AFK AFK Insurance Fundamentals 3

Question 1

A variable annuity differs from a fixed annuity primarily because its value is:

Accepted Answer

Linked to the performance of underlying investment sub-accounts

Answer

Variable annuities allow the contract holder to allocate premiums among investment sub-accounts (similar to mutual funds), so the account value fluctuates with market performance.

Question 2

What does 'insurable interest' mean in the context of life insurance?

Accepted Answer

The requirement that the policy owner must have a legitimate financial or personal interest in the continued life of the insured at the time of application

Answer

Insurable interest requires that the applicant would suffer a financial or personal loss upon the death of the insured, preventing life insurance from being used as a wagering contract.

Question 3

Which rider on a life insurance policy waives future premium payments if the insured becomes totally disabled?

Accepted Answer

Waiver of premium rider

Answer

The waiver of premium rider waives all required premium payments if the insured becomes totally disabled, keeping the policy in force without cost to the policyholder.

Question 4

What is an irrevocable life insurance trust (ILIT) primarily used for in estate planning?

Accepted Answer

To keep life insurance death benefits out of the taxable estate, thereby reducing estate taxes

Answer

An ILIT owns a life insurance policy so that the death benefit is excluded from the insured's gross estate, helping high-net-worth individuals reduce federal estate tax liability.

Question 5

The 'benefit period' in a long-term care insurance policy refers to:

Accepted Answer

The maximum length of time the policy will pay benefits

Answer

The benefit period defines the maximum duration—such as 2, 3, 5 years, or lifetime—that the long-term care policy will pay covered benefits.

AFK - Assessment of Fundamental Knowledge Practice Test

AFK - Assessment of Fundamental Knowledge Practice Test

AFK AFK Insurance Fundamentals 3