CFP 512 FINAL EXAM QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS VERIFIED GRADED A++
Whole life policy illustrations
Exhibit all of the following except anticipated earnings in variable subaccounts.
Dividend option
Paid-up additions
Extended term policy for Antonio
Allows the policy to last past a normal life expectancy, with the full death benefit going
to heirs without additional out-of-pocket expenses if the insured passes away within the
extended term period.
Accelerated death benefit rider
Pays a portion of the death benefit to an individual deemed terminally ill, usually with a
life expectancy of 24 months or less.
Policy illustrations
Footnotes should be evaluated as an integral part of the illustration. Guaranteed
columns present a worst-case scenario assuming highest mortality and expense
charges along with the highest interest rate.
Deferred annuity
One in which the first benefit payment is made one payment interval after the date of
purchase.
Flexible premium deferred equity-indexed annuity
,An annuity allowing variable premium payments and offering a guaranteed minimum
return with returns linked to the stock market.
Dividend option creating income tax liability
Accumulate at interest
Considerations for reviewing an existing life insurance policy
Client's risk tolerance level, existing policy's relative value, companies' ratings, possible
changes in client's insurability.
Interest only settlement option
Pays interest annually on the outstanding policy loan amount, with the remaining
amount going to the beneficiary.
Life insurance needs calculation for college funding
Approximately $107,568 to assure adequate funds for college tuition with specified
inflation and after-tax earnings.
Economic assumption for life insurance needs
The inflation rate
Favorable tax treatment of life insurance contracts
Death benefits to beneficiaries are not usually taxable, income taxes on investment
gains are tax-deferred, earnings on cash value are not taxed during accumulation.
Limited-pay whole life insurance policies
Require shorter premium payments than traditional whole life policies, provide lifetime
coverage, and have cash value accumulation.
Disadvantages of annual renewable term life insurance
,Does not develop cash values, becomes uneconomical with age, may lead to
declination for renewal, initially has higher premiums than whole life insurance.
Whole life insurance nonforfeiture options
Allow surrender for net cash value, stop premium payments for reduced paid-up policy,
or use net cash value for a paid-up term policy.
Life insurance dividend option
Cash
Appropriate life insurance policy for lower premiums based on health
Reentry term
Personal risk exposures covered by life insurance
Include premature death before debt repayment, children's education payment, spouse
outliving annuity, and long-term care.
Death benefit calculation for Daniele's son
$725,000
Registered Indexed-Linked Annuities (RILAs)
Ordered from most-to-least conservative as EIAs, RILA-floor, and then RILA-buffer.
Variable universal life insurance
Contains investment options, adjustable premium payments and death benefits, allows
tax-free policy loans and taxable cash value withdrawals, but may lag returns of
universal life policies.
Contestable period
The period during which the owner is allowed to pay an overdue premium.
Section 1035 exchange
, Allows tax-free exchange of certain policies.
Policy Replacement
Replacing an existing policy with a new one, considering initial costs and incontestable
clause
Fixed Annuity
An annuity with guaranteed periodic payments of a set amount
Convertible Feature
Allows exchange of term life policy for permanent life insurance without proof of
insurability
Indexed Universal Life Insurance
Policy with investment options, rate cap, and participation rate
Variable Universal Life Insurance
Combines premium flexibility of universal life with investment aspects of variable life
Policy Loans
Loans taken against the cash value of a life insurance policy
Whole Life Insurance
Provides lifetime coverage with level premiums and cash value accumulation
Term Life Insurance
Provides coverage for a specified period with no cash value accumulation
Annual Renewable Term
Term insurance with lower initial premium and increasing cost over time
Front-End Load Costs
Initial costs of a new policy relative to the current policy
COMPLETE SOLUTIONS VERIFIED GRADED A++
Whole life policy illustrations
Exhibit all of the following except anticipated earnings in variable subaccounts.
Dividend option
Paid-up additions
Extended term policy for Antonio
Allows the policy to last past a normal life expectancy, with the full death benefit going
to heirs without additional out-of-pocket expenses if the insured passes away within the
extended term period.
Accelerated death benefit rider
Pays a portion of the death benefit to an individual deemed terminally ill, usually with a
life expectancy of 24 months or less.
Policy illustrations
Footnotes should be evaluated as an integral part of the illustration. Guaranteed
columns present a worst-case scenario assuming highest mortality and expense
charges along with the highest interest rate.
Deferred annuity
One in which the first benefit payment is made one payment interval after the date of
purchase.
Flexible premium deferred equity-indexed annuity
,An annuity allowing variable premium payments and offering a guaranteed minimum
return with returns linked to the stock market.
Dividend option creating income tax liability
Accumulate at interest
Considerations for reviewing an existing life insurance policy
Client's risk tolerance level, existing policy's relative value, companies' ratings, possible
changes in client's insurability.
Interest only settlement option
Pays interest annually on the outstanding policy loan amount, with the remaining
amount going to the beneficiary.
Life insurance needs calculation for college funding
Approximately $107,568 to assure adequate funds for college tuition with specified
inflation and after-tax earnings.
Economic assumption for life insurance needs
The inflation rate
Favorable tax treatment of life insurance contracts
Death benefits to beneficiaries are not usually taxable, income taxes on investment
gains are tax-deferred, earnings on cash value are not taxed during accumulation.
Limited-pay whole life insurance policies
Require shorter premium payments than traditional whole life policies, provide lifetime
coverage, and have cash value accumulation.
Disadvantages of annual renewable term life insurance
,Does not develop cash values, becomes uneconomical with age, may lead to
declination for renewal, initially has higher premiums than whole life insurance.
Whole life insurance nonforfeiture options
Allow surrender for net cash value, stop premium payments for reduced paid-up policy,
or use net cash value for a paid-up term policy.
Life insurance dividend option
Cash
Appropriate life insurance policy for lower premiums based on health
Reentry term
Personal risk exposures covered by life insurance
Include premature death before debt repayment, children's education payment, spouse
outliving annuity, and long-term care.
Death benefit calculation for Daniele's son
$725,000
Registered Indexed-Linked Annuities (RILAs)
Ordered from most-to-least conservative as EIAs, RILA-floor, and then RILA-buffer.
Variable universal life insurance
Contains investment options, adjustable premium payments and death benefits, allows
tax-free policy loans and taxable cash value withdrawals, but may lag returns of
universal life policies.
Contestable period
The period during which the owner is allowed to pay an overdue premium.
Section 1035 exchange
, Allows tax-free exchange of certain policies.
Policy Replacement
Replacing an existing policy with a new one, considering initial costs and incontestable
clause
Fixed Annuity
An annuity with guaranteed periodic payments of a set amount
Convertible Feature
Allows exchange of term life policy for permanent life insurance without proof of
insurability
Indexed Universal Life Insurance
Policy with investment options, rate cap, and participation rate
Variable Universal Life Insurance
Combines premium flexibility of universal life with investment aspects of variable life
Policy Loans
Loans taken against the cash value of a life insurance policy
Whole Life Insurance
Provides lifetime coverage with level premiums and cash value accumulation
Term Life Insurance
Provides coverage for a specified period with no cash value accumulation
Annual Renewable Term
Term insurance with lower initial premium and increasing cost over time
Front-End Load Costs
Initial costs of a new policy relative to the current policy
