Life & Health Insurance Exam Life & Health Insurance Types of Life Policies 2 — Questions and Answers
Question 1: A universal life insurance policy's cash value earns interest based on which of the following?
- A fixed rate set at policy issue
- Current market interest rates declared by the insurer (Correct answer)
- The S&P 500 index performance
- The policyholder's chosen investment subaccounts
Correct answer: Current market interest rates declared by the insurer
Universal life cash value earns interest at a current declared rate set by the insurer, which can fluctuate but must meet a guaranteed minimum.
Question 2: Which type of life insurance policy allows the policyowner to skip premium payments as long as the cash value is sufficient to cover the cost of insurance?
- Traditional whole life
- Term life
- Universal life (Correct answer)
- Endowment policy
Correct answer: Universal life
Universal life's flexible premium feature allows the policyowner to reduce or skip payments if accumulated cash value can cover the monthly deductions.
Question 3: A 20-pay whole life policy differs from an ordinary whole life policy in that it:
- Provides coverage only for 20 years
- Requires premiums to be paid for only 20 years while coverage remains permanent (Correct answer)
- Pays the death benefit after 20 years automatically
- Has no cash value accumulation
Correct answer: Requires premiums to be paid for only 20 years while coverage remains permanent
A 20-pay whole life policy is fully paid up after 20 annual premiums, but the death benefit protection continues for the insured's entire lifetime.
Question 4: Which of the following best describes a graded premium whole life policy?
- Premiums that decrease each year as the insured ages
- Premiums that start low and increase over a specified period, then level off (Correct answer)
- Premiums that fluctuate based on market performance
- Premiums that remain level for the entire policy life
Correct answer: Premiums that start low and increase over a specified period, then level off
Graded premium whole life starts with lower-than-normal premiums that gradually increase over several years before leveling off at a higher permanent amount.
Question 5: Joint life insurance pays the death benefit:
- Upon the death of any one insured covered under the policy (Correct answer)
- Only when all insureds under the policy have died
- To both insureds simultaneously if they die within 30 days of each other
- After the younger insured reaches age 65
Correct answer: Upon the death of any one insured covered under the policy
A joint life (first-to-die) policy pays the death benefit when the first of the covered insureds dies, at which point the policy ends.
Question 6: What is the primary purpose of a survivorship life (second-to-die) policy?
- To provide income replacement for a surviving spouse
- To fund estate taxes or leave a legacy after both spouses die (Correct answer)
- To cover business buy-sell agreements between two partners
- To provide term coverage for a married couple at a lower cost
Correct answer: To fund estate taxes or leave a legacy after both spouses die
Survivorship life insures two people and pays the death benefit only after both die, making it ideal for estate planning and paying estate taxes.
Question 7: An indexed universal life (IUL) policy credits interest based on:
- The performance of the insurer's general account investments
- A stock market index such as the S&P 500, subject to a cap and floor (Correct answer)
- The policyowner's chosen mutual fund subaccounts
- A fixed rate guaranteed for the life of the policy
Correct answer: A stock market index such as the S&P 500, subject to a cap and floor
IUL policies link interest crediting to a market index but protect against loss with a floor (often 0%) while limiting upside with a cap rate.
Life & Health Insurance Exam Life & Health Insurance Types of Life Policies 2
A universal life insurance policy's cash value earns interest based on which of the following?