INS 3303 Life Insurance Exam 2 Ch 9 11-19 22

INS 3303 Life Insurance Exam 2 Ch 9 11-19 22 A policy that originally is not a modified endowment contract will be subject to re-testing if there is a "material change" in the contract. Which of the following would likely be a material change? Answer Selected Answer: Increases in death benefits because of premiums paid for the policy to support the first seven contract years of benefits. Correct Answer: An exchange of one policy for another policy in a 1035 exchange. • Question 2 0 out of 5 points A policy that automatically increases the death benefit without evidence of insurability will typically violate the MEC rules. Answer Selected Answer: True Correct Answer: False • Question 3 5 out of 5 points A modified endowment contract is a life insurance policy that has failed Answer Selected Answer: the seven-pay test Correct Answer: the seven-pay test • Question 4 5 out of 5 points Which item is not a key factor to be weighed in choosing the best variable life or variable universal life policy? Answer Selected Answer: the amount of the cash value guarantees Correct Answer: the amount of the cash value guarantees • Question 5 5 out of 5 points Which of the following could never be treated as a modified endowment contract? INS 3303 Life Insurance Exam 2 Ch 9 11-19 22 Answer Selected Answer: A single-premium policy that was entered into on June 1, 1988. Correct Answer: A single-premium policy that was entered into on June 1, 1988. • Question 6 0 out of 5 points All universal life policies have a guaranteed minimum interest rate, generally ranging from four to six percent. Answer Selected Answer: False Correct Answer: True • Question 7 0 out of 5 points Once a policy is classified as a modified endowment contract, with certain corrections, it can be later treated as not a modified endowment contract. Answer Selected Answer: True Correct Answer: False • Question 8 0 out of 5 points Variable life or variable universal life insurance is well-suited to individuals desiring a minimum basic level of coverage. Answer Selected Answer: True Correct Answer: False • Question 9 5 out of 5 points Variable life is a whole life policy where the policyowners bear all investment risk. Answer Selected Answer: True Correct Answer: True • Question 10 5 out of 5 points One disadvantage of universal life is that policy owners bear more risk of adverse trends in mortality or expenses than if they owned traditional whole life policies. Answer Selected Answer: True Correct Answer: True • Question 11 5 out of 5 points Variable Life and Variable Universal Life are especially suited for many business insurance situations where flexibility and growth of cash value are attractive features. Answer Selected Answer: True Correct Answer: True • Question 12 0 out of 5 points Which of the following is true regarding the interest credited to universal life policies? Answer Selected Answer: Insurance companies are no longer allowed complete freedom in interest crediting due to some companies abusing such discretion in the past. Correct Answer: The rate used may be linked to a well-known index of yields if it exceeds a minimum rate guaranteed in the policy. • Question 13 0 out of 5 points Which of the following statements regarding universal life insurance is true? Answer Selected Answer: Because universal life is a current-assumption policy universal life is a security and a prospectus must be provided before each sale. Correct Answer: Universal life allows policyowners to participate in favorable investment, mortality and expense experience of the company. insurance policies. • Question 14 5 out of 5 points A key feature of variable life insurance is Answer Selected Answer: there is no guaranteed minimum cash value Correct Answer: there is no guaranteed minimum cash value • Question 15 0 out of 5 points Which of the following problems could be caused by the flexibility offered by a universal life insurance policy? Answer Selected Answer: Skipping even one premium payment will cause the policy to lapse. Correct Answer: A death benefit reduction may cause the policy to be classified as a modified endowment contract. • Question 16 5 out of 5 points Most universal life policies are issued with front-end load charges rather than back-end load charges. Answer Selected Answer: False Correct Answer: False • Question 17 5 out of 5 points As long as cash values are sufficient to cover policy charges, a universal life policy owner may skip premium payments. Answer Selected Answer: True Correct Answer: True • Question 18 0 out of 5 points Which of the following statements regarding universal life insurance is not true? Answer Selected Answer: If the policyowner skips a premium payment the policy will not lapse. Correct Answer: The policy is not susceptible to inadvertently becoming a modified endowment contract. • Question 19 5 out of 5 points Which of the following items are NOT treated as income-first when distributed from a modified endowment contract? Answer Selected Answer: dividends retained by the insurer to premiums or other consideration for the contract Correct Answer: dividends retained by the insurer to premiums or other consideration for the contract • Question 20 5 out of 5 points Which of the following statements about the tax aspects of ownership of variable life insurance is false? Answer Selected Answer: Gains received are taxable at capital gains rates. Correct Answer: Gains received are taxable at capital gains rates. • 5 out of 5 points If a term policy is convertible it means the policy: Answer Selected Answer: gives the policyholder a contractual right to change the term policy for some other type of life insurance policy without evidence of insurability Correct Answer: gives the policyholder a contractual right to change the term policy for some other type of life insurance policy without evidence of insurability • Question 2 5 out of 5 points Advantages of ordinary level-premium whole life include all of the following except Answer Selected Answer: Interest on policy loans is generally non deductible Correct Answer: Interest on policy loans is generally non deductible • Question 3 5 out of 5 points Level-premium whole life insurance policies allow policyowners to borrow amounts under the policy. Typical loan provisions include which of the following requirements? Answer Selected Answer: If the policy is terminated the cash surrender value is reduced by any outstanding policy loans and unpaid interest. Correct Answer: If the policy is terminated the cash surrender value is reduced by any outstanding policy loans and unpaid interest. • Question 4 0 out of 5 points Which of the following is a characteristic of a level-premium non-participating whole life insurance policy? Answer Selected Answer: There is a periodic adjustment of premium and death benefit. Correct Answer: There is a schedule of guaranteed cash values. • Question 5 0 out of 5 points A survivorship life plan that involves a greater proportion of term insurance than permanent insurance: Answer Selected Answer: tends to be the most expensive Correct Answer: is sensitive to changes in yields, or interest rates • Question 6 5 o