Question 1

The best description of "universal life" insurance is that it is

Accepted Answer

Universal life insurance is a type of permanent life insurance that combines a flexible premium with a savings component. It offers the policyholder the option to adjust the death benefit and premiums over time, as well as accumulate cash value on a tax-deferred basis. Therefore, it is a combination of term insurance and tax-deferred savings.

Question 2

Given a cash value policy with the following characteristics: face value = $200,000,cash value = $50,000,outstanding loans = $10,000 and surrender charges = $1,000,the benefits payable at death are

Accepted Answer

The answer of Given a cash value policy with the...

Question 3

In which of the following policies does the face amount of the policy decrease over time?

Accepted Answer

In a decreasing term policy, the face amount of the policy decreases over time. This type of policy is often used to cover specific debts or obligations that decrease over time, such as a mortgage or a business loan.

Question 4

Deposit term insurance is

Accepted Answer

Deposit term insurance is generally considered a poor buy because it is essentially high-cost cash value insurance, which means that a significant portion of the premiums goes towards the cash value component rather than the death benefit, making it less efficient for those seeking pure life insurance coverage.

Question 5

In which of the following policies does the face amount of the policy decrease at a set age?

Accepted Answer

In a modified whole life policy, the face amount decreases at a set age (usually 65 or 70) while the premium stays level. This type of policy is typically used to provide coverage during the insured's working years when financial responsibilities are highest, with the lower face amount in retirement when those responsibilities have decreased.

Question 6

The nonforfeiture clause ensures that

Accepted Answer

The nonforfeiture clause ensures that the policyholder does not lose the cash value of the policy if they cease making payments. This means that the policy does not automatically terminate and the policyholder can still receive some benefits even if they are unable to continue paying premiums. A is incorrect because it refers to financial reserves and does not directly relate to the nonforfeiture clause. B is incorrect because it is not related to the policyholder's benefits but to the agent or broker's commissions. D is incorrect because it has no direct relation to the nonforfeiture clause.

Question 7

Given the same face amount of insurance protection,which of the following would have the most rapid cash value build-up?

Accepted Answer

Limited payment ordinary life insurance has the most rapid cash value build-up because it is designed to be paid off over a shorter period, thus accelerating the rate at which cash value accumulates compared to options that spread payments over a longer term or may not build cash value at all, like term insurance.

Question 8

Given a cash value policy with the following characteristics: face value = $200,000,cash value = $50,000,outstanding loans = $10,000 and surrender charges = $1,000,the amount of death protection is

Accepted Answer

The amount of death protection is calculated as the face value minus the cash value. In this case, $200,000 - $50,000 = $150,000. Outstanding loans and surrender charges do not affect the death protection amount.

Question 9

The incontestability clause typically indicates that the insurance company will not challenge the validity of statements made in the insurance contract

Accepted Answer

The incontestability clause typically indicates that the insurance company will not challenge the validity of statements made in the insurance contract after a specified period of time, if the incorrect statements were either honest mistakes or unintentional omissions. This is usually a period of one to two years, depending on the policy and state regulations.

Question 10

Given a cash value policy with the following characteristics: face value = $200,000,cash value = $50,000,outstanding loans = $10,000 and surrender charges = $1,000,the cash surrender value is

Accepted Answer

The cash surrender value is calculated by taking the cash value ($50,000), subtracting any outstanding loans ($10,000), and subtracting any surrender charges ($1,000). Thus, $50,000 - $10,000 - $1,000 = $39,000.

Question 11

Group mortgage life is most similar to

Accepted Answer

Group mortgage life insurance is a type of decreasing term insurance, where the death benefit decreases over time as the mortgage is paid off. This is similar to decreasing term insurance, where the death benefit decreases over time. It is not similar to whole life insurance, renewable term insurance, or deposit term insurance.

Question 12

Policy loans on cash value insurance

Accepted Answer

Policy loans on cash value insurance are a convenient source of liquidity for the policy owner. The owner can borrow against the cash value of the policy without having to go through a credit check or provide collateral. The loan can be repaid on flexible terms, and the policy remains in force. However, interest rates can be higher than other loans, and if the policy owner dies before repaying the loan, the outstanding balance will be deducted from the death benefit.

Question 13

Term insurance differs from whole life insurance in that term

Accepted Answer

Term insurance provides protection only for a specific term or period of time, whereas whole life insurance provides permanent protection for the policyholder's entire life. This makes term insurance generally more affordable and flexible, but it does not offer the long-term benefits and savings opportunities of whole life insurance.

Question 14

These two products provide decreasing death protection over time.

Accepted Answer

Both decreasing term and group mortgage insurance provide death benefits that decrease over time. In the case of decreasing term, the death benefit decreases at a fixed rate over the term of the policy. With group mortgage insurance, the death benefit decreases as the insured's mortgage balance decreases.

Question 15

Which of the following policies has little or no cash value buildup?

Accepted Answer

Term life insurance policies have no cash value buildup. They are designed to provide only death benefit protection for a specific period of time and don't accumulate any value over time.

Question 16

With an adjustable life insurance policy,

Accepted Answer

With an adjustable life insurance policy, you have the flexibility to adjust both the face amount and the premium payments. As your needs and financial situation change, you can increase or decrease the coverage amount and adjust the premium payments accordingly.

Question 17

In which of the following policies does the premium typically increase as you age?

Accepted Answer

Renewable term life insurance policies typically have premiums that increase as the policyholder ages, reflecting the increased risk of death. Whole life, decreasing term, and group mortgage life insurance policies generally have fixed premiums that do not change based on the policyholder's age after the policy is issued.

Question 18

Universal life differs from traditional whole life,because

Accepted Answer

Universal life explicitly divides premium payments into a death protection component and an investment component, whereas traditional whole life does not. This allows the policyholder more flexibility in adjusting the amount of coverage and investment within the policy.

Question 19

Pure term insurance

Accepted Answer

Pure term insurance provides only death protection and does not have a savings component. It is designed to provide coverage for a specific period of time at a lower cost than other types of life insurance policies. It does not have a cash value and cannot be renewed once the coverage period ends.

Question 20

With decreasing term insurance

Accepted Answer

With decreasing term insurance, the face amount of insurance protection decreases as the insured ages. The cost of the insurance protection remains the same throughout the policy term. There is no cash value or surrender value associated with this type of insurance.

Quiz 15: Life Insurance and Estate Planning: Protecting Your Dependents