I85PREP
⌘ K
LOMA 291 study materials
LOMA 291 study resources

LOMA 291 practice questions

One question at a time. Build your LOMA 291 understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Insurance Fundamentals

Which party to a life insurance contract is the person whose death triggers the death benefit?

  1. The beneficiary
  2. The policyowner
  3. The underwriter
  4. The insured Correct answer.

Explanation

In life insurance the insured is the person on whose life the contract is written, and that person's death is the event that triggers payment of the death benefit. The policyowner holds the contract rights, and the beneficiary receives the proceeds. These roles can be held by the same person, but they are legally distinct.

Question 2Insurance Fundamentals

A policyowner pays premiums to an insurer, and the insurer promises to pay a benefit if a specified event occurs. This exchange of value is best described as which contract element?

  1. Competent parties
  2. Consideration Correct answer.
  3. Legal purpose
  4. Offer and acceptance

Explanation

Consideration is the value each party gives in exchange for the other's promise: the policyowner's premium payments and the insurer's promise to pay covered claims. Without consideration, a promise is generally not enforceable as a contract. Legal purpose, offer and acceptance, and competent parties are separate requirements for a valid contract.

Question 3Insurance Fundamentals

An applicant completes an application and submits it with an initial premium. Under general insurance contract principles, when does the insurer's promise to pay typically become enforceable?

  1. When the producer first meets the applicant
  2. When the applicant reaches the policy anniversary date
  3. When the insurer accepts the application and issues the policy, subject to any stated conditions such as a conditional receipt Correct answer.
  4. When the beneficiary signs the application

Explanation

A contract requires an offer and an acceptance. The application with premium is generally the offer, and the insurer accepts by approving and issuing the policy. If a conditional receipt was issued, coverage may begin earlier only when the conditions stated in that receipt are met.

Question 4Insurance Fundamentals

Which characteristic distinguishes insurance contracts from ordinary commercial contracts?

  1. Insurance contracts take effect only after a court approves them
  2. Insurance contracts are contracts of adhesion, prepared by the insurer and accepted or rejected by the applicant as written Correct answer.
  3. Insurance contracts are always voidable at the option of the beneficiary
  4. Insurance contracts require no consideration from the policyowner

Explanation

Insurance policies are drafted by the insurer, and the applicant generally has no opportunity to negotiate terms, which makes them contracts of adhesion. Courts often resolve ambiguity in such contracts against the drafter. Insurance contracts still require consideration and do not require court approval to take effect.

Question 5Insurance Fundamentals

An applicant for life insurance deliberately conceals a serious illness on the application. The insurer later learns of the concealment and seeks to avoid the policy. This situation illustrates which concept?

  1. Estoppel
  2. Waiver
  3. Adhesion
  4. Material misrepresentation Correct answer.

Explanation

A material misrepresentation is a false or incomplete statement that would have influenced the insurer's decision to issue coverage or set its terms. Intentional concealment of a serious illness is a classic example. If the misrepresentation is material, the insurer may be able to rescind the policy.

Question 6Insurance Fundamentals

Which element must be present for a life insurance contract to be legally enforceable?

  1. A beneficiary who is a blood relative
  2. Insurable interest at the time the contract is formed Correct answer.
  3. A guaranteed cash value in the first policy year
  4. Approval of the policy by the insured's employer

Explanation

Insurable interest is required at policy inception to prevent insurance from becoming a wagering contract. The policyowner must have a legitimate economic or emotional interest in the continued life of the insured. Cash value, beneficiary kinship, and employer approval are not general requirements for validity.

Question 7Insurance Fundamentals

A policyowner transfers ownership of a life policy to an adult child as a gift. What is the most direct consequence for the insurable interest requirement?

  1. The policy becomes void immediately because the new owner has no insurable interest
  2. The policy must be surrendered and a new application completed
  3. The policy generally remains valid because insurable interest is tested when the contract is formed, not at transfer Correct answer.
  4. The insurer must reduce the death benefit by half

Explanation

Insurable interest is generally required at the time the contract is formed, not throughout its life. A later transfer of ownership does not ordinarily invalidate an existing policy. This is why life policies can be assigned or sold in legitimate transactions.

