Chapter 6: LIFE Insurance Premiums, Proceeds, and Beneficiaries

When a policy loan is requested by a policyowner and it requires the consent of the beneficiary, what kind of beneficiary designation is this?

Per stirpes beneficiary

Irrevocable beneficiary

Collateral beneficiary

Revocable beneficiary

Irrevocable beneficiary

A life insurance company just paid a $100,000 death benefit to a beneficiary. When the insured died, the cash value was $15,000 and the total premiums-paid equaled $10,000. How much of the proceeds will be added to the beneficiary's gross income for federal income tax purposes?

$105,000

$5,000

Nothing

$100,000

Nothing

Death benefits from a life insurance policy are normally considered to be

subject to attachments from the insured's creditors

exempt from federal income tax

subject to the value-added tax

subject to the cost recovery rule

exempt from federal income tax

Death proceeds from a life insurance policy are typically included in a deceased insured's gross estate

for federal and state income tax purposes

only if the insured's estate is listed as beneficiary

for federal income tax reasons

only if the policy is owned by the beneficiary

for federal income tax reasons

Which of these is an accurate statement regarding the fixed period settlement option on a life insurance policy?

A portion of the payments paid to the beneficiary comes from interest calculated on the proceeds of the policy

Payment can be adjusted monthly by the beneficiary

A portion of the payments paid to the beneficiary comes from interest generated from policy loans

Payments are normally guaranteed for 10 years or more

A portion of the payments paid to the beneficiary comes from interest calculated on the proceeds of the policy

Which statement regarding a fixed period settlement option is correct?

A fixed period settlement option can pay no longer than 20 years

The insurance company dictates the total number of installment payments

The insurance company dictates each installment payment amount

The installment payment amount is determined by the total number of installments

The installment payment amount is determined by the total number of installments

Which would be described as a beneficiary designation by class?

Children of the insured

Tertiary beneficiary

A specific named beneficiary

Estate of the insured

Children of the insured

A life insurance beneficiary died after receiving only six payments under the policy's life income settlement option. What happens with the remaining balance of the death proceeds?

Kept by the insurance company

Transfers to the insured's estate

Donated to charity

Transfers to the beneficiary's estate

Kept by the insurance company

In what situation could an insurance policy's coverage be modified?

Applicant is a preferred risk

Applicant is a substandard risk

Applicant is a standard risk

Applicant is uninsurable

Applicant is a substandard risk

A life policy's spendthrift clause would have no effect if the beneficiary is paid the proceeds as a

lump-sum payment

fixed-period installment

fixed-amount installment

life income option

lump-sum payment

Which report contains information regarding an individual's general reputation and credit standing?

Agent's report

MIB report

Credit report

Consumer report

Consumer report

Al surrenders his life insurance policy for its cash value. The total of premiums paid into the policy minus total dividends received in cash or used to offset premiums is referred to as the

cost basis

net proceeds

premium basis

cash basis

cost basis

How long do most states allow an insurance company to delay the payment of a cash surrender under the Delayed Payment provision?

1 month

4 months

6 months

2 months

6 months

Which of the following is NOT a reason for a business to buy key person life insurance?

The loss of company revenues while a replacement is being sought

An increased pension liability if the key employee dies

A void in leadership if the key person were to die

The reduction in sales as a direct result from death of the key employee

An increased pension liability if the key employee dies

When an applicant applies for a large amount of life insurance coverage, which of the following would likely NOT be an underwriting requirement?

Urine sample

Consumer report

Blood sample

Eye examination

Urine sample

Which of these factors does NOT influence an individual's need for life insurance?

Self-maintenance expenses

Number of dependents

Lifestyle of the applicant

Future educational costs of the dependents

Self-maintenance expenses

How much is normally paid to a policyowner in a life (viatical) settlement?

Total premiums paid plus interest

Full face amount

More than the face amount

Less than the death benefit

Less than the death benefit

T is covered by an Accidental Death and Dismemberment (AD&D) policy that contains an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?

Change will be made only if premiums are paid current

Request of the change will be refused

Request will be accepted only if in writing by the insured

Change will be made immediately

Request of the change will be refused

When there is a named beneficiary on a life insurance policy, the death benefits

are directed to a trustee if the insured has any outstanding debts

are paid directly to the insured's creditors, with any remaining balance forwarded to the beneficiary

are paid directly to the beneficiary without interference from the insured's creditors

are paid directly to the beneficiary, minus any debt claims by the insured's creditors

are paid directly to the beneficiary without interference from the insured's creditors

Which statement regarding the joint and survivor life insurance settlement option is NOT true?

Age of the beneficiaries plays a factor when determining the payment amounts

The amount of each installment is larger than the single life income option

Income continues until the last beneficiary dies

Two or more beneficiaries can be paid

The amount of each installment is larger than the single life income option

Which settlement option makes minimum guaranteed dollar payments over a stated number of years?

Fixed-Period

Fixed-Amount

Life Income

Interest-Only

Fixed-Period

A signed good health statement may be requested by a life producer at the time of

application

policy delivery

policy issue

physical examination

policy delivery

Wyatt is shopping for life insurance and is mainly concerned with the policy's death benefit. Which index should he be looking at when making comparisons?

Guaranteed renewable index

Cost surrender index

Net payment cost index

Net gain index

Net payment cost index

XYZ Corp gives money to an employee to purchase a life insurance policy and allows the employee to select the beneficiary. What kind of plan is this?

Key employee

Split-dollar

Cross purchase

Deferred compensation

Split-dollar

According to the needs approach, an emergency reserve fund's primary purpose is to

pay for the cost of life insurance

cover the cost of unexpected expenses

provide a supplemental income source

pay off debt

cover the cost of unexpected expenses

A terminally ill policyowner decides to sell his life insurance policy at a discount to help support his family. This sale is called a(n)

nonforfeiture option

assignment

accelerated death benefit

viatical settlement

viatical settlement

Life insurance premiums are computed on what three factors?

Morbidity, interest, dividends

Mortality, interest, dividends

Morbidity, interest, expenses

Mortality, interest, expenses

Mortality, interest, expenses

Which of these is NOT considered to be a cost connected with an individual's death?

Probate costs

Funeral expense

Tax liability

Business expenses

Business expenses

The principal source of information concerning an applicant's identity, age, and marital status is found in the

completed application

MIB

credit report

policy summary

completed application

When a policy loan is requested by a policyowner and it requires the consent of the beneficiary, what kind of beneficiary designation is this?

Revocable beneficiary

Irrevocable beneficiary

Collateral beneficiary

Per stirpes beneficiary

Irrevocable beneficiary

Where will a life insurance policy's proceeds be directed to if all the beneficiaries die before the insured?

Beneficiary's estate

Insured's estate

Insured's creditors

Court-ordered beneficiary

Insured's estate

Mike applied for life insurance and was issued a conditional receipt. He is later found to be insurable and is issued a policy. When does his coverage become effective?

Date the policy was approved

Date of issuance of the conditional receipt

Date of policy delivery

Date the insurer received the application

Date of issuance of the conditional receipt

What is considered a valid reason for small corporations to insure the lives of its major stockholders?

Reduce the company's tax liability

To pay for final expenses

Fund a buy-sell agreement

To provide an income for the surviving dependents

Fund a buy-sell agreement

Which life insurance policy provision prohibits a beneficiary from "commuting, encumbering, withdrawing, or assigning" any portion of the proceeds prior to actual receipt from the company?

Insuring clause

Nonforfeiture provision

Spendthrift clause

Collateral Provision

Spendthrift clause