Life & Health Insurance Exam Life & Health Insurance Types of Life Policies 5 — Questions and Answers
Question 1: Which of the following is a key characteristic of variable universal life (VUL) insurance?
- Fixed premiums and a guaranteed minimum death benefit
- Flexible premiums with cash value invested in separate account subaccounts (Correct answer)
- Interest credited based on a market index with a guaranteed floor
- Premiums that automatically decrease as the insured ages
Correct answer: Flexible premiums with cash value invested in separate account subaccounts
VUL combines the flexible premiums of universal life with the investment subaccount options of variable life, and the policyowner bears the investment risk.
Question 2: An annuity certain differs from a life annuity in that it:
- Pays benefits only while the annuitant is alive
- Pays benefits for a guaranteed period regardless of whether the annuitant is living (Correct answer)
- Requires a medical exam before purchase
- Is a type of life insurance policy
Correct answer: Pays benefits for a guaranteed period regardless of whether the annuitant is living
An annuity certain (period certain) pays income for a fixed number of years whether or not the annuitant is alive, eliminating the longevity gamble of a pure life annuity.
Question 3: A waiver of premium rider on a whole life policy allows the insurer to:
- Waive the death benefit requirement if the insured is disabled
- Keep the policy in force by waiving premiums if the insured becomes totally disabled (Correct answer)
- Reduce the face amount in exchange for lower premiums
- Skip underwriting if premiums are prepaid for five years
Correct answer: Keep the policy in force by waiving premiums if the insured becomes totally disabled
The waiver of premium rider continues the policy in full force without requiring premium payments during periods of the insured's total disability, typically after a 6-month elimination period.
Question 4: Which type of term insurance is most commonly used to cover mortgage obligations?
- Level term
- Increasing term
- Decreasing term (Correct answer)
- Re-entry term
Correct answer: Decreasing term
Decreasing term insurance is used for mortgage protection because the death benefit declines in parallel with the reducing outstanding mortgage balance.
Question 5: A return of premium (ROP) term policy differs from standard term insurance because it:
- Returns all premiums paid if the insured outlives the policy term (Correct answer)
- Provides permanent coverage after the term expires at no additional cost
- Increases the death benefit by the amount of premiums paid
- Allows the insured to convert to whole life using the returned premiums
Correct answer: Returns all premiums paid if the insured outlives the policy term
An ROP term policy refunds the total premiums paid to the policyowner if the insured is still living at the end of the term, in exchange for higher premiums than standard term.
Question 6: What is the primary distinction between a participating (par) and a non-participating (non-par) life insurance policy?
- Par policies pay dividends to policyowners; non-par policies do not (Correct answer)
- Par policies are only sold by stock insurance companies
- Non-par policies accumulate higher cash values than par policies
- Par policies require a physical examination while non-par policies do not
Correct answer: Par policies pay dividends to policyowners; non-par policies do not
Participating policies are eligible to receive dividends (a return of excess premium) declared by the insurer, whereas non-participating policies do not pay dividends.
Question 7: Which of the following statements about group life insurance is CORRECT?
- Each group member receives an individual policy with their own terms
- Coverage is evidenced by a master contract held by the employer and certificates issued to employees (Correct answer)
- Employees must provide individual evidence of insurability for each renewal
- Premiums are always paid entirely by the employee
Correct answer: Coverage is evidenced by a master contract held by the employer and certificates issued to employees
Group life insurance uses a single master policy issued to the group sponsor (e.g., employer), with individual members receiving certificates summarizing their coverage.
Life & Health Insurance Exam Life & Health Insurance Types of Life Policies 5
Which of the following is a key characteristic of variable universal life (VUL) insurance?