Question 1

Russell Lowe has a life insurance policy that allows him to pay his premiums virtually at any time and virtually in any amount,subject to certain minimums.What type of insurance does Russell likely have?

Accepted Answer

The type of insurance policy that allows for flexible premium payments and minimums is universal life insurance. This type of policy offers more flexibility than other types of life insurance, such as ordinary whole life or limited payment life. Variable life insurance typically involves the policyholder making investment decisions, while adjustable life insurance allows the policyholder to adjust the policy's premium, death benefit and other features.

Question 2

A suicide clause means that the insurance company:

Accepted Answer

A suicide clause typically states that if the insured commits suicide within the first two years that the policy is in force, the insurer will pay the beneficiaries a death benefit equal to the amount of premiums paid. After the two-year period, the full death benefit will be paid in the event of suicide.

Question 3

Frank Keating has a life insurance policy that can be exchanged for a whole life policy without a medical examination.Once it has been exchanged,the premiums will increase.What type of term life insurance does Frank likely have?

Accepted Answer

Frank likely has a convertible term life insurance policy since it allows him to exchange it for a whole life policy without a medical examination. This option is only available with convertible term life insurance policies.

Question 4

A beneficiary is a person who:

Accepted Answer

A beneficiary is a person or entity designated to receive proceeds or benefits from a financial product, such as a life insurance policy, in the event of the policyholder's death.

Question 5

Richard Beck has a life insurance policy which he has altered to include an accidental death benefit payable to his son and daughter.This alteration has most likely been done by attaching a(n)____ to the policy.

Accepted Answer

The accidental death benefit is a type of double indemnity rider, which provides an additional benefit if the insured dies due to an accidental cause. This rider is typically attached to a life insurance policy for an additional premium.

Question 6

Lori Simpson is thinking about purchasing some life insurance.She goes to a company where the policyholders are essentially the owners of the company.What type of life insurance company has she visited?

Accepted Answer

Mutual insurance companies are owned by the policyholders, meaning that the policyholders have a say in the company's decisions and may receive dividends or profits from the company's operations. Stock insurance companies, on the other hand, are owned by investors who expect a return on their investment through the payment of dividends or an increase in stock value. Debt insurance companies are typically financial institutions that issue insurance policies as a part of their portfolio, and exclusionary and cooperative insurance companies are not commonly recognized types of insurance companies.

Question 7

Your life insurance policy is valuable only if it:

Accepted Answer

The value of a life insurance policy is dependent on whether it meets your objectives. If the policy aligns with your financial goals, such as providing for your family in case of your untimely death or paying for your final expenses, then it is valuable. Making you or your beneficiaries rich or serving as collateral for a loan are not necessarily the primary objectives of a life insurance policy. The policy also does not have to pay a specific interest rate to be considered valuable.

Question 8

Lisa Smith has her age listed on her driver's license as being three years younger than it actually is.This is also how old she tells her insurance company she is.Her insurance company has discovered she lied about her age.What provision of her life insurance contract states that her benefits will be what her premium would have bought if she had been truthful about her age?

Accepted Answer

The provision that addresses lying about age is the misstatement of age provision. This provision allows the insurer to adjust benefits based on the premium that would have been paid if the correct age had been disclosed.

Question 9

Jim Brown has a life insurance policy that allows him to change his policy to fit his changing needs.He can change either the premium he pays or the period of coverage.What type of insurance does Jim likely have?

Accepted Answer

Jim likely has an adjustable life insurance policy as it allows him to change both the premium he pays and the period of coverage.

Question 10

Jerry Lewis is thinking about purchasing some life insurance.He goes to a company that is owned by shareholders.What type of life insurance company has he visited?

Accepted Answer

A stock insurance company is owned by shareholders, who invest in the company and expect to see returns on their investment through profits and dividends. This is different from a mutual insurance company, which is owned by its policyholders and operates as a non-profit organization. Jerry's visit to a company owned by shareholders suggests that it is a stock insurance company.

Question 11

Jane Curtain has a participating life insurance policy that returns part of her premiums at the end of the year.What is the money that is returned to Jane called?

