LLQP Life Insurance Product Types 4 — Questions and Answers
Question 1: What is the primary characteristic of an endowment policy?
- The death benefit increases each year
- It pays the face amount either upon death or when the insured reaches a specified age (Correct answer)
- It provides coverage only for accidental death
- Premiums are waived after 10 years
Correct answer: It pays the face amount either upon death or when the insured reaches a specified age
An endowment policy matures and pays the face amount to the living insured at the end of the endowment period, or pays the death benefit if the insured dies before maturity.
Question 2: Under a variable universal life (VUL) policy, who bears the investment risk of the separate account sub-accounts?
- The insurance company
- The state insurance guarantee fund
- The policyholder (Correct answer)
- The beneficiary
Correct answer: The policyholder
In a VUL policy, the policyholder directs cash value into separate account sub-accounts and bears the full investment risk, meaning cash value can decrease.
Question 3: Which non-forfeiture option converts a lapsed whole life policy into a paid-up term policy for the same face amount?
- Reduced paid-up insurance
- Extended term insurance (Correct answer)
- Cash surrender value
- Automatic premium loan
Correct answer: Extended term insurance
Extended term insurance uses the cash value to purchase term insurance for the original face amount for as long a period as the cash value will support.
Question 4: A 'return of premium' (ROP) term policy differs from standard term by:
- Paying a higher death benefit if the insured survives
- Refunding all premiums paid if the insured outlives the policy term (Correct answer)
- Converting automatically to whole life at expiration
- Charging lower premiums than standard term
Correct answer: Refunding all premiums paid if the insured outlives the policy term
ROP term insurance returns all premiums paid if the insured survives to the end of the policy term, at the cost of significantly higher premiums than standard term.
Question 5: A universal life policy's 'Option B' (increasing) death benefit means:
- The death benefit equals the face amount only
- The death benefit equals the face amount plus the accumulated cash value (Correct answer)
- The premium increases each year
- The policy automatically converts to whole life after 20 years
Correct answer: The death benefit equals the face amount plus the accumulated cash value
Under Option B (or Option 2), the death benefit equals the stated face amount plus the policy's cash value, so it increases as cash value accumulates.
Question 6: Which of the following policies is MOST suitable for an insured who wants lifelong coverage but cannot afford permanent insurance premiums initially?
- Single premium whole life
- Term-to-100 policy
- Convertible term insurance (Correct answer)
- Decreasing term insurance
Correct answer: Convertible term insurance
Convertible term insurance allows the insured to convert to a permanent policy without evidence of insurability, providing an affordable path to permanent coverage later.
Question 7: What is a key tax advantage of the cash value accumulation in a life insurance policy under current US tax law?
- Premiums are tax-deductible for individuals
- Cash value grows on a tax-deferred basis (Correct answer)
- Death benefits are subject to capital gains tax
- Withdrawals are always tax-free up to any amount
Correct answer: Cash value grows on a tax-deferred basis
Cash value inside a life insurance policy grows on a tax-deferred basis, meaning the policyholder does not pay income tax on gains each year they accumulate.
LLQP Life Insurance Product Types 4
What is the primary characteristic of an endowment policy?