Question 1

Which of the following statements about a variable universal life insurance policy is (are)true?
I. There is a minimum guaranteed interest rate for the cash value.
II.The policyowner has a variety of investment options for the investment of premiums.

Accepted Answer

Variable universal life insurance policies do not guarantee a minimum interest rate for the cash value, but they do offer a variety of investment options for the policyowner.

Question 2

The net amount at risk for an ordinary life insurance policy is the difference between the

Accepted Answer

The net amount at risk is the amount the insurance company would pay out if the insured were to die. It is calculated as the face amount of the policy (the death benefit) minus the legal reserve (the portion of premiums set aside to cover future claims). So, the correct answer is C: face amount of the policy and the legal reserve.

Question 3

What happens to the premiums for yearly renewable term insurance as an insured gets older?

Accepted Answer

Yearly renewable term insurance premiums increase at an increasing rate as the insured gets older. This is because the likelihood of the insured passing away increases with age, making the insurance riskier for the insurer. As a result, the premiums increase to compensate for the higher risk.

Question 4

All of the following statements describe the flexibility available to the owner of a universal life insurance policy EXCEPT

Accepted Answer

Policy loans may be permitted on a generally low-interest basis, but not necessarily interest-free. The other options are all true statements about the flexibility of universal life insurance policies.

Question 5

Which of the following statements about term insurance is true?

Accepted Answer

Option B is true. Term insurance policies can be renewed for additional periods without evidence of insurability. The other options are incorrect. A is false because term insurance only provides coverage for a specific period. C is false because premiums increase with each renewal due to the increase in age of the policyholder. D is false because term insurance policies do not have a cash value.

Question 6

All of the following statements about ordinary life insurance are true EXCEPT

Accepted Answer

The face amount of an ordinary life insurance policy is paid upon the death of the insured, not upon reaching a certain age (such as 65).

Question 7

A legal reserve in life insurance is a result of

Accepted Answer

Legal reserves in life insurance are primarily a result of excess premiums collected in the early years of a policy, which are then invested to ensure that the company can meet its future obligations to policyholders. This practice helps in managing the financial risk associated with long-term policies.

Question 8

A whole life insurance policy in which premiums are reduced for an initial period (e.g.3 years)and are higher thereafter is an example of a

Accepted Answer

This is a clear example of a modified life policy, which is a form of whole life insurance where premiums start off lower for a set period of time and then increase for the remainder of the policy.

Question 9

Most family heads need substantial amounts of life insurance.However,with limited income,money spent on life insurance reduces the amount of discretionary income available for other high-priority needs.What an insured person gives up when he or she purchases life insurance instead of using the premium dollars for other purposes is called the

Accepted Answer

The concept described in the question is that of opportunity cost, which is the value of the next best alternative foregone when choosing one option. In this case, the opportunity cost of buying life insurance is the alternative uses of the premium dollars, such as for other high-priority needs. The other choices do not accurately describe this concept.

Question 10

Which of the following statements about universal life insurance is (are)true?
I.The current interest rate credited to the cash value at the time the policy is issued remains fixed for the life of the policy.
II.A monthly deduction is made from the policy's cash value for the cost of insurance protection.

Accepted Answer

Statement I is false, as the interest rate credited to the cash value can fluctuate over the life of the policy. Statement II is true, as a monthly deduction is made from the cash value to cover the cost of insurance protection.

Question 11

Which of the following statements about endowment insurance policies is (are)true?
I. The face amount is paid if the insured dies during the policy period or at the end of the policy period if the insured is still alive.
II. The use of endowment insurance has increased in recent years because of its favorable tax treatment.

Accepted Answer

Endowment insurance policies provide a savings component in addition to a death benefit. The face amount is paid if the insured dies during the policy period or at the end of the policy period if the insured is still alive. The use of endowment insurance has not necessarily increased in recent years because of its favorable tax treatment.

Question 12

Which of the following statements about a decreasing term insurance policy is true?

Accepted Answer

A decreasing term insurance policy is one in which the face amount of the policy gradually decreases over time, while the premium remains level throughout the policy period. This type of policy is often used to cover a decreasing debt, such as a mortgage, where the amount owed decreases as payments are made. The policyholder can select the length of time over which the face amount will decrease, and the rate at which it will decrease.

Question 13

Which of the following statements about variable life insurance is true?

Accepted Answer

The answer of Which of the following statements about variable...

Question 14

All of the following statements about current assumption whole life insurance are true EXCEPT

Accepted Answer

Current assumption whole life insurance does not necessarily pay annual dividends; that characteristic is more closely associated with traditional participating whole life insurance policies. Current assumption policies' premiums and benefits can vary based on current economic conditions and the insurer's experience, but dividends are not a guaranteed feature.

Question 15

All of the following statements about the conversion of a term policy are true EXCEPT

Accepted Answer

Evidence of insurability is typically not required for the conversion of a term policy to a permanent policy. This is one of the key benefits of conversion options, allowing the policyholder to convert without having to prove they are in good health.

Question 16

Which of the following statements about yearly renewable term insurance is (are)true?
I.It requires evidence of insurability for renewal.
II.It is most appropriate when an insured needs lifetime protection.

Accepted Answer

The answer of Which of the following statements about yearly...

Question 17

All of the following statements about universal life insurance are true EXCEPT

Accepted Answer

Interest credited to a universal life insurance policy's cash value is not taxable as long as it stays within certain guideline limits. However, if the cash value is surrendered or withdrawn, any earnings that exceed the amount paid in premiums are subject to taxation.

Question 18

Which of the following statements about limited-payment life insurance is true?

Accepted Answer

Limited-payment life insurance remains in effect until death but the premium is paid only for a specified number of years. This kind of insurance may be appropriate if a person wants paid-up life insurance during retirement when income may be less.

Question 19

The purchase of term insurance is justified by which of the following circumstances?
I.The insured wants to save money through the policy for a specific need.
II. The insured has a temporary need for life insurance protection.

Accepted Answer

Term insurance is designed to fulfill a temporary need for life insurance protection, such as covering a mortgage or providing for family members until they become financially independent. It is not intended to save money or provide long-term financial benefits like some other types of life insurance policies. Therefore, option I is not justified, and only option II is appropriate for purchasing term insurance.

Question 20

Which of the following statements about life insurance cash values is (are)true?
I.Cash values are a result of the level premium method of purchasing life insurance.
II.The cash value of a policy must always exceed the policy's legal reserve.

Accepted Answer

Statement I is true. The level premium method of purchasing life insurance involves paying the same premium every year, with a portion of the premium going towards the cost of insurance and another portion going towards the policy's cash value accumulation.

Statement II is false. The cash value of a policy may or may not exceed the policy's legal reserve, which is the minimum amount of assets an insurer is required by law to maintain to ensure it can meet its obligations to policyholders. The cash value depends on various factors, such as the policy's type, premium, and investment performance.

Quiz 11: Life Insurance

Which of the following statements about a variable universal life insurance policy is (are) true? I. There is a minimum guaranteed interest rate for the cash value. II.The policyowner has a variety of investment options for the investment of premiums.