Accepted Answer

The money returned to Jane at the end of the year is called a policy dividend. This is a portion of the premiums paid by the policyholder that are returned to them if the insurance company performs better than expected. It is not the same as cash value, which is the amount of money that the policyholder can withdraw or borrow against, and it is not the same as a beneficiary, which is the person designated to receive the death benefit of the policy. A rider is an additional provision that can be added to a policy, and double indemnity is a benefit that pays out double the death benefit in certain circumstances, such as accidental death.

Question 12

Francesca Brown has a life insurance policy that provides her with protection for the next five years.However,she can get five more years of protection at the end of this term without having to have a medical examination because she will be less than 70 years old at that time.Her premiums will rise during each five-year period.What type of term life insurance does Francesca likely have?

Accepted Answer

Francesca likely has a renewable term life insurance policy, which allows her to renew her coverage at the end of the initial term without having to re-qualify medically. The premiums will increase with each renewal period. This is different from a straight term policy where the premiums remain the same throughout the entire term, or a convertible policy where the policyholder can convert the term policy into a permanent life insurance policy. A decreasing term policy would have decreasing coverage amounts over time, while an accelerated term policy provides a portion of the death benefit while the policyholder is still alive if they are diagnosed with a terminal illness.

Question 13

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

Accepted Answer

Group life insurance typically charges the same cost per $1,000 of coverage for each employee. This is one of the main advantages of group life insurance, as it can often provide lower rates for individuals who may not be able to qualify for individual life insurance policies.

Question 14

The grace period normally allows ____________ days to elapse,during which time the premium may be paid on an insurance policy.

Accepted Answer

The most common grace period for insurance policies is 28 days to 31 days. This allows the policyholder to make a late payment without penalty or coverage lapsing.

Question 15

Renee Warning has a life insurance policy where the payments to beneficiaries get smaller as time passes.What type of term life insurance does Renee likely have?

Accepted Answer

Renee likely has a decreasing term life insurance policy, where the death benefit decreases over time while the premiums remain the same. This type of policy is often used to cover a specific debt, such as a mortgage, that decreases over time.

Question 16

Taylor Jones has a life insurance policy that returns every cent she pays in premiums if she outlives the term of the policy.She knows this policy costs 30 to 50 percent more than a traditional policy but thinks it is worth it.What type of term life insurance does Taylor have?

Accepted Answer

Taylor has return-of-premium term life insurance, which returns all of the premiums she paid if she outlives the term of the policy. This type of policy costs more than traditional term life insurance, but Taylor thinks it is worth it for the peace of mind it provides.

Question 17

Tim Bridges has a life insurance policy where he makes payments of $265 per year until he reaches the age of 65.His policy is then 'paid up' for life.His beneficiaries will receive the face value upon his death.What type of life insurance does Tim likely have?

Accepted Answer

Tim Bridges has a policy where he pays a premium for a limited period (until he reaches age 65) and then the policy is 'paid up' for life. This describes a limited payment life insurance policy, as opposed to ordinary whole life where premiums are paid until the policyholder's death or universal life where premiums may be flexible and even stop altogether at some point.

Question 18

Shelley Jackson has a life insurance policy where she makes payments of $185 per year for the rest of her life.This policy has a cash value that increases while she continues to make payments.If she gives up her insurance,the cash value is the amount she would receive from this policy.What type of life insurance does Shelley likely have?

Accepted Answer

Shelley's policy has a cash value that increases with her payments, which is a characteristic of whole life insurance policies. The fact that she pays a fixed premium amount for the rest of her life suggests that it is an ordinary whole life policy, rather than a limited payment life policy where premiums are paid for a limited number of years. Variable, adjustable, and universal life policies generally have more complex payment structures and investment components than described in the question.

Question 19

Which of the following names refer to permanent insurance?

Accepted Answer

All of the names listed (whole life, straight life, ordinary life, and cash-value life) refer to permanent insurance.

Question 20

John Camey has a life insurance policy that is tied to a separate stock fund.The cash value of his insurance policy depends on the value of this fund.He is guaranteed a minimum death benefit but the death benefit can be higher,depending on the value of the fund.What type of life insurance does John likely have?

Accepted Answer

Variable life insurance policies are tied to separate accounts that invest in stocks, bonds, or money market funds. The cash value of the policy depends on the value of the investments in the separate account. The policyholder may be able to choose how the cash value is invested, and the death benefit may vary depending on the performance of the investments. This type of policy is suited for those who are comfortable with investment risk and want the potential for higher returns.

Quiz 12: Life Insurance