Deck 19: Mortality Risk Management: Individual Life Insurance and Group Life Insurance

Question 1

In life insurance policy, if the insured dies during the grace period, the amount of the premiums past due need not be paid and the entire face amount of the policy will be paid to the beneficiary.

Answer 1

False

Question 2

The difference between the reserve at any point in time and the face amount of the policy is known as the protection element for the insurer, and as the net amount at risk for the insured.

Answer 2

False

Question 3

With universal, current assumption, and variable universal life insurance policies, the policyowner may discontinue premium payments at any time without lapsing the policy, as long as the surrender value is sufficient to cover the next deduction for the cost of insurance and expenses.

Answer 3

True

Question 4

In variable life insurance, the assumed rate of return is generally a rate necessary to maintain the level of cash values found in a traditional fixed-dollar straight life contract.

Question 5

The accumulation value and cash value of current assumption whole life insurance policies are determined in the same manner as for variable life policies.

Question 6

The current mortality rate, in universal life, can be any amount determined periodically by the insurer as long as the charge does not exceed the guaranteed maximum mortality rate specified in the contract.

Question 7

Single premium life policies are mainly sold as business insurance where there is a need to pay fully for a policy by a certain date, such as the time an employee will retire.

Question 8

The amount at risk for the insurer (that is, the protection element) increases as the cash value element of a whole life insurance policy increases with age.

Question 9

Some life insurance policies include dividends, and these policyholder dividends are paid after federal income taxation.

Question 10

In a one-year term life insurance, an insurer promises to pay $100,000 at the death of each insured who dies during the year.If past experience indicates that 0.1 percent of a group of young people will die during the year, one death may be expected for every 1,000 persons in the group.If a group of 300,000 is insured, what is the premium amount that the insurer must collect per policyowner? (Assume that premiums are based only on morality)

A)$10,000
B)$100
C)$300
D)$1,000
E)$200

Question 11

The premiums of life insurance policies increase as the insured grows older.

Question 12

Type A death benefit option in a universal life policy is intended to produce an increasing death benefit.

Question 13

Universal life insurance contracts were introduced during a period of historically high, double-digit interest rates.

Question 14

The theory of insurance is that the losses of the few can be paid for by relatively small contributions from the many.

Question 15

The renewability option gives the policyholder the right to renew the life insurance policy for a specified number of additional periods of protection, at a predetermined schedule of premium rates, without new evidence of insurability.

Question 16

The purpose of the grace period is to prevent unintentional lapses of life insurance policies.

Question 17

Mortgage protection insurance is a decreasing term insurance.

Question 18

The changes in basic amount provision specifies the conditions under which a policyowner can change the total face amount of the policy.Any requested increases in the face amount of the policy takes place on a monthly anniversary date.

Question 19

The most common type of group life insurance offered by employers is yearly renewable term coverage.

Question 20

Current assumption whole life policy is sometimes referred to as interest-sensitive whole life policy because of its participatory investment feature.

Question 21

Which of the following is regulated by the Securities and Exchange Commission (SEC)?

A)Term life insurance
B)Limited-payment life insurance
C)Variable life insurance
D)Whole life insurance
E)Universal variable life insurance

Question 22

For the insured, the difference between the reserve at any point in time and the face amount of the policy is known as:

A)net amount at risk.
B)protection element.
C)cash value.
D)surrender value.
E)premium value.

Question 23

The ability to maintain a policy throughout one's life is the key characteristic of:

A)universal life insurance policy.
B)variable universal life insurance policy.
C)variable life insurance policy.
D)term life insurance policy.
E)whole life insurance policy.

Question 24

In addition to covering mortality costs, a life insurance premium must reflect several adjustments.An insurer would reduce premiums on an insurance policy to:

A)cover the marketing and administrative expenses.
B)recover taxes levied.
C)cover the risk and expected profits.
D)cover the insured's risk.
E)recognize that the insurer expects to earn investment income on premiums.

Question 25

Which of the following plans is equivalent to a hypothetical single premium that could be paid at the beginning of the contract, discounting for interest and mortality?

A)Disappearing premium
B)One-year
C)Level premium
D)Yearly renewable
E)Lump-sum payment

Question 26

Which of the following life insurance policy transfers all investment risks to the policyowner and makes no guarantee of either principal or returns?

A)Limited premium life insurance
B)Term life insurance
C)Whole life insurance
D)Variable life insurance
E)Universal life insurance

Question 27

For the insurer, the difference between the reserve at any point in time and the face amount of the policy is known as:

A)net amount at risk.
B)protection element.
C)cash value.
D)surrender value.
E)premium value.

