Life License Practice Test 2 - Questions and Answers An insurance contract must contain all of the following to be considered legally binding EXCEPT
... [Show More] Beneficiary's consent. The four essential elements of all legal contracts are offer and acceptance; consideration; competent parties; and legal purpose. Equity indexed annuities Seek higher returns. Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500. What is the other term for the cash payment settlement option? Lump sum. Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum. Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? Any form of life insurance. Any form of Life insurance may be used to fund a buy-sell agreement. J purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy? $100,000. In joint life policies, the death benefit is paid upon the first death only. All of the following are personal uses of life insurance EXCEPT Estate liquidation. Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. Which of the following is an example of a limited-pay life policy? Life Paid-up at Age 65. Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity. An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? Guaranteed insurability option. The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability. Which is NOT true about beneficiary designations? The beneficiary must have insurable interest in the insured. A beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have to have an insurable interest in the policyholder. What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military? Military service or war. There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war. What is the name of the insured who enters into a viatical settlement? Viator. Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract. A 40-year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarries and dies at age 61, leaving 2 grown-up children. Assuming he never changed the beneficiary, the policy proceeds will go to The insured's estate. Because there is no viable beneficiary at the time of death, proceeds are paid to the insured's estate. The death protection component of Universal Life Insurance is always Annually Renewable Term. A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance. Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy? The employer is the owner and beneficiary. With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary. Variable Life insurance is based on what kind of premium? Level fixed. Variable Life insurance is a level fixed premium investment based product. Which of the following will be included in a policy summary? Premium amounts and surrender values. A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years. The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called Joint and survivor. A joint and survivor option pays while either beneficiary is still living. In a life settlement contract, whom does the life settlement broker represent? The owner. Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners. All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT Upon conversion, the death benefit of the permanent policy will be reduced by 50%. Convertible term insurance is convertible without proof of insurability up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured's attained age. Which of the following is a risk classification used by underwriters for life insurance? Standard. The three ratings classifications that denote the risk level of insureds are standard, substandard, and preferred. This classification system helps insurers to decide if an insured should pay a higher premium. Which of the following statements is correct regarding a whole life policy? The policyowner is entitled to policy loans. Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans. An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe? Conditional. A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies, which put the burden of condition on either the insurer or the policyowner. Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? Life income with period certain. The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period. An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive. When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? [Show Less]