LLQP Insurance Product Types 5 — Questions and Answers
Question 1: Which type of annuity allows the contract holder to begin receiving income payments almost immediately after a lump-sum purchase?
- Deferred fixed annuity
- Variable deferred annuity
- Single premium immediate annuity (SPIA) (Correct answer)
- Flexible premium deferred annuity
Correct answer: Single premium immediate annuity (SPIA)
A single premium immediate annuity (SPIA) converts a lump-sum payment into income that begins within one month to one year of purchase.
Question 2: A graded death benefit life insurance policy is designed primarily for:
- High-income clients seeking tax advantages
- Individuals who cannot qualify for standard life insurance due to health issues (Correct answer)
- Business owners funding key-person coverage
- Young clients who want the lowest possible premium
Correct answer: Individuals who cannot qualify for standard life insurance due to health issues
Graded death benefit policies provide guaranteed issue coverage to individuals who cannot pass standard underwriting, but pay reduced benefits if death occurs in early policy years.
Question 3: Under a variable universal life (VUL) policy, the policyholder bears the investment risk because:
- The insurer guarantees a minimum interest credit regardless of performance
- Cash value is allocated to separate account sub-accounts subject to market fluctuation (Correct answer)
- Premiums are invested in the insurer's general account
- The policy has no cash value component
Correct answer: Cash value is allocated to separate account sub-accounts subject to market fluctuation
In a VUL policy, cash value is invested in separate account sub-accounts, so gains and losses depend on market performance and the policyholder assumes this risk.
Question 4: A life insurance policy loan against cash value is best described as:
- A withdrawal that permanently reduces the death benefit
- A loan from the insurer using cash value as collateral, accruing interest (Correct answer)
- A tax-free distribution of the policy's earnings first
- A surrender of part of the policy for its current value
Correct answer: A loan from the insurer using cash value as collateral, accruing interest
A policy loan allows the insurer to lend money to the policyholder using the policy's cash value as collateral, with interest accruing until repaid.
Question 5: Which long-term care insurance policy feature protects the benefit amount against the rising cost of care over time?
- Elimination period waiver
- Inflation protection rider (Correct answer)
- Guaranteed renewability provision
- Nonforfeiture benefit option
Correct answer: Inflation protection rider
An inflation protection rider automatically increases the daily or monthly benefit amount annually (often 3-5% compound) to keep pace with rising care costs.
Question 6: A key-person life insurance policy is owned and paid for by the business primarily to:
- Provide retirement income to the key employee
- Compensate the business for financial loss caused by the death of a vital employee (Correct answer)
- Fund the employee's personal estate plan
- Satisfy a creditor's requirement for loan collateral
Correct answer: Compensate the business for financial loss caused by the death of a vital employee
Key-person insurance indemnifies the business for economic losses — such as lost revenue and replacement costs — resulting from the death of a critical employee.
Question 7: Which of the following products is designed to provide income that the annuitant cannot outlive, regardless of how long they live?
- 20-year period certain annuity
- Life annuity (straight life or with options) (Correct answer)
- Fixed deferred annuity in accumulation phase
- Installment payout from a savings account
Correct answer: Life annuity (straight life or with options)
A life annuity, in any of its forms, guarantees income payments for as long as the annuitant lives, eliminating the risk of outliving retirement assets.
LLQP Insurance Product Types 5
Which type of annuity allows the contract holder to begin receiving income payments almost immediately after a lump-sum purchase?