LIFE INSURANCE EXAM TERMS AND DEFINITIONS EXAM

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LIFE INSURANCE EXAM TERMS AND DEFINITIONS EXAM

QUESTIONS

Actual Qs and Ans - Expert-Verified Explanation -Guaranteed passing score -34 Questions and Answers

-Format: Multiple-choice / Flashcard

Question 1: Joint Life Policy

Answer:

Covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured

Question 2: Extended Term Nonforfeiture Option

Answer:

Use the cash to buy term insurance for the same death benefit as the original policy for as long a time period as it will buy

Question 3: Lump sum (LIFO)

Installments

Answer:

LIFO-foam first-foam taxed Installments-beer and foam

Question 4: Whole Life insurance

Answer:

Also call straight life insurance. Level premiums paid to age 100

Question 5: Reinstatement Provision

Answer:

Applies to the timeframe that an insurer hasn't paid premium but wants the policy back.

• You have 3-5 years to reinstate
• proof of insurability and back premiums plus interest would have to be paid
• If you havent heard back in 45 days, then the policy has been reinstated
• policy premium is based on original age

Question 6: Uniform Simultaneous Death Act

Answer:

A uniform law adopted by most states providing that if the Primary Beneficiary and the insured die in the same accident and there is no proof that the beneficiary outlived the insured, the proceeds are paid as if the Primary Beneficiary died first, which means that the proceeds are paid to the Contingent Beneficiary.Also known as the Common Disaster provision.

Question 7: Common Disaster Clause

Answer:

When insured and primary die at the same time, it is assumed that the primary died first. Sets a time limit. Ex: If Primary Beneficiary dies before 30 days, contingent beneficiary will receive. If after 30 days, first beneficiary will receive. If no contingent beneficiary, proceeds would go to insured's estate

Question 8: Variable Annuities

Answer:

• Payments fluctuate according to the value of an account invested primarily in common stocks (annuity

units)

Question 9: Adjustable Life insurance

Answer:

Can adjust the policy's face amount, premium, and length of protection without ever having to complete a new application/policy

Question 10: Interest Sensitive Whole Life

Answer:

Premiums vary to reflect the insurer's changing assumptions with regard to death investment and expense factors

Question 11: Dividend Options

Answer:

1: Cash (tax-free); 2: Apply to future premiums; 3: Accumulate at Interest/sits in account; 4: Purchase paid up additions

Question 12: Surrender Cost Index

Answer:

useful if the owner expects to surrender the policy after some time period. Adding up total premiums paid, minus dividends, and subtracting cash value

Question 13: Waiver of Cost of Insurance (Waiver of Deduction)

Answer:

Found in Universal Policies. Only pays enough to keep the policy in force

Question 14: Graded Premium Whole Life

Answer:

premiums start off lower than straight level, then gradually increases year by year for 5-10 years then levels out

Question 15: Outline of coverage

Answer:

Also called Disclosure Form or Disclosure Statement

Question 16: 1035 Exchange

Answer:

1) Exchange life insurance for another life insurance policy, endowment contract, or annuity

2) Exchange endowment contract for another endowment contract or annuity

3) an annuity for another annuity

Question 17: Annual Renewable Term (ART)

Answer:

Level death benefit. Premiums go up each year based on the insured's age

Question 18: Reduced Paid-Up Nonforfeiture Option

Answer:

Use the cash to buy as much of a paid up policy as possible

Question 19: Policy Cost Comparison Methods

Answer:

Surrender Cost Index Net Payment cost Index

Question 20: Nonforfeiture Options

Answer:

cash value, reduced paid-up insurance, extended term insurance

Question 21: Cash Value Nonforfeiture Option

Answer:

Take cash value of the policy and leave

Question 22: Net Payment Cost Index

Answer:

useful if the owner expects to keep the policy in force. Calcuated same way as SCI but cash value is not subtracted

Question 23: Taxation rules for Life Insurance Policies

Answer:

Premiums: Not tax-deductible to individual, yes to employers

Death benefit: tax free if a lump sum named to a beneficiary

Death benefit paid in installments: principal is tax free, interest is taxable income

Question 24: Variable Life Insurance

Answer:

cash values are invested directly in a securities product such as stocks, bonds, or mutual funds. Held in a company's separate account