Question 8Insurance Fundamentals

A producer tells an applicant that a policy's cash value is guaranteed to double every five years. The statement is false and the applicant relies on it to buy the policy. This conduct is best characterized as which unfair trade practice?

  1. Coercion
  2. Misrepresentation Correct answer.
  3. Rebating
  4. Twisting

Explanation

Misrepresentation is a false or misleading statement about policy terms, benefits, or dividends that induces a person to buy insurance. Promising a guaranteed result that the contract does not provide is a typical example. Rebating and twisting involve different conduct, such as sharing commissions or inducing replacement through deception.

Question 9Insurance Fundamentals

Which statement best describes the role of a beneficiary designation in a life insurance policy?

  1. It directs the insurer to pay proceeds to the named person or entity, generally without probate Correct answer.
  2. It transfers ownership rights of the policy to the insured's estate
  3. It guarantees that the policy will remain in force for life
  4. It determines the premium rate charged by the insurer

Explanation

The beneficiary designation names who receives the death benefit. Because life insurance proceeds pass by contract rather than by will, they generally avoid probate when a beneficiary is named. The designation does not affect ownership, premium rates, or policy duration.

Question 10Insurance Fundamentals

An insured dies while the policy is in force, and the named primary beneficiary is still living. What happens to the death benefit?

  1. It is paid to the primary beneficiary Correct answer.
  2. It is paid to the contingent beneficiary
  3. It is paid to the insured's estate
  4. It is retained by the insurer as a surrender charge

Explanation

A living primary beneficiary has first claim on the death benefit. The contingent beneficiary receives proceeds only if the primary beneficiary has predeceased the insured or is otherwise unavailable. The estate receives proceeds only when no valid beneficiary exists.

Question 11Insurance Fundamentals

Under a per stirpes settlement option, how are proceeds distributed when a named beneficiary dies before the insured?

  1. The deceased beneficiary's share is forfeited to the insurer
  2. The deceased beneficiary's share passes to that beneficiary's descendants Correct answer.
  3. The deceased beneficiary's share is divided equally among all surviving beneficiaries
  4. The deceased beneficiary's share is paid to the insured's creditors

Explanation

Per stirpes means by branch: the deceased beneficiary's share passes down to that beneficiary's own descendants. This preserves the intended family branch rather than redistributing the share among unrelated survivors. By contrast, per capita distribution divides proceeds equally among surviving beneficiaries.

Question 12Insurance Fundamentals

Which type of life insurance provides protection for a specified period and pays a benefit only if the insured dies during that period?

  1. Variable life insurance
  2. Universal life insurance
  3. Term life insurance Correct answer.
  4. Whole life insurance

Explanation

Term insurance covers a defined period, such as 10 or 20 years, and pays only if death occurs within that term. It typically has no cash value. Whole, universal, and variable life are permanent forms designed to provide lifetime coverage with a savings or account component.

Question 13Insurance Fundamentals

Which feature most clearly distinguishes whole life insurance from term life insurance?

  1. Whole life pays benefits only for accidental death
  2. Whole life has no fixed premium schedule
  3. Whole life builds guaranteed cash value and provides lifetime coverage Correct answer.
  4. Whole life can be renewed only at five-year intervals

Explanation

Whole life is permanent coverage with level premiums that build a guaranteed cash value over time. Term coverage is temporary and generally has no cash value. The permanence and guaranteed cash value are the defining contrasts between the two.

Question 14Insurance Fundamentals

A universal life policyholder wants to skip a premium payment in a year when cash is tight. What feature of universal life generally allows this?

  1. Automatic reinstatement of the policy after lapse
  2. A mandatory conversion to term insurance
  3. A guaranteed waiver of all future premiums
  4. Flexible premiums, provided the policy's account value covers the cost of insurance and expenses Correct answer.

Explanation

Universal life separates the account value from the cost of insurance and allows premium flexibility. A policyholder may skip or vary payments as long as the account value remains sufficient to cover the monthly deductions. If the account value is exhausted, the policy can lapse.

