#1
Which of the following is a characteristic of term life insurance?
Provides coverage for a specific period of time
ExplanationTerm life insurance offers coverage for a set duration, typically with lower premiums.
#2
What is the primary purpose of an annuity?
To offer guaranteed lifetime income
ExplanationAnnuities provide a steady stream of income, often for retirement, ensuring financial stability.
#3
What is the purpose of a rider in an insurance policy?
To extend coverage beyond the standard policy terms
ExplanationRiders provide additional benefits or customize coverage according to policyholder needs, enhancing the base policy.
#4
What is the purpose of a death benefit in a life insurance policy?
To provide financial protection to beneficiaries upon the insured's death
ExplanationThe death benefit serves as a financial safety net, providing beneficiaries with a lump sum payment upon the policyholder's death.
#5
What is the purpose of the free look provision in an insurance policy?
To allow policyholders to review the policy and return it for a full refund if unsatisfied
ExplanationThe free look provision grants policyholders a grace period during which they can evaluate the policy's terms and conditions, with the option to cancel and receive a refund if dissatisfied.
#6
What is the primary purpose of a beneficiary designation in a life insurance policy?
To specify how the death benefit should be distributed
ExplanationThe beneficiary designation directs who will receive the death benefit upon the policyholder's demise, ensuring the funds are distributed according to the policyholder's wishes.
#7
Which type of life insurance policy typically has a cash value component?
Whole life insurance
ExplanationWhole life insurance accumulates cash value over time, which can be borrowed against or withdrawn.
#8
What does the 'annuitization' of an annuity involve?
Converting the account balance into a series of periodic payments
ExplanationAnnuitization transforms the lump sum in an annuity into regular income payments, ensuring financial stability.
#9
What is the death benefit payout based on in a universal life insurance policy?
Fixed amount determined at the policy's inception
ExplanationUniversal life insurance policies set a predetermined death benefit, providing clarity for beneficiaries.
#10
What distinguishes a deferred annuity from an immediate annuity?
Immediate annuities start payments at a future date
ExplanationImmediate annuities begin providing income immediately upon purchase, while deferred annuities postpone payouts to a later time.
#11
What is a surrender charge in the context of life insurance or annuities?
A fee for canceling the policy or withdrawing funds early
ExplanationSurrender charges are penalties levied for early withdrawal or termination of a policy, serving as a deterrent.
#12
Which of the following is true regarding the taxation of life insurance death benefits?
Death benefits are tax-free to the beneficiary in most cases
ExplanationIn general, life insurance death benefits are not subject to income tax, providing financial relief to beneficiaries.
#13
Which of the following is a characteristic of a fixed annuity?
Offers a guaranteed minimum interest rate
ExplanationFixed annuities provide a stable interest rate, protecting against market fluctuations.
#14
Which feature of a variable annuity provides the potential for higher returns?
Investment subaccounts
ExplanationVariable annuities offer investment options through subaccounts, potentially yielding higher returns but with associated risks.
#15
Which type of annuity offers the potential for higher returns but also comes with greater risk?
Variable annuity
ExplanationVariable annuities allow for investment in subaccounts, potentially offering higher returns but subject to market fluctuations.
#16
What is the primary purpose of a living benefits rider in a life insurance policy?
To accelerate the death benefit payout in the event of terminal illness
ExplanationLiving benefits riders allow policyholders to access a portion of the death benefit if diagnosed with a qualifying terminal illness, offering financial support during a critical time.
#17
Which of the following is a characteristic of a single premium immediate annuity (SPIA)?
Requires a lump sum payment with immediate income payments starting thereafter
ExplanationSPIAs demand a single upfront payment, after which they commence immediate income disbursements, ensuring a steady cash flow.
#18
What is the purpose of a guaranteed minimum death benefit in a variable universal life insurance policy?
To provide a minimum payout to beneficiaries regardless of market performance
ExplanationThe guaranteed minimum death benefit ensures that beneficiaries receive a predetermined payout, safeguarding against market downturns.