Insurance MCQ

Bill names his church as the beneficiary of his $300,000 life insurance policy. When Bill dies, who is responsible for the income taxes payable on the lump-sum proceeds received by the church? A) His estate is responsible. B) His church is responsible. C) No income tax is payable on the death proceeds. D) His estate and the beneficiary share the tax liability equally. Answer: C) No income tax is payable on the death proceeds.

When a policyowner cannot exercise his rights of ownership without the policy beneficiary's consent, the beneficiary is designated? A) Irrevocable. B) Vested. C) Contractual. D) Primary. Answer: A) Irrevocable.

Kevin, the insured under a $200,000 life insurance policy, and his sole beneficiary, Lynda, are killed instantly in a car accident. Under the Uniform Simultaneous Death Act, to whose estate will the policy pay benefits to? A) Both Kevin's and Lynda's estate, equally. B) Kevin's estate. C) Lynda's estate. D) The proceeds will transfer to the state. Answer: B) Kevin's estate.

Life insurance premiums are typically based on what increment of the face value? A) $10,000. B) $100. C) $1,000. D) $10. Answer: C) $1,000.

Mary names her husband, Rick, as primary beneficiary of her life insurance policy and her two children, Pam and Matt, as contingent beneficiaries. Rick dies in March. Pam and Matt are killed simultaneously in a car accident later that month. Hearing the news, Mary has a fatal heart attack. In this case, Mary's life insurance proceeds will be paid? A) To Mary's estate. B) To Rick's estate. C) In equal shares to Rick, Pam, and Matt's estates. D) One-half to Rick's estate and one-quarter each to Pam and Matt's estates. Answer: A) To Mary's estate.

All of the following statements about accelerated death benefits and viatical settlements are correct EXCEPT? A) A terminally ill person receives accelerated death benefits tax-free. B) Accelerated benefit provisions are standard in most individual and group life insurance policies. C) The maximum amount of accelerated benefits that a chronically ill person can exclude from income is limited. D) An insured who sells an insurance policy to a viatical company usually receives 100% of the policy's face value. Answer: D) An insured who sells an insurance policy to a viatical company usually receives 100% of the policy's face value.

Under which option does the insurer hold the death proceeds for a specified period of time and, at regular intervals, pay the beneficiary a guaranteed rate of interest on the proceeds? A) Fixed-amount. B) Fixed-period. C) Life-income. D) Interest-only. Answer: D) Interest-only.

Which of the following statements pertaining to life insurance policy settlement options is NOT correct? A) Under the fixed-period option, the payment of excess interest will lengthen the payment period. B) Payments under the interest-only option may be made at a rate higher than the guaranteed minimum. C) By using the interest-only option, two or more settlement options can be combined for added flexibility. D) Diane and Rhonda each are receiving monthly income from their deceased husbands' identical life insurance policies under the fixed-period option. Diane's payments are to be made for 15 years and Rhonda's for 20 years. Diane receives the larger monthly payments. Answer: A) Under the fixed-period option, the payment of excess interest will lengthen the payment period.

"At age 50, out of 100,000 born the same year, 87,623 will still be alive. Of these, 729 will die this year." The preceding information is used to determine premium rates and is found in which of the following types of tables? A) Mortality. B) Participating. C) Insurability. D) Morbidity. Answer: A) Mortality

What is the beneficiary designation that can only be changed with the beneficiary's written agreement? A) Revocable beneficiary. B) Per stirpes. C) Irrevocable beneficiary. D) Wife of the insured. Answer: C) Irrevocable beneficiary.

A tertiary beneficiary stands where in line to receive proceeds of a life insurance policy? A) Fourth. B) Second. C) Third. D) First. Answer: C) Third.

Mr. Williams names his son John a beneficiary of his life insurance policy. What designation should he use if he wants to make sure that John's children would receive John's share of the life insurance policy proceeds should John predecease his father? A) Per stirpes. B) All my children. C) Per capita. D) Grandchildren. Answer: A) Per stirpes.

Christine's policy has a clause that reads as follows: "Should the primary beneficiary and the insured die in the same accident and the primary beneficiary fails to survive the insured by 14 days, it will be assumed that the beneficiary predeceased the insured." Which of the following phrases best describes this clause? A) Secondary beneficiary provision. B) Facility-of-payment provision. C) Common disaster provision. D) Uniform Simultaneous Death Act. Answer: C) Common disaster provision.

The beneficiary on Walter's life insurance policy reads, "Children of the Insured." Which of the following phrases best describes this type of beneficiary designation? A) Attractive nuisance beneficiaries. B) Juvenile beneficiaries. C) Class beneficiaries. D) Generational beneficiaries. Answer: C) Class beneficiaries.

A factor in rate-making known as the loading charge is also referred to as what type of factor? A) Interest. B) Expense. C) Mortality. D) Investment. Answer: B) Expense.

A cost involved in determining premium rates is called the loading charge. This is also known as? A) Interest factor. B) Mortality factor. C) Presumptive factor. D) Expense factor. Answer: D) Expense factor.

All of the following statements about the taxation of insurance proceeds are correct EXCEPT? A) Interest earned on policy dividends is exempt from income tax. B) A policyowner who receives the cash value for a surrendered policy must pay taxes on any gain. C) Generally, no gain or loss is recognized when one insurance policy is exchanged for another. D) A beneficiary will not be taxed on insurance proceeds paid as a lump sum death benefit. Answer: A) Interest earned on policy dividends is exempt from income tax.

Which of the following factors is most important when computing basic premiums for life insurance? A) Mortality. B) Interest. C) Reserves. D) Expense. Answer: A) Mortality.

Assume the following persons buy identical life insurance policies from the same company. Generally speaking, who will pay the lowest premium, if all have standard ratings? A) Joe, age 45. B) Louise, age 40. C) Linda, age 28. D) Thomas, age 28. Answer: C) Linda, age 28.

Which of the following statements pertaining to life insurance premiums is CORRECT? A) The most significant factor in premium rate calculation is interest. B) Premium rates usually are lower for men than women. C) Harold and Billy, both age 25, each buy a whole life policy from the same company. However, Harold has a participating policy, while Billy's policy is nonparticipating. Harold will pay a higher premium. D) Lucy, who is substantially overweight, has applied for a life insurance policy. Her weight may affect her insurability, but not the amount of premium on her policy. Answer: C) Harold and Billy, both age 25, each buy a whole life policy from the same company. However, Harold has a participating policy, while Billy's policy is nonparticipating. Harold will pay a higher premium.