Question 15Insurance Fundamentals

In a variable life insurance policy, the cash value is invested in separate accounts. Who bears the investment risk associated with those accounts?

  1. The insurer
  2. The state guaranty association
  3. The policyowner Correct answer.
  4. The beneficiary

Explanation

With variable life, the policyowner directs the investment of the cash value among subaccounts and bears the investment risk. The insurer does not guarantee the account's performance. Because of this investment element, variable products are regulated as securities as well as insurance.

Question 16Insurance Fundamentals

A policyowner stops paying premiums on a whole life policy and elects a nonforfeiture option. Which option provides continuing insurance for a limited period equal to the policy's cash value?

  1. Reduced paid-up insurance
  2. Cash surrender
  3. Automatic premium loan
  4. Extended term insurance Correct answer.

Explanation

Extended term insurance uses the net cash value to buy term coverage for the full face amount for as long as that value will pay for it. Reduced paid-up insurance instead buys a smaller permanent policy with no further premiums. Cash surrender ends coverage entirely.

Question 17Insurance Fundamentals

Under a waiver of premium rider, what happens if the insured becomes totally disabled as defined in the policy?

  1. The insurer waives premiums due while the disability continues Correct answer.
  2. The policy is converted to an annuity
  3. The insurer pays the death benefit early
  4. The cash value is returned to the policyowner

Explanation

A waiver of premium rider keeps the policy in force by waiving premium payments during a qualifying total disability. The death benefit and cash value continue to grow as though premiums were paid. The rider does not accelerate the death benefit or convert the policy.

Question 18Insurance Fundamentals

An insured with a $200,000 policy dies by suicide 18 months after issue. The policy contains a two-year suicide clause. What is the insurer's typical obligation?

  1. Refund premiums paid, less any outstanding policy debt, rather than pay the face amount Correct answer.
  2. Deny all payment and retain the premiums
  3. Pay the full $200,000 death benefit
  4. Pay half of the face amount

Explanation

A suicide clause limits the insurer's liability during an initial period, commonly two years. If death by suicide occurs within that period, the insurer typically returns premiums paid instead of paying the face amount. After the clause period expires, suicide is generally covered like any other cause of death.

Question 19Insurance Fundamentals

A policy lapsed for nonpayment of premium and the policyowner now applies for reinstatement. Which requirement is most typical?

  1. A court order approving reinstatement
  2. A new beneficiary designation
  3. Evidence of insurability and payment of overdue premiums with interest Correct answer.
  4. A statement from the original producer

Explanation

Reinstatement restores a lapsed policy, and insurers typically require proof of continued insurability plus payment of overdue premiums with interest. Policy loans may also need to be repaid. Reinstatement is a contractual privilege, not an automatic right.

Question 20Insurance Fundamentals

Which provision prevents an insurer from denying a claim based on a misstatement in the application after the policy has been in force for a specified period?

  1. Incontestability clause Correct answer.
  2. Grace period
  3. Entire contract clause
  4. Free look provision

Explanation

The incontestability clause generally bars the insurer from contesting the policy for misrepresentation after it has been in force for a stated period, commonly two years. The clause protects beneficiaries from late rescission. It does not protect against nonpayment of premium.

Question 21Insurance Fundamentals

An insured's policy has a $50,000 outstanding policy loan when the insured dies. How is the death benefit affected?

  1. The loan is forgiven and the full face amount is paid
  2. The loan reduces the cash value only, not the death benefit
  3. The loan balance plus accrued interest is deducted from the death benefit Correct answer.
  4. The beneficiary must repay the loan directly to the insurer

Explanation

A policy loan is an advance against the policy's value, and any unpaid balance with interest is subtracted from the proceeds at death. The beneficiary receives the face amount less the indebtedness. The insurer does not pursue the beneficiary for repayment.

Question 22Insurance Fundamentals

Which dividend option under a participating whole life policy uses dividends to buy additional permanent coverage at the insured's attained age?

  1. Paid-up additions Correct answer.
  2. Cash payment
  3. Premium reduction
  4. Accumulate at interest

Explanation

Paid-up additions use each dividend to purchase a small amount of additional single-premium permanent insurance. This increases both the death benefit and the cash value. The other options apply dividends to premiums, hold them at interest, or pay them out.

