Life insurance exams

What type of license(s) is/are required to sell variable annuities?

A life insurance license and a securities license

What are the two phases of an annuity?

Accumulation and annuitization (or pay-in and pay-out)

What type of life insurance is best suited to cover a mortgage?

Decreasing term

Can a business or a corporation be an annuitant?

No, an annuitant must always be a natural person.

What happens to the premium in an annually renewable term life policy?

The premium increases with each renewal

With a single premium deferred annuity, when will the annuity payments become available?

No sooner than 1 year after the annuity purchase

What type of life insurance policy is Life Paid-up at Age 65?

Limited-pay Whole Life

How is the premium determined in a joint life insurance policy?

The premium is based on the average age of the insureds.

When would a 20-pay whole life policy endow?

When the insured reaches age 100

What type of whole life insurance policies only requires a payment of premium at its inception, and in addition to providing insurance protection for the life of the insured, endows at the insured's age 100?

Single premium whole life

What is the main reason for purchasing an annuity?

To provide income that the annuitant cannot outlive

What does the term "level" refer to in level term insurance?

The death benefit

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

Beneficiary

A whole life policy that requires that the policyowner only pays premiums for a specified number of years is known as what kind of policy?

Limited-pay whole life

In what type of life insurance policies can the policyowner skip premium payments without the policy lapsing?

Universal life

What are the death benefit options in universal life policies?

Option A - level death benefit, and Option B - increasing death benefit

In annually renewable term policies, what is the annual premium based upon?

The insured's attained age

Why are policy loans not available on term insurance?

There is no cash value to borrow against.

What type of premium is charged on a straight life policy?

A level premium for the life of the insured

What are the two classifications of annuities according to the time when annuity payments begin?

Immediate and deferred

What annuity settlement option provides income payments to the annuitant for the duration of their life, and also guarantees payment for a specified number of years?

Life income with period certain

An annuity purchased with multiple payments that begin income payments after one year from the moment of purchase is known as what type of annuity?

Flexible premium deferred annuity

During partial withdrawal from a universal life policy, what portion, if any, will be taxed?

Interest earned on the withdrawn cash value

What type of life insurance policy offers pure death protection?

Term

What universal life option has a gradually increasing cash value and a level death benefit?

Option A

What type of annuity can be purchased with a single premium?

Immediate annuity

How long will a life annuity with a 15-year period certain pay?

For the life of the annuitant unless they die within the first 15 years of the annuitization period; then the payments will last for 15 years.

What is the purpose of establishing the target premium for a universal life policy?

To prevent the policy from lapsing

What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?

Straight life

What policy component must decrease in decreasing term insurance?

Face amount

Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?

The annuitant receives payments from the annuity during the annuitization period; the beneficiary receives benefits after the annuitant's death.

Who receives income payments from an annuity?

Annuitant

Whose life expectancy is taken into consideration in an annuity contract?

Annuitant

What happens to the cash value when a whole life insurance policy matures?

Cash value is paid to the policyowner

If the annuitant dies before the annuitization period starts, what will the beneficiary receive?

Either the amount paid into the annuity or the cash value, whichever is greater

If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that?

Joint life annuity

Who bears the investment risk in a fixed annuity?

The insurer

Whole life policies provide protection until the insured reaches what age?

Age 100

Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid for what time period?

For 20 years or until the insured's death, whichever occurs first.

In an annuity, the accumulated money is converted into a stream of income during which phase?

Annuitization period

Who is entitled to the cash values in a life insurance policy?

The policyowner

What type of life insurance policy provides permanent protection?

Whole life

What type of annuity credits its interest based upon an index such as S&P 500?

Equity indexed annuity

What type of life insurance offers an applicant a cash value element?

Permanent insurance (usually, whole life)

When does an adjustable life policy accumulate cash value?

When the premiums paid are more than the cost of the policy

Whole life insurance policies mature when the insured reaches the age of 100. If the owner of a whole life policy (the insured) dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary?

The full death benefit

What is the difference between a single premium and a flexible premium payment options in a deferred annuity?

The number of payments that purchase the annuity

An individual has just borrowed $10,000 on a 5-year note from his bank. The note is due in installments. What type of life insurance policy would be best suited to this situation?

