Chapter 12 Life Insurance Policies

1. Arnold purchased a $100,000 Joint Life policy that covered himself and his wife Sarah. Eight years later, Arnold died in an automobile accident. How much will Sarah receive from the policy?

$200,000

$100,000

Nothing

$50,000

Sarah will receive $100,000 from the policy. The Joint Life policy covers both Arnold and Sarah, and in the event of Arnold's death, the policy pays out the death benefit to the surviving spouse, which in this case is Sarah. Therefore, Sarah will receive the full amount of the policy, which is $100,000.

Explanation

Sarah will receive $100,000 from the policy. The Joint Life policy covers both Arnold and Sarah, and in the event of Arnold's death, the policy pays out the death benefit to the surviving spouse, which in this case is Sarah. Therefore, Sarah will receive the full amount of the policy, which is $100,000.

2. Which of the following is known as Mortgage Protection?

Expired Term

Increasing Term

Decreasing Term

Whole Term

Decreasing term is known as Mortgage Protection because it is a type of life insurance policy that is designed to cover a decreasing amount of debt, such as a mortgage, over a specific period of time. As the policyholder pays off the debt, the coverage amount decreases accordingly. This type of policy is commonly used to ensure that if the policyholder dies before the debt is fully paid off, the remaining balance will be covered, protecting the family or beneficiaries from financial burden.

Explanation

Decreasing term is known as Mortgage Protection because it is a type of life insurance policy that is designed to cover a decreasing amount of debt, such as a mortgage, over a specific period of time. As the policyholder pays off the debt, the coverage amount decreases accordingly. This type of policy is commonly used to ensure that if the policyholder dies before the debt is fully paid off, the remaining balance will be covered, protecting the family or beneficiaries from financial burden.

3. Which of the following type of insurance covers the whole family in a single contract?

Survivorship Policy

Whole Life Policy

Family Income Policy

Family Policy

A family policy is a type of insurance that covers the entire family under a single contract. This means that all members of the family, including the spouse and children, are included in the coverage. It provides financial protection to the entire family in case of any unfortunate event. This type of insurance is beneficial as it simplifies the insurance process by consolidating coverage for all family members into one policy.

Explanation

A family policy is a type of insurance that covers the entire family under a single contract. This means that all members of the family, including the spouse and children, are included in the coverage. It provides financial protection to the entire family in case of any unfortunate event. This type of insurance is beneficial as it simplifies the insurance process by consolidating coverage for all family members into one policy.

4. An insured wants to purchase a policy with 3 key features: flexible premium, death benefits, and the choice of how the cash value will be invested. The insured should purchase:

Adjustable Life

Universal Life

Graded Premium Whole Life

Variable Universal Life

Variable Universal Life is the correct answer because it offers all three key features that the insured wants. It allows for flexible premium payments, provides death benefits, and gives the insured the choice of how the cash value will be invested. This type of policy allows the insured to allocate their premium payments into various investment options, such as stocks, bonds, or mutual funds, giving them the potential to earn higher returns on their policy's cash value.

Explanation

Variable Universal Life is the correct answer because it offers all three key features that the insured wants. It allows for flexible premium payments, provides death benefits, and gives the insured the choice of how the cash value will be invested. This type of policy allows the insured to allocate their premium payments into various investment options, such as stocks, bonds, or mutual funds, giving them the potential to earn higher returns on their policy's cash value.

5. Your client wants both protection and savings from insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Life Annuity, Period Certain

Limited Pay Whole Life insurance

Increasing Term insurance

10-year endowment

Limited Pay Whole Life insurance would be the right policy for this client. This policy provides both protection and savings as it offers lifelong coverage and accumulates cash value over time. The client is willing to pay premiums until retirement, and with Limited Pay Whole Life insurance, the premiums are paid for a limited period, such as 10, 15, or 20 years, after which the coverage remains in force for the client's entire life. This policy ensures that the client has protection throughout their lifetime and also builds cash value that can be accessed if needed.

Explanation

Limited Pay Whole Life insurance would be the right policy for this client. This policy provides both protection and savings as it offers lifelong coverage and accumulates cash value over time. The client is willing to pay premiums until retirement, and with Limited Pay Whole Life insurance, the premiums are paid for a limited period, such as 10, 15, or 20 years, after which the coverage remains in force for the client's entire life. This policy ensures that the client has protection throughout their lifetime and also builds cash value that can be accessed if needed.

6. A Universal Life insurance policy has two types of interest rates that are called?

Option A and Option B

Guaranteed and current

Fixed and Variable

Minimum and Target

A Universal Life insurance policy has two types of interest rates: guaranteed and current. The guaranteed interest rate is the minimum rate of return that the policyholder will receive, regardless of market conditions. The current interest rate, on the other hand, is determined by the insurance company based on market performance and can fluctuate over time. These two rates provide policyholders with different options for earning returns on their policy's cash value.

Explanation

A Universal Life insurance policy has two types of interest rates: guaranteed and current. The guaranteed interest rate is the minimum rate of return that the policyholder will receive, regardless of market conditions. The current interest rate, on the other hand, is determined by the insurance company based on market performance and can fluctuate over time. These two rates provide policyholders with different options for earning returns on their policy's cash value.

7. All of the following are characteristics of a Universal Life policy EXCEPT:

The policy has a cash value account at a guaranteed interest rate and endowment insurance

The insurance company reserves the right to adjust the mortality charges and/or interest rate

The planned premium pays for mortality charges and expenses and any excess is returned to the policy owner

In effect, Universal Life is a combination of term insurance and a separate savings account joined in a single contract

Universal Life policies do not typically have a cash value account at a guaranteed interest rate and endowment insurance. This means that the statement "The policy has a cash value account at a guaranteed interest rate and endowment insurance" is not a characteristic of a Universal Life policy.

Explanation

Universal Life policies do not typically have a cash value account at a guaranteed interest rate and endowment insurance. This means that the statement "The policy has a cash value account at a guaranteed interest rate and endowment insurance" is not a characteristic of a Universal Life policy.