CLU Individual Life Insurance Planning 2 — Questions and Answers
Question 1: A 45-year-old client wants permanent life insurance but is concerned about premium flexibility. Which policy type best addresses this need?
- Whole life with paid-up additions rider
- Universal life insurance (Correct answer)
- 20-year term insurance
- Group term life insurance
Correct answer: Universal life insurance
Universal life insurance allows flexible premium payments within policy guidelines while providing permanent death benefit coverage.
Question 2: What is the primary purpose of a policy's 'free look' provision?
- To allow insurers to review applications without obligation
- To give policyowners a period to return a policy for a full refund (Correct answer)
- To permit premium-free coverage for the first month
- To allow beneficiaries to examine policy terms after a claim
Correct answer: To give policyowners a period to return a policy for a full refund
The free look provision gives new policyowners (typically 10-30 days) to review their policy and return it for a full premium refund if unsatisfied.
Question 3: When calculating the human life value approach to life insurance needs, which factor is NOT typically included?
- Future earnings of the insured
- Personal consumption expenses of the insured
- Investment portfolio balance of the surviving spouse (Correct answer)
- Years until the insured's retirement
Correct answer: Investment portfolio balance of the surviving spouse
The human life value approach focuses on the present value of future earnings minus personal consumption, not the surviving spouse's existing assets.
Question 4: A policy issued with a rated premium due to a health impairment means the applicant:
- Was declined coverage entirely
- Pays a higher-than-standard premium to reflect increased risk (Correct answer)
- Receives reduced benefits compared to a standard policy
- Is placed in an experimental program
Correct answer: Pays a higher-than-standard premium to reflect increased risk
A rated (or substandard) policy is issued with an additional premium charge to compensate the insurer for the applicant's above-average mortality risk.
Question 5: Which settlement option provides the largest monthly income payment to a beneficiary?
- Life income with 20-year period certain
- Life income only (straight life annuity) (Correct answer)
- Fixed period of 20 years
- Interest only
Correct answer: Life income only (straight life annuity)
The life income only (straight life) option pays the highest monthly amount because payments cease at death, with no guaranteed minimum payout period.
Question 6: Under the incontestability clause, after what period may an insurer generally NOT contest a life insurance policy based on misrepresentation?
- 6 months
- 1 year
- 2 years (Correct answer)
- 5 years
Correct answer: 2 years
Most states require a two-year incontestability period, after which an insurer cannot void a policy for misrepresentation except in cases of fraud.
Question 7: A client owns a $500,000 whole life policy with a $75,000 cash value. What is the net amount at risk to the insurer?
- $500,000
- $575,000
- $425,000 (Correct answer)
- $75,000
Correct answer: $425,000
The net amount at risk equals the face amount minus the cash value ($500,000 − $75,000 = $425,000), representing the pure insurance element.
CLU Individual Life Insurance Planning 2
A 45-year-old client wants permanent life insurance but is concerned about premium flexibility.
Which policy type best addresses this need?