RFC Insurance Planning & Risk Management 2 — Questions and Answers
Question 1: A client owns a universal life policy and wants to increase the death benefit. Under which option does the death benefit equal the face amount plus the policy's accumulated cash value?
- Option A (level death benefit)
- Option B (increasing death benefit) (Correct answer)
- Option C (return of premium)
- Option D (decreasing death benefit)
Correct answer: Option B (increasing death benefit)
Option B (increasing death benefit) pays the face amount plus the accumulated cash value, so the total death benefit rises as cash value grows.
Question 2: Which life insurance policy rider allows the insured to purchase additional coverage at specified intervals without providing evidence of insurability?
- Waiver of premium rider
- Accidental death benefit rider
- Guaranteed insurability rider (Correct answer)
- Cost of living rider
Correct answer: Guaranteed insurability rider
The guaranteed insurability rider lets the policyholder buy additional coverage at set option dates without proving insurability.
Question 3: A client's homeowners policy has an 80% coinsurance requirement. The home is valued at $400,000 but insured for only $240,000. A $60,000 partial loss occurs. How much will the insurer pay?
- $45,000 (Correct answer)
- $48,000
- $60,000
- $56,250
Correct answer: $45,000
The coinsurance formula pays (amount carried / amount required) × loss = ($240,000 / $320,000) × $60,000 = $45,000.
Question 4: An RFC client receives a disability income benefit of $4,000 per month. The policy was purchased with after-tax dollars and the employer paid no portion of premiums. How are the benefits taxed?
- Fully taxable as ordinary income
- 50% taxable
- Tax-free to the recipient (Correct answer)
- Taxable only above the Social Security base
Correct answer: Tax-free to the recipient
When the insured pays premiums with after-tax dollars and receives no employer contribution, disability income benefits are received income-tax-free.
Question 5: Which long-term care insurance benefit trigger requires that a licensed health care practitioner certify the insured needs substantial supervision due to severe cognitive impairment?
- Activities of daily living (ADL) trigger
- Medical necessity trigger
- Cognitive impairment trigger (Correct answer)
- Prior hospitalization trigger
Correct answer: Cognitive impairment trigger
The cognitive impairment trigger is activated when a practitioner certifies that severe cognitive impairment requires substantial supervision for safety.
Question 6: A business uses a cross-purchase buy-sell agreement funded with life insurance. If there are 4 partners, how many total policies are needed?
- 4
- 8
- 12 (Correct answer)
- 16
Correct answer: 12
In a cross-purchase agreement, each of the 4 partners must own a policy on each of the other 3, requiring 4 × 3 = 12 policies.
Question 7: Under which annuity settlement option does the insurance company guarantee payments for a specified period regardless of whether the annuitant is alive?
- Life only
- Life with period certain (Correct answer)
- Joint and survivor
- Installment refund
Correct answer: Life with period certain
The life with period certain option guarantees payments for a minimum period (e.g., 10 or 20 years) whether or not the annuitant survives.
RFC Insurance Planning & Risk Management 2
A client owns a universal life policy and wants to increase the death benefit.
Under which option does the death benefit equal the face amount plus the policy's accumulated cash value?