EXAMFX Life Insurance Policy Types 2 — Questions and Answers
Question 1: Which type of life insurance policy combines a savings component with permanent death benefit protection?
- Term life
- Whole life (Correct answer)
- Decreasing term
- Group term
Correct answer: Whole life
Whole life insurance combines a level death benefit with a cash value savings component that grows on a tax-deferred basis.
Question 2: A universal life insurance policy's flexible premium feature allows the policyowner to do which of the following?
- Change the insured at any time
- Vary premium amounts within policy limits (Correct answer)
- Increase the death benefit without evidence of insurability
- Convert to term insurance at any age
Correct answer: Vary premium amounts within policy limits
Universal life's flexible premium feature lets policyowners pay varying amounts as long as the cash value remains sufficient to cover the cost of insurance.
Question 3: What distinguishes variable life insurance from whole life insurance?
- Variable life has no cash value
- Variable life premiums are flexible
- Variable life cash value is invested in separate accounts (Correct answer)
- Variable life has a shorter coverage period
Correct answer: Variable life cash value is invested in separate accounts
Variable life insurance directs cash value into separate investment accounts (subaccounts), subjecting it to market risk unlike whole life's guaranteed cash value.
Question 4: An indexed universal life (IUL) policy credits interest based on which of the following?
- A fixed rate set at policy issue
- The policyowner's investment choices
- Performance of a stock market index (Correct answer)
- The insurer's general account returns
Correct answer: Performance of a stock market index
IUL policies link interest credits to the performance of a stock market index (such as the S&P 500), subject to caps and floors.
Question 5: A 20-pay whole life policy differs from a straight whole life policy in that the:
- Death benefit ends at age 65
- Premiums are paid over 20 years instead of for life (Correct answer)
- Coverage terminates after 20 years
- Cash value does not accumulate
Correct answer: Premiums are paid over 20 years instead of for life
A 20-pay whole life policy requires premium payments for only 20 years while providing permanent coverage for the insured's entire life.
Question 6: Which policy type is most appropriate for an individual who wants permanent coverage with the lowest initial premium outlay?
- 20-pay whole life
- Whole life (straight life) (Correct answer)
- Variable universal life
- Endowment policy
Correct answer: Whole life (straight life)
Straight whole life (ordinary whole life) spreads premiums over the insured's entire lifetime, producing the lowest annual premium among permanent policies.
Question 7: A survivorship life (second-to-die) policy pays the death benefit when:
- The first insured dies
- Either insured becomes disabled
- The last surviving insured dies (Correct answer)
- Both insureds reach age 65
Correct answer: The last surviving insured dies
A survivorship life policy insures two people and pays the death benefit only upon the death of the second (last surviving) insured.
EXAMFX Life Insurance Policy Types 2
Which type of life insurance policy combines a savings component with permanent death benefit protection?