Question 23Insurance Fundamentals

An insured owns a policy with an accidental death benefit rider and dies of a heart attack. What does the rider add to the claim?

  1. The rider amount minus premiums paid
  2. The full rider amount
  3. Nothing, because death was not accidental Correct answer.
  4. Half of the rider amount

Explanation

An accidental death benefit rider pays an additional amount only when death results from an accident as defined in the policy. A death from natural causes such as a heart attack triggers only the base policy benefit. The rider does not modify the base death benefit.

Question 24Insurance Fundamentals

A producer regularly collects premiums from applicants and keeps the money in a personal account for several weeks before remitting it to the insurer. This conduct most directly violates which principle?

  1. Fiduciary responsibility for handling premium funds Correct answer.
  2. The incontestability provision
  3. The free look provision
  4. The insurable interest requirement

Explanation

Producers who handle premium funds act in a fiduciary capacity and must remit those funds promptly to the insurer. Commingling premiums with personal funds is a serious violation and may be a criminal offense. Insurable interest, incontestability, and free look concern different aspects of the contract.

Question 25Insurance Fundamentals

Which statement about the free look provision in a newly delivered life insurance policy is correct?

  1. It waives the premium during the first year
  2. It guarantees a minimum cash value in the first year
  3. It allows the policyowner to return the policy within a stated period for a refund of premium Correct answer.
  4. It allows the insurer to cancel the policy at any time during the first year

Explanation

The free look provision gives the policyowner a set number of days after delivery to return the policy for a full refund. It protects consumers who may have second thoughts after purchasing. The insurer may not cancel at will, and the provision does not affect cash value or premiums.

Question 26Insurance Fundamentals

An insurer is analyzing the concept of risk as it applies to life insurance underwriting. Which situation describes a pure risk rather than a speculative risk?

  1. An insurer writes new business in a new state expecting premium growth
  2. A business owner opens a second location expecting higher sales
  3. An individual faces the possibility of dying prematurely and leaving dependents without income Correct answer.
  4. A policyowner invests a policy's cash value in a subaccount hoping for high returns

Explanation

Pure risk involves only the chance of loss or no loss, with no possibility of gain. Premature death is the classic pure risk that life insurance is designed to transfer, because the insured cannot profit from dying. Speculative risk involves the chance of gain as well as loss and is generally not insurable.

Question 27Insurance Fundamentals

A producer is explaining the concept of insurable interest to an applicant who wants to buy a policy on an unrelated neighbor. Which statement correctly describes the insurable interest requirement in life insurance?

  1. Insurable interest must exist at the time the policy is issued, but need not continue until death Correct answer.
  2. Insurable interest must exist at the time of the application and at the time of the insured's death
  3. Insurable interest is unnecessary if the applicant pays all premiums personally
  4. Insurable interest is required only at the time of death, regardless of the relationship at issue

Explanation

For life insurance, insurable interest must exist when the contract is formed; it does not have to continue until the insured dies. This rule reflects the public policy purpose of preventing wagering on another person's life. A policy issued with proper insurable interest remains valid even if the relationship later changes.

Question 28Insurance Fundamentals

An applicant completes an application and pays the initial premium. The producer issues a conditional receipt. Under this receipt, when does coverage generally take effect?

  1. When the insurer's home office mails the policy, even if the applicant is uninsurable
  2. As of the date of the application or medical examination, provided the applicant proves insurable under the insurer's rules Correct answer.
  3. Only when the insurer physically delivers the policy and the first premium is collected again
  4. On the date the application is signed, regardless of the insurer's underwriting decision

Explanation

A conditional receipt provides interim coverage that takes effect retroactively to the date of application or medical exam, but only if the applicant turns out to be insurable under the insurer's underwriting standards. If the applicant is not insurable, no coverage arises under the conditional receipt. This distinguishes it from a binding receipt, which provides coverage regardless of insurability.

Question 29Insurance Fundamentals

A producer is reviewing the elements of a valid life insurance contract with a new client. Which element is satisfied when the applicant submits an application and pays the initial premium?