Decreasing term

An individual has a contract that will provide him with a certain amount of income for the rest of his life. However, this is not a life insurance policy. What type of contract does this person have?

Annuity

What type of whole life insurance policy generates immediate cash value?

Single premium whole life

What elements of an adjustable life policy can be changed by the policyowners?

The amount and payment period of the premium, the face amount, and the period for protection

A policy states that it will pay a specified face amount if the insured dies during the 20-year premium-paying period and nothing if death occurs after the 20-year period. What type of policy is this?

20-year level term

What type of insurance would perform the function of cash accumulation?

Whole life insurance

How soon can income payments begin in an immediate annuity?

No later than 1 year from the time of annuity purchase

In flexible premium payment annuities, the term flexible refers to what?

Amount of premium

In variable universal life insurance, to what policy component does the term "variable" refer?

Cash value and death benefit

Under Option B in a universal life policy, what happens to the death benefit?

Under Option B, the death benefit increases each year by the amount of the cash value increases

Mortality tables are used by insurance companies to predict what?

Life expectancy and the death rates for specific groups of individuals

The death protection component of a universal life policy is expressed as what type of coverage?

Annually renewable term

What type of annuity requires an agent to have a securities license?

Variable annuity

If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?

Annuitant's estate

In a joint life policy, when is the death benefit paid?

Upon the first death

What happens to a policy's cash value under an extended term nonforfeiture option?

The cash value is converted to the same face amount as in the whole life policy.

What are the most common exclusions in life insurance policies?

War and military service, hazardous occupation, and aviation

An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?

Pay a reduced death benefit

To meet the requirement of the entire contract policy provision, an insurance policy must contain what?

A copy of the original insurance application

What is the name for a life insurance policy rider that provides coverage on the insured's family members?

Other-insured rider

What dividend option can increase the death benefit of the existing life policy?

Paid-up additions

What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?

Waiver of premium

What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?

Reinstatement

What is the purpose of settlement options in life insurance policies?

To determine how the death benefit will be paid to the beneficiary

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?

It will be paid to the insured's estate.

What are the dividend options in life insurance policies?

Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year term, and acceleration of endowment

Is the beneficiary required to have insurable interest in the insured?

No. Beneficiaries do not have insurable interest in the insured.

What are the three nonforfeiture options in life insurance policies?

Cash surrender, reduced paid-up, and extended term

What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?

Incontestability

What required provision protects against unintentional policy lapse?

Grace period

When will a contingent beneficiary receive death benefits from a life insurance policy?

When the primary beneficiary dies before the insured

What type of beneficiary can be changed at any point by the policyowner?

Revocable

What are policy dividends?

Return of unused premiums

Who controls changes in premium payments, face values, and loans in a life insurance policy?

Policyowner

What type of assignment is used to secure the payment of a debt with an existing life insurance policy?

Collateral assignment

What does the term double indemnity mean?

The insurer will pay a benefit of twice the face amount.

What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?

Extended term

What is the purpose of the Automatic Premium Loan provision?

To prevent the unintentional lapse of a policy because of nonpayment of the premium

An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?

The death benefit will be adjusted to the amount that the insured could obtain for her correct age.

In the fixed-period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?

The longer the period selected, the smaller each installment will be

With the reduction of premium dividend option, how is the dividend used?

The dividend is applied to the next year's premium (it reduces the next year's premium).

A policyowner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?

The amount of the loan will be subtracted from the death benefit.

What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?

Policy premium in a reinstated policy will be set according to the insured's original age.

What type of beneficiary is next in line after the primary beneficiary?

Contingent beneficiary

If a settlement option is not chosen by the policyowner or the beneficiary, what option will be used by the insurer?

Lump-sum payment

What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?

Entire contract

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

Reduced paid-up

What dividend option is automatically selected by the company if not chosen by the policyowner?

Paid-up additions

What is the purpose of a free-look period?

To allow the insured to return the policy with a full refund

What happens to the proceeds of a life insurance policy if there is no named beneficiary?

The proceeds are paid to the insured's estate.

When can an insurance company use suicide as a defense against paying a death claim?

When a suicide is committed within a specified period of time after the policy is purchased (usually 2 years)

What beneficiary designation has first claim to the death proceeds of a life insurance policy?

Primary beneficiary

Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?

Cash surrender