LLQP Life Insurance Product Types 5 — Questions and Answers
Question 1: Which type of life insurance product is typically sold without a medical exam, using only a short health questionnaire to determine eligibility?
- Fully underwritten whole life
- Simplified issue life insurance (Correct answer)
- Variable universal life
- Group term life insurance
Correct answer: Simplified issue life insurance
Simplified issue life insurance uses a brief health questionnaire instead of a full medical exam, trading faster approval for higher premiums or lower coverage limits.
Question 2: A 'limited pay' whole life policy (e.g., 20-Pay Life) differs from straight whole life because:
- Coverage ends after 20 years
- Premiums are paid for a limited period but coverage lasts for life (Correct answer)
- The death benefit decreases after the premium-paying period ends
- Cash value stops growing after premiums are fully paid
Correct answer: Premiums are paid for a limited period but coverage lasts for life
A limited pay policy requires premium payments only for a set number of years (e.g., 20), after which the policy is paid-up and coverage continues for the insured's lifetime.
Question 3: Which feature of universal life insurance allows the policyholder to skip or reduce premium payments without lapsing the policy?
- Automatic premium loan provision
- Waiver of premium rider
- Flexible premium structure using accumulated cash value (Correct answer)
- Guaranteed insurability option
Correct answer: Flexible premium structure using accumulated cash value
Universal life's flexible premium design allows the policyholder to reduce or skip premiums as long as sufficient cash value exists to cover the monthly deductions for cost of insurance and expenses.
Question 4: A 'single premium' life insurance policy is characterized by:
- Monthly premium payments for the life of the policy
- One lump-sum payment that fully funds the policy at issue (Correct answer)
- Premiums that vanish after the policy earns sufficient dividends
- Coverage that expires after a single year
Correct answer: One lump-sum payment that fully funds the policy at issue
A single premium policy requires only one lump-sum payment at inception, after which the policy is immediately paid-up and no further premiums are owed.
Question 5: What is the primary purpose of a 'key person' life insurance policy purchased by a business?
- To fund employee retirement benefits
- To indemnify the business against financial loss caused by the death of a vital employee or owner (Correct answer)
- To provide group coverage for all employees
- To satisfy a buy-sell agreement between partners
Correct answer: To indemnify the business against financial loss caused by the death of a vital employee or owner
Key person insurance protects a business from the economic impact of losing an owner or employee whose skills, knowledge, or relationships are critical to business operations.
Question 6: Under a Modified Endowment Contract (MEC), how are policy loans and withdrawals taxed?
- Always tax-free up to basis
- Taxed on a first-in, first-out (FIFO) basis
- Taxed on a last-in, first-out (LIFO) basis with a possible 10% penalty before age 59½ (Correct answer)
- Taxed only upon the death of the insured
Correct answer: Taxed on a last-in, first-out (LIFO) basis with a possible 10% penalty before age 59½
MEC distributions (loans and withdrawals) are taxed interest-first (LIFO), meaning gains are taxed as ordinary income first, plus a 10% penalty if taken before age 59½.
Question 7: Which of the following statements about term life insurance riders is CORRECT?
- A term rider converts the base policy to universal life automatically
- A term rider added to a whole life policy provides additional temporary death benefit coverage (Correct answer)
- Term riders permanently increase the base policy's face amount
- Term riders eliminate the need for underwriting on the base policy
Correct answer: A term rider added to a whole life policy provides additional temporary death benefit coverage
A term rider attached to a permanent policy provides additional death benefit protection for a specified period, effectively blending term and permanent coverage at a lower total cost.
LLQP Life Insurance Product Types 5
Which type of life insurance product is typically sold without a medical exam, using only a short health questionnaire to determine eligibility?