  1. Consideration Correct answer.
  2. Competent parties
  3. Offer and acceptance
  4. Legal purpose

Explanation

Consideration is the value each party exchanges: the applicant's premium payments and statements in the application, and the insurer's promise to pay benefits. Submitting the application and paying the first premium is the classic example of the applicant's consideration. The other elements, such as legal purpose and competent parties, address different requirements of a valid contract.

Question 30Insurance Fundamentals

An applicant for a life policy has a history of a serious illness. The insurer issues the policy with a higher premium because of that history. Which underwriting classification has the insurer used?

  1. Substandard Correct answer.
  2. Declined
  3. Preferred
  4. Standard

Explanation

Substandard classification is used when an applicant presents a greater than average mortality risk, and the insurer issues coverage at a higher premium or with a rated classification. Preferred and standard classes are for average or better-than-average risks. Declined means the insurer refuses to issue coverage at all.

Question 31Insurance Fundamentals

A producer is completing a field underwriting report on an applicant. The applicant mentions a past hospitalization that was not listed on the application. What is the producer's most appropriate action?

  1. Submit the application and let the insurer discover the history later
  2. Record the information accurately on the report so the insurer can evaluate the risk Correct answer.
  3. Advise the applicant to answer future medical questions more carefully
  4. Omit the information because the producer is not a medical professional

Explanation

Field underwriting requires the producer to record complete and accurate information, including adverse facts, so the insurer can properly classify the risk. Concealing material information can lead to claim disputes and violates the producer's duty to the insurer. The producer does not decide insurability but must report what is known.

Question 32Insurance Fundamentals

A policyowner named a spouse as primary beneficiary and two children as contingent beneficiaries. The spouse dies before the insured, and the insured later dies while both children are living. Who receives the death proceeds?

  1. The insurer retains the proceeds until a court order is issued
  2. The two children, in equal shares Correct answer.
  3. The spouse's estate
  4. The insured's estate

Explanation

A contingent beneficiary receives the proceeds if the primary beneficiary is not living when the insured dies. Because the spouse predeceased the insured, the contingent beneficiaries take the proceeds. Naming contingent beneficiaries avoids having the proceeds pass through the insured's estate.

Question 33Insurance Fundamentals

A policyowner wants to change the beneficiary on a whole life policy without obtaining the current beneficiary's consent. Which policy feature permits this?

  1. A spendthrift clause
  2. An irrevocable beneficiary designation
  3. A facility of payment provision
  4. A reservation of rights in the ownership clause allowing the owner to change the beneficiary Correct answer.

Explanation

When the policyowner has reserved the right to change the beneficiary, the designation is revocable and the owner may substitute a new beneficiary without consent. An irrevocable designation, by contrast, requires the beneficiary's consent to change. The ownership clause typically sets out the owner's rights, including beneficiary changes.

Question 34Insurance Fundamentals

An insured owns a 20-year level term policy and dies in year 12. The beneficiary receives the face amount. Which statement best explains the outcome?

  1. Term insurance pays a reduced amount because no cash value had built up
  2. Term insurance pays the face amount plus accumulated cash value
  3. Term insurance pays nothing because term policies never pay death benefits
  4. Term insurance pays the face amount only if death occurs during the policy term Correct answer.

Explanation

Term insurance provides protection for a specified period and pays the face amount only if the insured dies during that period. A death in year 12 of a 20-year term falls within the coverage period, so the full face amount is payable. Term policies generally have no cash value to add to the benefit.

Question 35Insurance Fundamentals

A policyowner holds a whole life policy with a level premium and a guaranteed cash value. Which statement describes the relationship between the policy's cash value and its death benefit over time?

  1. Cash value and death benefit are always equal at every policy anniversary
  2. Cash value remains level while the death benefit increases each year
  3. Cash value increases while the death benefit remains level, so the pure insurance amount decreases Correct answer.
  4. Cash value and death benefit both decline as the insured ages

Explanation

In a traditional whole life policy, the cash value grows steadily while the face amount stays level. The difference between the death benefit and the cash value is the amount at risk, or pure insurance, which shrinks as cash value grows. This is a defining characteristic of permanent level-premium coverage.

