EXAMFX Life Insurance 3

Question 1

A life insurance policy's 'free look' period typically lasts how long after policy delivery?

Accepted Answer

10 days

Answer

Most states require a free look period of at least 10 days after policy delivery, during which the policyowner may return the policy for a full premium refund.

Question 2

What is the purpose of the 'entire contract' clause in a life insurance policy?

Accepted Answer

It states that the policy and attached application constitute the complete agreement between insurer and policyowner

Answer

The entire contract clause specifies that the policy document along with the attached copy of the application forms the complete and binding contract between the parties.

Question 3

Which type of life insurance rider provides an additional benefit if the insured dies from an accident?

Accepted Answer

Accidental death benefit rider

Answer

The accidental death benefit rider, sometimes called 'double indemnity,' pays an additional death benefit equal to the face amount if the insured dies as a result of an accident.

Question 4

Under the MEC (Modified Endowment Contract) rules, what tax treatment applies to withdrawals?

Accepted Answer

Withdrawals are taxed last-in-first-out (LIFO), meaning gains are distributed first

Answer

MECs are taxed under LIFO rules, so any withdrawals are considered to come from earnings (gains) first and are subject to income tax, plus a 10% penalty if taken before age 59½.

Question 5

What is a 'key person' life insurance policy designed to do?

Accepted Answer

Protect a business from financial loss due to the death of a vital employee

Answer

Key person life insurance is owned by the business and compensates the company for lost revenue, recruiting costs, and other financial losses resulting from the death of a crucial employee or owner.

(EXAMFX) Exam FX Insurance Practice Test

(EXAMFX) Exam FX Insurance Practice Test

EXAMFX Life Insurance 3