1. Which of the following statements regarding universal life insurance is(are) correct? I. The policyowner has no ability to direct the investment of the policy’s cash values. II. Universal life policyowners can choose the amount of premium they pay into their policies, subject to insurer minimums and maximums. a. Cash values b. Premiums c. Death benefits d. Riders
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Universal life insurance combines elements from term and whole life insurance. Term policies provide a: Death benefit and a savings component Death benefit only Savings vehicle only Whole life policies provide a: Death benefit and a savings component with fixed rate features Savings vehicle only Death benefit and a savings component with variable rate features Universal policies provide a: Death benefit and a savings component with variable rate features Death benefit only Savings vehicle only To understand how universal premiums are allocated, consider the following example. Larry is a 40-year-old lawyer who just bought a universal life insurance policy to protect his two children (ages 11 and 13) in the event of his death. Each year, Larry chooses how much he would like to contribute to the policy, as shown in the first row of the following table. An administrative fee along with the cost of the death benefit (the portion of the policy) is the payment. The resulting amount goes into the pure insurance / savings added to / subtracted from cash-value (or portion of the policy). This money earns interest at a rate of savings / pure insurance market-based / fixed return. Based on the given information, calculate the amount that is added to the cash-value portion of the policy in each of the first three years. Year 1 Year 2 Year 3 Premium (Annual Contribution) $2,700 $2,200 $1,500 Administrative Fee 85 85 85 Cost of Death Benefit 100 100 100 Amount Added to Cash Value The cost of the death benefit portion of universal policies is only fixed for certain periods and rises with age, as is the case with life insurance policies. Suppose that in the 11th year of his policy, Larry's cost of death benefit term / whole has risen substantially. At the same time, he is helping to pay his mother's medical expenses after a major surgery and currently cannot afford to pay his life insurance premium. True or False: Under the terms of a standard universal policy, if Larry stops paying his premiums, then Larry's policy will be canceled, and the value of the cash portion will be paid out to him immediately. False True
Akash M.
Which of the following is NOT necessary in order for a product to be defined as life insurance for federal income tax purposes? A) The death benefit B) The cash value accumulation test C) The guideline premium and corridor test D) The earned premium test
Which of the following statements regarding universal life insurance is not true? Select one: a. The policyowner can easily track the policy's different elements. b. It is generally best suited for long-term coverage needs. c. If the policyowner skips a premium payment, the policy will not lapse. d. The policy is not susceptible to inadvertently becoming a modified endowment contract.
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