Question 36Insurance Fundamentals

A universal life policyholder has paid premiums for several years and now wants to increase the death benefit significantly. Which statement describes the insurer's likely requirement?

  1. The increase is automatic because universal life allows unlimited death benefit changes
  2. The increase requires the policyowner to convert the policy to whole life
  3. The increase is prohibited after the first policy year under universal life rules
  4. The increase requires evidence of insurability, and the insurer may underwrite the added amount Correct answer.

Explanation

Universal life allows the policyowner to adjust the death benefit, but an increase generally requires evidence of insurability because the insurer is taking on additional mortality risk. A decrease may be made without underwriting, subject to policy limits. This flexibility is a hallmark of universal life.

Question 37Insurance Fundamentals

A policyowner has a participating whole life policy and elects the paid-up additions dividend option. What is the effect of this election?

  1. Dividends accumulate at interest and are paid at surrender
  2. Dividends purchase a one-year term rider equal to the cash value
  3. Dividends are used to reduce the next premium due
  4. Dividends buy small amounts of additional permanent insurance that build cash value Correct answer.

Explanation

The paid-up additions option uses each dividend to purchase a small amount of additional permanent coverage, which increases both the death benefit and the cash value. The added coverage is fully paid up and requires no further premiums. It differs from the accumulate-at-interest and premium-reduction options.

Question 38Insurance Fundamentals

A policyowner has a whole life policy with a $250,000 face amount and an outstanding loan of $40,000, including accrued interest, when the insured dies. What amount will the insurer pay to the beneficiary, assuming no other adjustments?

  1. $40,000
  2. $290,000
  3. $250,000
  4. $210,000 Correct answer.

Explanation

An outstanding policy loan, together with accrued interest, is deducted from the death proceeds. The insurer therefore pays the face amount minus the loan balance, or $210,000. The beneficiary does not have to repay the loan separately because the deduction is made at settlement.

Question 39Insurance Fundamentals

An insured under a whole life policy becomes totally and permanently disabled as defined in the policy's waiver of premium rider. What is the primary effect of the rider?

  1. The insurer pays the death benefit immediately
  2. The insurer refunds all premiums paid before the disability began
  3. The insurer converts the policy to term insurance for the disability period
  4. The insurer waives premiums due during the disability and keeps the policy in force Correct answer.

Explanation

A waiver of premium rider excuses premium payments while the insured remains totally disabled as defined in the policy, and the coverage stays in force as if premiums had been paid. The policy's cash value and benefits continue to grow. The rider does not accelerate the death benefit or refund past premiums.

Question 40Insurance Fundamentals

An insured owns a policy with a $100,000 base face amount and a $50,000 accidental death benefit rider. The insured dies from a heart attack. What total benefit is payable?

  1. $150,000
  2. $100,000 Correct answer.
  3. $50,000
  4. $0

Explanation

An accidental death benefit rider pays an additional amount only when death results from an accident as defined in the rider. A heart attack is a natural cause of death, so only the base face amount is payable. Riders do not change the basic death benefit.

Question 41Life Insurance Products

A life insurance product in which the policyowner bears the investment risk and the cash value fluctuates with the performance of a separate account is best described as which type of product?

  1. Universal life insurance
  2. Variable life insurance Correct answer.
  3. Term life insurance
  4. Whole life insurance

Explanation

Variable life insurance places investment risk on the policyowner because cash values are held in a separate account whose value rises and falls with underlying investments. Traditional whole life and universal life products generally guarantee a minimum crediting rate and shift investment risk to the insurer.

Question 42Life Insurance Products

Which feature most clearly distinguishes term life insurance from permanent life insurance?

  1. It requires evidence of insurability at each renewal.
  2. It pays a benefit only when death occurs before a stated age.
  3. It allows the policyowner to change the death benefit at any time.
  4. It provides protection for a specified period and builds no meaningful cash value. Correct answer.

Explanation

Term insurance is temporary protection covering a defined period and generally has no cash value accumulation. Permanent products, by contrast, are designed to remain in force for the insured's lifetime and build cash value.

