?

Accepted Answer

Term life insurance is not a type of permanent insurance because it only provides coverage for a specific term or period of time. Whole life, straight life, ordinary life, and cash value insurance all provide permanent coverage until the policyholder's death.

Question 15

Another name for permanent life insurance is

Accepted Answer

Permanent life insurance is also known as whole life insurance. This type of insurance provides coverage for the entire lifetime of the insured, rather than for a specific term. It also includes a savings component called cash value, which accrues over time and can be borrowed against or withdrawn by the policyholder. The premiums for whole life insurance are typically higher than those for term life insurance, but the coverage lasts for a lifetime and the policyholder can benefit from the savings component.

Question 16

Which of the following is NOT a feature of whole life insurance?

Accepted Answer

Whole life insurance policies do accumulate cash value, provide a death benefit and a savings component, allow borrowing against the cash value with interest, and require a specified premium payment each year for the life of the policy. However, they do not typically return all premiums if the policyholder survives to the end of the policy.

Question 17

Which of the following is NOT temporary insurance?

Accepted Answer

Whole life insurance is intended to provide coverage for the entirety of the policyholder's life, and thus is not considered temporary insurance. On the other hand, renewable term, conversion term, decreasing term, and multiyear level term are all temporary insurance options, as they only provide coverage for a specified period of time.

Question 18

Megan wants to purchase a type of whole life insurance policy that will allow part of her premium to be invested in stock, bonds, or money market funds. Which of the following policies should she buy?

Accepted Answer

Variable life insurance policies allow the policyholder to invest part of their premiums into separate investment accounts, which can include stocks, bonds, and money market funds. The performance of these investments can affect the policy's cash value and death benefit.

Question 19

If you want to purchase term insurance, you will receive all of the following except

Accepted Answer

Term insurance does not accumulate any cash value, unlike other types of life insurance such as whole life or universal life. It is designed to provide temporary coverage for a specific period of time and does not continue if you stop paying premiums. Therefore, options A, C, D, and E are all features of term insurance, but cash value is not.

Question 20

Polly wants the opportunity to change the amount she pays for her annual premium through the life of her insurance policy without changing her coverage. Which of the following types of whole life policies would meet her needs?

Accepted Answer

Universal life insurance policies allow the policyholder to adjust their premium payments and death benefit over time to meet their changing needs. This flexibility allows the policyholder to decrease their premium payments if they need to reduce expenses or increase them if they can afford to pay more. The death benefit can also be adjusted to reflect changes in the policyholder's needs. Therefore, a universal life policy would be the best choice for Polly if she wants to change the amount she pays for her annual premium through the life of her policy without changing her coverage.

Quiz 10: Financial Planning With Life Insurance