Question 1

A living benefit clause provides

Accepted Answer

A living benefit clause provides dollar benefits to the insured prior to death if the insured is terminally ill. This clause helps the policyholder to meet their expenses during their lifetime, especially if they are terminally ill and need financial support. It allows the policyholder to receive a portion of the death benefit while they are still alive, therefore providing a living benefit to them.

Question 2

Which of the following policy features typically cost extra?

Accepted Answer

Both waiver of premium and guaranteed insurability typically cost extra and are optional add-ons to a policy. Nonforfeiture values, which provide a cash value to the policyholder if they cancel or surrender the policy, are typically included in the policy at no extra cost.

Question 3

The rate of return on cash-value life insurance has historically ____ what can be achieved by a diversified portfolio of stock and bond mutual funds.

Accepted Answer

Cash-value life insurance has historically underperformed compared to a diversified portfolio of stock and bond mutual funds.

Question 4

One's need for life insurance is generally the greatest during which phase of the life cycle?

Accepted Answer

During the young married with children phase of life, individuals generally have higher financial obligations, such as mortgage payments, childcare expenses, and college tuition for their children. In the event of the unexpected death of a primary wage earner, life insurance can provide financial protection for the family's future expenses and needs. Therefore, the need for life insurance is generally the greatest during this phase of life.

Question 5

The advantage of term insurance is

Accepted Answer

Term insurance typically provides more coverage per premium dollar compared to other types of life insurance, such as whole life or universal life insurance. This is because term insurance is designed to provide coverage for a specific period of time, without accumulating cash value or offering other investment features. As a result, the premiums for term insurance tend to be lower and more affordable for individuals who need a significant amount of coverage but want to keep their costs under control.

Question 6

Providing for a secure income for your family can be met through adequate term life insurance when in your childrearing years that is replaced with your _________ as you enter the empty-nest years and approach retirement.

Accepted Answer

Retirement nest egg is the correct answer because it refers to the savings and assets that individuals accumulate over their working years to provide for their financial needs during retirement. This aligns with the context of transitioning from needing term life insurance for income replacement during childrearing years to relying on accumulated savings and investments as one approaches retirement and enters the empty-nest phase.

Question 7

The option that one might purchase if he or she wanted to increase the amount of cash value insurance held in the future is called

Accepted Answer

Guaranteed insurability allows the policyholder to purchase additional life insurance coverage in the future without having to show evidence of insurability. This can lead to an increase in the amount of cash value insurance held in the future. Guaranteed renewability refers to the policy's ability to be renewed without having to show evidence of insurability but may not necessarily increase the cash value. Multiple indemnity provides for an increased benefit payment if the insured dies under certain circumstances, but does not increase the cash value. Nonforfeiture refers to the policy's ability to retain a cash value if the policy lapses or is surrendered, but does not necessarily increase the cash value.

Question 8

All of the following are true except

Accepted Answer

The correct phrase is "buy term and invest the rest," which suggests buying term life insurance and investing the difference in cost compared to whole life insurance.

Question 9

Which of the following rates of return in a cash-value life insurance policy does the agent tend to focus on and which should the purchaser focus on?

Accepted Answer

The agent tends to focus on the current rate of return, which is the rate of return the policy has earned in the recent past, and also the rate of return promised for the near future. On the other hand, the purchaser should focus on the guaranteed minimum rate of return, which is the minimum rate of return the policy will earn, regardless of how the market performs. Therefore, B is the best choice.

Question 10

Amounts stipulated in a life insurance policy that protect the cash value in the event that the policyholder chooses not to pay the required premiums are

Accepted Answer

Nonforfeiture values are the amounts stipulated in a life insurance policy that protect the cash value if the policyholder chooses not to pay the required premiums. These values include cash surrender values, reduced paid-up insurance options, and extended term insurance options.

Question 11

Settlement options for life insurance proceeds include all of the following except

Accepted Answer

Additional paid-up insurance is not a settlement option for life insurance proceeds. Settlement options typically involve how the beneficiary receives the death benefit, such as in a lump sum, as interest income, or as income for a specific period, but do not include purchasing additional insurance.

Question 12

If a beneficiary wants to make sure that the life insurance proceeds being paid out are not exhausted before he or she dies,the beneficiary would choose which of the following settlement options?

Accepted Answer

With income for life, the beneficiary will receive a guaranteed income for the rest of their life, ensuring that the funds are not exhausted before their death. Interest income also allows the beneficiary to receive a regular income while preserving the principal. Both options provide a level of security for the beneficiary by ensuring a steady income stream without depleting the funds too quickly.

Question 13

If Bethany works at a job where her income fluctuates from month to month and is concerned about not being able to pay her cash-value life insurance premium some months,she should consider a policy with

Accepted Answer

An automatic premium loan provision allows the insurance company to automatically use the cash value of the policy to pay premiums if Bethany cannot, ensuring the policy remains in force during times of financial difficulty.

Question 14

When using the "buy term and invest the rest" strategy,the easiest way to ensure your money is actually invested is to set up

Accepted Answer

Setting up an automatic investment program (AIP) with a mutual fund is the best choice for ensuring your money is actually invested when using the "buy term and invest the rest" strategy. This allows for regular contributions to be made automatically, without any additional effort needed from the investor. Cash-value life insurance and settlement option plans are not relevant to this strategy. The mention of cash-value life insurance twice in the original question seems to be a mistake.

Question 15

Life insurance is generally least needed on the lives of

Accepted Answer

Children do not typically have dependents relying on their income, so the need for life insurance is minimal.

Question 16

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What is the maximum amount William could borrow from this policy if it has been in force ten years?

Accepted Answer

According to the table, the cash value of the policy after 10 years is $16,520. The maximum amount William could borrow is typically 90% of the cash value, which is $14,868. However, the question asks for the "maximum" amount, so we must take into account any outstanding loans and accrued interest. The policy loan balance after 10 years is $618, so the maximum amount William could borrow is $14,250 (i.e. 90% of $15,902, which is the cash value minus the loan balance). Therefore, the best choice is B.

Question 17

Typically,when one borrows from his or her cash value in a life insurance policy,

Accepted Answer

When someone borrows from the cash value in their life insurance policy, only the guaranteed minimum rate is paid on the remaining nonborrowed cash value. The proceeds paid to a beneficiary are indeed unchanged, but interest is charged on the loan. Therefore, option C is the best choice.

Question 18

At the end of year 5,Allison could

Accepted Answer

Option B allows Allison to stop paying premiums while still having $7,950 of paid-up insurance for the rest of her life. This option provides the most long-term benefit for Allison. Option A requires her to wait another 6 years and 142 days before collecting the full $100,000, while Options C and D involve canceling the policy and receiving a smaller payout.

Question 19

Jonna purchased a $25,000 cash value policy with a guaranteed insurability option that can be exercised a maximum of four times at $25,000,each over the next 12 years.Which of the following statements is false?

Accepted Answer

The guaranteed insurability option allows Jonna to increase her coverage without proving insurability each time she exercises the option.

Question 20

If Brent is concerned about not being able to pay his life insurance premium should he become disabled,he should consider a policy with

Accepted Answer

A waiver of premium rider would waive Brent's obligation to pay premiums in the event of total disability. This would ensure that his policy remains in force and his beneficiary receives the benefits he intended to provide.

Quiz 12: Life Insurance Planning