Question 28

Part of each premium, for all types of cash value life insurance, is used to make payments on the protection element of the contract, but the protection element of the contract has an expected return.This return is equal to:

A)the probability of death multiplied by the amount of protection.
B)the premium amount multiplied by the returns on investment.
C)the increase in premium amount multiplied the amount of protection.
D)the face value multiplied by return in investment.
E)the probability of death multiplied by the increase in premium amount.

Question 29

The _____ strategy used by some insurers ties the rate of return on cash values to a published index, such as rates on 90-day U.S.Treasury bills or Moody's Bond Index, rather than leaving it to the insurer's discretion and its actual investment portfolio returns.

A)new money rate
B)indexed investment
C)no-load contract
D)unbundling
E)fixed-dollar

Question 30

Back-end expenses in universal life insurance policies are also known as:

A)morality expenses.
B)underwriting expenses.
C)surrender expenses.
D)premium taxes.
E)bundling expenses.

Question 31

Which of the following statements is true of a variable life insurance policy?

A)The policy stays in force as long as the premiums are paid.
B)It provides protection for a specific period.
C)This "mutual fund" policy is intended to keep death benefits apace with inflation.
D)It pays the face amount if policy is in force when death occurs.
E)The interest rates of the policy are based on bonds only (not stocks) and can be higher than the minimum guaranteed.

Question 32

Which of the following life insurance policies is bought exclusively for its investment features where protection is viewed as a secondary benefit of the transaction?

A)Credit life insurance policy
B)Single premium life insurance policy
C)Straight life insurance policy
D)Limited-payment life insurance policy
E)Term life insurance policy

Question 33

In variable life insurance, if actual investment returns exceed the assumed rate of returns, cash values increase more than assumed, and these increases are used partly to purchase additional death benefits.The additional death benefits are usually in the form of:

A)term life insurance.
B)increased face value.
C)straight life insurance.
D)whole insurance.
E)limited-payment insurance.

Question 34

Which of the following factors have the most influence on the size of dividends received?

A)The lapse experience
B)The expense estimates
C)Mortality assumptions
D)Investment returns
E)The premium amount

Question 35

Which of the following are the two options that are typically available with term insurance sold directly to individuals?

A)Renewability and convertibility
B)Reliability and accountability
C)Scalability and usability
D)Portability and convertibility
E)Compatibility and Renewability

Question 36

Which of the following best describes unbundling?

A)A feature that allows the sharing of current profits from investments, mortality assumptions, expense estimates, and lapse experience with policyholders.
B)The need to pay for protection in order to gain access to the cash value element of a single-premium or other investment-oriented plan.
C)A feature of universal life that clearly shows the separate effect of mortality, investment, and expense components.
D)The process where issuers of universal policies lower their front-end charges and increase surrender charges.
E)A feature of variable life that credits the account with the return an insurer earns on its latest new investments.

Question 37

In which of the following life insurance policies are cash values guaranteed?

A)Universal life
B)Whole life
C)Variable life
D)Term life
E)Variable universal life

Question 38

In most respects, these policies work like universal life.The major difference is that, similar to traditional whole life contracts, the premiums are fixed.These policies do not have the flexible premium arrangements characteristic of universal life.Identify the life insurance policy being discussed.

A)Single premium life insurance
B)Current assumption whole life insurance
C)Straight life insurance
D)Limited payment life insurance
E)Variable universal life insurance

Question 39

In which of the following life insurance policies are premiums fixed, but increase at each renewal?

A)Variable life
B)Whole life
C)Universal life
D)Term life
E)Variable universal life

Question 40

Which of the following life insurance policies is characterized by its flexibility?

A)Variable life insurance
B)Universal life insurance
C)Straight life insurance
D)Term life insurance
E)Whole life insurance

Question 41

The premium rates for a(n) _____ policy, a type of whole life insurance policy, are based on the assumption that the insured will live to an advanced age (such as age ninety or 100).

Question 42

Which of the following life insurances is usually offered as a supplement to a separate program of group term benefits?

A)Group yearly renewable
B)Group whole
C)Group variable
D)Group universal
E)Group limited-payment

Question 43

Payment plans have several methods for death proceeds.In _____ method, there is even distribution of the proceeds over the life of the beneficiary, with continued distribution to his or her beneficiary at the same or reduced level.

A)interest
B)one-sum
C)fixed years
D)fixed amount
E)joint life income

Question 44

_____ allows the insured to demonstrate insurability periodically, perhaps every five years, and qualify for a new (lower) select category of rates that are not initially loaded for adverse selection.

Question 45

The purchase of most life insurance policies is motivated primarily by a need for death protection.Which of the following can be cited as an exception to this general rule?