Question 43Life Insurance Products

Under a level premium whole life policy, why does the policy build cash value over time?

  1. Premiums exceed the cost of protection in early years and the excess is reserved. Correct answer.
  2. The insurer refunds a portion of each premium at the end of every policy year.
  3. The death benefit is reduced as the insured ages, freeing funds for savings.
  4. Interest is credited only after the insured reaches age 65.

Explanation

Level premiums are higher than the mortality cost in early policy years, and the insurer holds the excess in reserves that support the guaranteed cash value. As the insured ages, the premium becomes less than the rising cost of protection, and the reserve is drawn down.

Question 44Life Insurance Products

An individual purchases a universal life policy and chooses to pay premiums above the minimum required. What is the most likely result?

  1. The cash value grows faster and the policy may stay in force longer. Correct answer.
  2. The insurer must return the excess premium at year end.
  3. The policy converts to a term contract.
  4. The death benefit is automatically increased by the same amount.

Explanation

Universal life separates the cost of insurance and expense charges from the premium, so paying more than the minimum increases the accumulated cash value. A larger cash value can fund future mortality charges and extend the policy's duration.

Question 45Life Insurance Products

A policyholder owns a whole life policy with a face amount of 200,000 and an accumulated cash value of 40,000. If the insured dies, how much will the beneficiary receive under a standard whole life contract?

  1. 240,000
  2. 40,000
  3. 160,000
  4. 200,000 Correct answer.

Explanation

A standard whole life policy pays the full face amount to the beneficiary on the insured's death, regardless of the cash value accumulated. The cash value is not subtracted because the insurer keeps the reserve rather than paying it separately.

Question 46Life Insurance Products

Which settlement option provides the beneficiary with income for life, with payments guaranteed to continue for a minimum period even if the beneficiary dies early?

  1. Fixed amount
  2. Life income with period certain Correct answer.
  3. Straight life income
  4. Interest only

Explanation

A life income with period certain option pays the beneficiary for life and guarantees that payments continue to a named beneficiary for any remaining part of the certain period. Straight life income stops at the beneficiary's death with no such guarantee.

Question 47Life Insurance Products

A policyowner wants a permanent policy whose premium is lower than whole life but that requires the policyowner to pay additional premiums in later years to keep coverage in force. Which product fits best?

  1. Graded premium whole life Correct answer.
  2. Modified premium whole life
  3. Single premium whole life
  4. Indeterminate premium whole life

Explanation

Graded premium whole life starts with lower premiums that increase in scheduled steps over the early policy years before leveling off, so the policyowner pays more later. Modified premium whole life generally has a low initial premium followed by a single increase to a level amount.

Question 48Life Insurance Products

Which of the following best describes the purpose of a waiver of premium rider?

  1. It waives premiums while the insured is totally disabled. Correct answer.
  2. It refunds premiums paid if the insured becomes disabled.
  3. It pays the death benefit early upon disability.
  4. It increases the death benefit if disability occurs.

Explanation

A waiver of premium rider keeps the policy in force by waiving premium payments when the insured meets the policy's definition of total disability. The death benefit and cash value continue to develop as though premiums were paid.

Question 49Life Insurance Products

An insured with a 150,000 term policy and an accidental death benefit rider dies in an automobile accident. Assuming the claim is approved, what total amount is payable?

  1. 75,000
  2. 150,000
  3. 300,000 Correct answer.
  4. 225,000

Explanation

An accidental death benefit rider typically pays an additional amount equal to the face amount when death results from an accident. The base benefit of 150,000 plus the matching accidental benefit of 150,000 totals 300,000.

Question 50Life Insurance Products

What is the primary purpose of a disability income insurance policy?

  1. To provide a lump sum at retirement
  2. To cover long-term custodial care expenses
  3. To pay medical expenses arising from an illness
  4. To replace a portion of earned income lost due to disability Correct answer.

Explanation

Disability income insurance replaces a percentage of the insured's earned income when a disability prevents the insured from working. It is not designed to reimburse medical costs or fund retirement.