Question 1

Some life insurance policies include a clause which states that the beneficiary must outlive the insured by a specified period to be entitled to receive the policy proceeds. Under this type of clause, if the beneficiary does not outlive the insured by the specified period of time, then the policy proceeds are paid as if the beneficiary predeceased the insured. As a result, the policy proceeds are more likely to be distributed as the policyowner had intended. By definition, this type of clause is known as a

1) right of revocation clause
2) succession beneficiary clause
3) survivorship clause
4) key person clause

Question 2

Educational fund planning for dependent children can be based on parents' paying less than 100% of college costs when incurred.

1) True
2) False

Question 3

Some financial advisers suggest ignoring interest earnings and inflation rates when evaluating life insurance needs.

1) True
2) False

Question 4

Lindsay Inthachak was the policyowner-insured of a whole life insurance policy. Lindsay designated her husband, Stephen, as the party to receive the policy proceeds following her death. Lindsay designated their daughter, Lily, to receive the policy proceeds if Stephen predeceases Lindsay. In this situation, Stephen is the type of policy beneficiary known as a

1) contingent beneficiary
2) primary beneficiary
3) secondary beneficiary
4) successor beneficiary

Question 5

The insurance company reserves the right to refuse additional premium payments if the policy is in danger of being overfunded.

1) True
2) False

Question 6

Reliance on nationwide averages and general guidelines assures financial advisers that they will not overlook any important considerations for their clients when evaluating life insurance needs.

1) True
2) False

Question 7

There may be court fees related to the appointment of an executor or administrator of the deceased's estate.

1) True
2) False

Question 8

Under the nonliquidating approach to funding income needs, the capital fund will eventually be totally dissipated.

1) True
2) False

Question 9

Unrealized gains and losses have no effect on the value of deferred variable annuity contracts' accumulation units.

1) True
2) False

Question 10

Safety margins are introduced into annuity mortality tables by increasing the morality rates above those expected.

1) True
2) False

Question 11

Scott Herbermann is the policyowner-insured of a $200,000 whole life insurance policy. The policy includes a supplemental benefit rider that gives Mr. Herbermann the right to purchase $25,000 of additional whole life insurance at age 34, age 37, and age 40, without submitting evidence of insurability. This information indicates that Mr. Herbermann's policy includes the type of supplemental benefit known as

1) an additional insured rider
2) a paid-up additions option benefit
3) a guaranteed insurability (GI) benefit
4) credit life insurance

Question 12

In addition to lump-sum settlements of policy proceeds, insurers also make available to the policyowner and to the beneficiary alternative settlement options for receiving life insurance policy proceeds. With regard to these settlement options, it is correct to say

1) that the life income option typically results in larger installment payments than would be available under the fixed amount or fixed period options
2) that a policyowner who selects the interest option cannot place restrictions on the payee's right to withdraw the policy proceeds
3) that, under the fixed period option, the payee usually has the right to withdraw only a part of the policy proceeds during the payment period
4) that, under the fixed amount option, the insurer pays equal installments of a stated amount to the payee until the policy proceeds, plus the interest earned, are exhausted

Question 13

Life insurance benefits payable directly to the beneficiary will not be subject to delays in settling the estate.

1) True
2) False

Question 14

Variable universal life has universal life's premium flexibility and variable life's policyowner-directed investments.

1) True
2) False

Question 15

The main difference between annuities and life insurance is there is no pooling of the funds from each annuity contract purchaser.

1) True
2) False

Question 16

The cash value of a life insurance policy is not a source of emergency funds for preserving or repairing damaged property.

1) True
2) False

Question 17

Policy loans under universal life policies do not affect the growth rate of policy cash values.

1) True
2) False

Question 18

Annuity contracts can be used both to accumulate funds and to liquidate the accumulated funds over the annuitant's remaining lifetime.

1) True
2) False

Question 19

One criticism of variable life insurance is that prospective purchasers are unable to determines the applicable expenses for commissions, premium taxes, and insurance company overhead.

1) True
2) False

Question 20

The capital needs approach to funding income needs uses a liquidating methodology.

1) True
2) False

Question 21

Variable life insurance purchasers now have more fund options to choose from than in past decades.

1) True
2) False

Question 22

The difference between an endowment insurance policy and a cash value life insurance policy is that only the endowment insurance policy

1) pays a fixed benefit whether the insured survives to the policy's maturity date or dies before that maturity date

2) has premiums that are level throughout the term of the policy

3) steadily builds a cash value

4) receives favorable federal income tax treatment in the United States

Question 23

An insurance policy is a contract between the insurer and the policyowner and is subject to the rules of contract law. An insurance policy also is a type of property and, thus, is subject to the principles of property law. In legal terminology, property is classified as either real property or personal property and as tangible property or intangible property. With regard to these classifications, an insurance policy is classified correctly as

1) tangible real property

2) tangible personal property

3) intangible real property

4) intangible personal property

Question 24

Lump-sum needs for funds at death include outstanding debt that becomes due and payable at death.

1) True
2) False

Question 25

Based on the 2001 CSO mortality table on pages 280-85 of the text, the probability of a male living at age 40 dying at age 45 is 0.00265 (that is, the probability shown in the column headed "Yearly Probability of Dying" for age 45).

1) True
2) False