A)Limited-payment life insurance
B)Term life insurance
C)Variable life insurance
D)Single-premium life insurance
E)Straight life insurance

Question 46

A whole life policy guarantees that a policyholder who decides to cancel the policy can either take cash for the surrender (cash) value or continue the policy in force as extended term insurance and paid-up insurance.What are these provisions are called?

A)Nonforfeiture options
B)Survivorship
C)Double indemnity
D)Incontestable
E)Reinstatement

Question 47

Term policies are often not renewable beyond age sixty-five or seventy because of _____ that increases with age.

Question 48

Which of the following provisions provides that the beneficiary must survive the insured by a specified period of time or must be alive at the time of payment to be entitled to the proceeds?

A)Assignment
B)Reinstatement
C)Common disaster
D)Payment of benefits
E)Incontestable

Question 49

The difference between cash income and outflow in universal life becomes a new contribution to (or deduction from) the _____ account.

Question 50

Which of the following provisions helps the insurer avoid litigation about who is entitled to policy benefits, and protects the insurer from paying twice?

A)Survivorship
B)Reinstatement
C)Assignment
D)Incontestable
E)Double indemnity

Question 51

Payment plans have several methods for death proceeds.Which method is characterized by an even distribution of the proceeds until depleted?

A)Fixed amount
B)Joint life income
C)Fixed years
D)Interest
E)One-sum

Question 52

The nonpayment of premium, accumulation to avoid lapse, and automatic premium loans sections apply to which of the following life policies?

A)Variable
B)Whole
C)Term
D)Universal
E)Variable universal

Question 53

Assume that the conditions of the survivorship clause are not fulfilled in a particular scenario.Which of the following beneficiaries would receive the proceeds from the policy?

A)Contingent beneficiary
B)Irrevocable beneficiary
C)Evocable beneficiary
D)Testamentary beneficiary
E)Revocable beneficiary

Question 54

The purpose of the _____ provision is to enable the owner of the policy to designate to whom the proceeds shall be paid when the insured dies.

A)common disaster
B)payment of benefits
C)assignment
D)reinstatement
E)survivorship

Question 55

Which of the following riders is also known as double indemnity?

A)Waiver of premium
B)Disability income
C)Accelerated death benefit
D)Catastrophic illness
E)Accidental death benefit

Question 56

Beginning in the 1950s, insurers began to refer to the accumulated funds of level premium life insurance policies as _____ that could meet various savings needs.

Question 57

Payment plans have several methods for death proceeds.In the life income method:

A)there is even distribution of the proceeds until depleted.
B)there is even distribution of the proceeds over a certain number of years.
C)the beneficiary leaves the proceeds with the insurer and collects only the interest.
D)there is even distribution of the proceeds over the life of the beneficiary.
E)there is a lump-sum distribution.

Question 58

Which of the following plans in group term life insurance allows employees to increase life insurance based on their individual needs and are subject to insurability evidence to avoid adverse selection?

A)Assignment
B)Extended term
C)Supplemental
D)Paid-up
E)Settlement

Question 59

Which of the following beneficiary designations can be changed only with the consent of the beneficiary?

A)Contingent
B)Testamentary
C)Revocable
D)Evocable
E)Irrevocable

Question 60

_____ life insurance contracts were introduced to the market in 1979 to bolster the profits of stock insurance companies.

Question 61

Under the _____ insurance option, it is as if there is a new policy providing a lower lifetime death benefit than the old one did.

Question 62

Policyowners should avoid naming minors as beneficiaries.Where the objective is a substantial estate to benefit a child or children, the preferable approach would be to name a(n) _____ as beneficiary.

Question 63

In flexible premium contracts such as universal and variable universal life, the _____ provision specifies that the target premium to keep the policy in force will be credited to the insured's account during disability.

Question 64

_____ increase the death benefit annually, consistent with the previous year's increase in the consumer price index (CPI).

Question 65

Variable universal life insurance is also called _____ variable life insurance.

Question 66

Variable life is, in essence, a(n) _____ life product that provides variable amounts of benefit for the entire life.

Question 67

It is customary to name one or more beneficiaries who are entitled to the proceeds in the event that the primary beneficiary does not survive the insured.These are known as secondary or tertiary _____ beneficiaries.

Question 68

Current assumption whole life is sometimes referred to as _____ whole life because of its participatory investment feature.

Question 69

In a group term life insurance, the _____ part of the supplemental coverage is for loss of limb or eyesight.

Question 70

Several additional payment plans have been developed and are now included in most policies because a lump-sum payment is not desirable in all circumstances.These payment plans are also known as _____ options.