1|Page
CFP 512 PRACTICE AND EXAM QUESTIONS
AND ANSWERS
Whole life policy illustrations - .....ANSWER ...✔✔
Exhibit all of the following except anticipated earnings
in variable subaccounts.
Dividend option - .....ANSWER ...✔✔ Paid-up
additions
Extended term policy for Antonio - .....ANSWER ...✔✔
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 - .....ANSWER ...✔✔
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 - .....ANSWER ...✔✔ Footnotes
should be evaluated as an integral part of the
,2|Page
illustration. Guaranteed columns present a worst-case
scenario assuming highest mortality and expense
charges along with the highest interest rate.
Deferred annuity - .....ANSWER ...✔✔ One in which
the first benefit payment is made one payment interval
after the date of purchase.
Flexible premium deferred equity-indexed annuity -
.....ANSWER ...✔✔ 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 -
.....ANSWER ...✔✔ Accumulate at interest
Considerations for reviewing an existing life insurance
policy - .....ANSWER ...✔✔ Client's risk tolerance
level, existing policy's relative value, companies' ratings,
possible changes in client's insurability.
Interest only settlement option - .....ANSWER ...✔✔
Pays interest annually on the outstanding policy loan
amount, with the remaining amount going to the
beneficiary.
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Life insurance needs calculation for college funding -
.....ANSWER ...✔✔ Approximately $107,568 to
assure adequate funds for college tuition with specified
inflation and after-tax earnings.
Economic assumption for life insurance needs -
.....ANSWER ...✔✔ The inflation rate
Favorable tax treatment of life insurance contracts -
.....ANSWER ...✔✔ 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 - .....ANSWER
...✔✔ Require shorter premium payments than
traditional whole life policies, provide lifetime coverage,
and have cash value accumulation.
Disadvantages of annual renewable term life insurance
- .....ANSWER ...✔✔ Does not develop cash values,
becomes uneconomical with age, may lead to
declination for renewal, initially has higher premiums
than whole life insurance.
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Whole life insurance nonforfeiture options - .....ANSWER
...✔✔ 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 - .....ANSWER ...✔✔
Cash
Appropriate life insurance policy for lower premiums
based on health - .....ANSWER ...✔✔ Reentry term
Personal risk exposures covered by life insurance -
.....ANSWER ...✔✔ Include premature death before
debt repayment, children's education payment, spouse
outliving annuity, and long-term care.
Death benefit calculation for Daniele's son - .....ANSWER
...✔✔ $725,000
Registered Indexed-Linked Annuities (RILAs) -
.....ANSWER ...✔✔ Ordered from most-to-least
conservative as EIAs, RILA-floor, and then RILA-buffer.
CFP 512 PRACTICE AND EXAM QUESTIONS
AND ANSWERS
Whole life policy illustrations - .....ANSWER ...✔✔
Exhibit all of the following except anticipated earnings
in variable subaccounts.
Dividend option - .....ANSWER ...✔✔ Paid-up
additions
Extended term policy for Antonio - .....ANSWER ...✔✔
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 - .....ANSWER ...✔✔
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 - .....ANSWER ...✔✔ Footnotes
should be evaluated as an integral part of the
,2|Page
illustration. Guaranteed columns present a worst-case
scenario assuming highest mortality and expense
charges along with the highest interest rate.
Deferred annuity - .....ANSWER ...✔✔ One in which
the first benefit payment is made one payment interval
after the date of purchase.
Flexible premium deferred equity-indexed annuity -
.....ANSWER ...✔✔ 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 -
.....ANSWER ...✔✔ Accumulate at interest
Considerations for reviewing an existing life insurance
policy - .....ANSWER ...✔✔ Client's risk tolerance
level, existing policy's relative value, companies' ratings,
possible changes in client's insurability.
Interest only settlement option - .....ANSWER ...✔✔
Pays interest annually on the outstanding policy loan
amount, with the remaining amount going to the
beneficiary.
,3|Page
Life insurance needs calculation for college funding -
.....ANSWER ...✔✔ Approximately $107,568 to
assure adequate funds for college tuition with specified
inflation and after-tax earnings.
Economic assumption for life insurance needs -
.....ANSWER ...✔✔ The inflation rate
Favorable tax treatment of life insurance contracts -
.....ANSWER ...✔✔ 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 - .....ANSWER
...✔✔ Require shorter premium payments than
traditional whole life policies, provide lifetime coverage,
and have cash value accumulation.
Disadvantages of annual renewable term life insurance
- .....ANSWER ...✔✔ Does not develop cash values,
becomes uneconomical with age, may lead to
declination for renewal, initially has higher premiums
than whole life insurance.
, 4|Page
Whole life insurance nonforfeiture options - .....ANSWER
...✔✔ 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 - .....ANSWER ...✔✔
Cash
Appropriate life insurance policy for lower premiums
based on health - .....ANSWER ...✔✔ Reentry term
Personal risk exposures covered by life insurance -
.....ANSWER ...✔✔ Include premature death before
debt repayment, children's education payment, spouse
outliving annuity, and long-term care.
Death benefit calculation for Daniele's son - .....ANSWER
...✔✔ $725,000
Registered Indexed-Linked Annuities (RILAs) -
.....ANSWER ...✔✔ Ordered from most-to-least
conservative as EIAs, RILA-floor, and then RILA-buffer.
