AFK AFK Insurance Fundamentals 1 — Questions and Answers
Question 1: What type of life insurance provides a death benefit for a specified period and has no cash value component?
- Whole life insurance
- Universal life insurance
- Term life insurance (Correct answer)
- Variable life insurance
Correct answer: Term life insurance
Term life insurance provides a pure death benefit for a defined period (e.g., 10, 20, or 30 years) with no savings or cash value accumulation.
Question 2: What distinguishes whole life insurance from term life insurance?
- Whole life has no death benefit
- Whole life provides lifetime coverage with a cash value component (Correct answer)
- Term life costs more than whole life
- Whole life only covers accidental death
Correct answer: Whole life provides lifetime coverage with a cash value component
Whole life insurance provides permanent coverage for the insured's lifetime and accumulates a guaranteed cash value that grows tax-deferred.
Question 3: What is the primary purpose of disability income insurance?
- To pay medical bills after an accident
- To replace a portion of income when the insured cannot work due to illness or injury (Correct answer)
- To fund long-term care services
- To provide a death benefit to dependents
Correct answer: To replace a portion of income when the insured cannot work due to illness or injury
Disability income insurance replaces a percentage of the insured's earned income (typically 60–70%) if they become unable to work due to a covered disability.
Question 4: In life insurance, what is the 'incontestability clause'?
- A provision preventing the insurer from raising premiums
- A clause that prevents the insurer from denying a claim based on misrepresentation after a specified period (usually 2 years) (Correct answer)
- A rule requiring policyholders to submit claims within 30 days
- A guarantee that premiums will not increase during the policy term
Correct answer: A clause that prevents the insurer from denying a claim based on misrepresentation after a specified period (usually 2 years)
The incontestability clause prevents an insurer from voiding a policy or denying a claim due to misrepresentation after the policy has been in force for the contestability period, typically two years.
Question 5: Which type of annuity guarantees a fixed interest rate for a specified period and is not tied to market performance?
- Variable annuity
- Indexed annuity
- Fixed annuity (Correct answer)
- Immediate annuity
Correct answer: Fixed annuity
A fixed annuity credits interest at a guaranteed rate set by the insurer, providing predictable growth independent of market conditions.
Question 6: Long-term care insurance typically covers which of the following services?
- Acute hospital stays and surgeries
- Assistance with activities of daily living (ADLs) in a nursing home, assisted living, or at home (Correct answer)
- Prescription drug costs in retirement
- Short-term rehabilitation after an injury
Correct answer: Assistance with activities of daily living (ADLs) in a nursing home, assisted living, or at home
Long-term care insurance covers the cost of assistance with ADLs (such as bathing, dressing, eating) in various settings including nursing homes, assisted living facilities, and home care.
AFK AFK Insurance Fundamentals 1
What type of life insurance provides a death benefit for a specified period and has no cash value component?