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Question 1 of 10
1. Question
The sales charge is limited by the maximums set forth in the policy contract, typically in the range of –
Correct
The sales charge is limited by the maximums set forth in the policy contract, typically in the range of 3 to 5%.
Incorrect
The sales charge is limited by the maximums set forth in the policy contract, typically in the range of 3 to 5%.
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Question 2 of 10
2. Question
Which of the following(s) is(are) the correct form of settlement options of a variable life insurance policy?
I. Death of the insured
II. Surrender the policy
III. Exchange the policy
IV. Sell the policyCorrect
The policyholder of a variable life insurance policy has a number of settlement options. The most common eventual settlement of a variable life insurance policy is through the death of the insured. In this instance, the death benefits specified by the policy are payable tax-free to the policyholder’s beneficiary(ies). Another alternative for the policy owner is to surrender the policy. With a surrender, the policyholder receives an amount equivalent to the cash value of the policy, adjusted for any enhancements or surrender charges, and forfeits all rights to any future death benefits from the policy. It is important to note that any amount surrendered that exceeds the cost basis, or the amount invested, in the contract will be taxable to the policyholder. Finally, the policyholder can elect to exchange the policy for another insurance policy or for a variable annuity. This can be accomplished, tax- free, under Section 1035 of the Internal Revenue Code, frequently referred to as a “1035 Exchange.”
Incorrect
The policyholder of a variable life insurance policy has a number of settlement options. The most common eventual settlement of a variable life insurance policy is through the death of the insured. In this instance, the death benefits specified by the policy are payable tax-free to the policyholder’s beneficiary(ies). Another alternative for the policy owner is to surrender the policy. With a surrender, the policyholder receives an amount equivalent to the cash value of the policy, adjusted for any enhancements or surrender charges, and forfeits all rights to any future death benefits from the policy. It is important to note that any amount surrendered that exceeds the cost basis, or the amount invested, in the contract will be taxable to the policyholder. Finally, the policyholder can elect to exchange the policy for another insurance policy or for a variable annuity. This can be accomplished, tax- free, under Section 1035 of the Internal Revenue Code, frequently referred to as a “1035 Exchange.”
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Question 3 of 10
3. Question
The cash value of a variable life insurance policy will grow based upon-
I. The performance of the selected subaccount(s)
II. Less any mortality charges
III. Investment management fees
IV. Administrative expensesCorrect
The cash value of the policy will grow based upon the performance of the selected subaccount(s), less any mortality charges, investment management fees, administrative expenses, and cost of insurance charges, which are all typically applied monthly or quarterly.
Incorrect
The cash value of the policy will grow based upon the performance of the selected subaccount(s), less any mortality charges, investment management fees, administrative expenses, and cost of insurance charges, which are all typically applied monthly or quarterly.
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Question 4 of 10
4. Question
Which of the following statement(s) is(are) true about whole life insurance policy?
I. A whole life insurance policy requires a fixed premium payment over a given period of time (i.e., 10 years or through age 90) and in return provides for a level death benefit over the life of the contract.
II. The cash value of the contract increases according to a rate specified in the contract at the time of issue and the insurance company, not the insured, is at risk of investing the assets in such a way as to make a profitable return on the funds.
III. The insured who purchases a whole life policy is truly seeking the protection offered by the death benefit of the policy, as opposed to one who purchases a universal life or variable universal life insurance policy and may be more interested in tax-deferred accumulation of assets.
IV. A whole life insurance purchaser falls in the middle of the insurance risk spectrum, retaining exposure to cash value growth through the crediting rate and keeping premium flexibilityCorrect
A whole life insurance policy requires a fixed premium payment over a given period of time (i.e., 10 years or through age 90) and in return provides for a level death benefit over the life of the contract. The cash value of the contract increases according to a rate specified in the contract at the time of issue and the insurance company, not the insured, is at risk of investing the assets in such a way as to make a profitable return on the funds. The insured who purchases a whole life policy is truly seeking the protection offered by the death benefit of the policy, as opposed to one who purchases a universal life or variable universal life insurance policy and may be more interested in tax-deferred accumulation of assets.
Incorrect
A whole life insurance policy requires a fixed premium payment over a given period of time (i.e., 10 years or through age 90) and in return provides for a level death benefit over the life of the contract. The cash value of the contract increases according to a rate specified in the contract at the time of issue and the insurance company, not the insured, is at risk of investing the assets in such a way as to make a profitable return on the funds. The insured who purchases a whole life policy is truly seeking the protection offered by the death benefit of the policy, as opposed to one who purchases a universal life or variable universal life insurance policy and may be more interested in tax-deferred accumulation of assets.
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Question 5 of 10
5. Question
Which of the following statement(s) is(are) true about a universal life policy?
I. A universal life policy differs from a whole life policy primarily through the flexibility of premium payments.
II. Any amount paid into the universal life policy as premium is credited with interest based upon a rate set by the insurer and also is debited with cost of insurance charges based upon the insured’s demographic information and the amount of net amount at risk.
III. In the universal life policy, the death benefits can be much higher for a given level of premium than in a whole life contract, but the charges taken from policy values will be higher.
IV. A universal life insurance purchaser falls in the middle of the insurance risk spectrum, retaining exposure to cash value growth through the crediting rate and keeping premium flexibility, but also taking on the additional risk that comes with a lower guaranteed performance.Correct
A universal life policy differs from a whole life policy primarily through the flexibility of premium payments. Additionally, any amount paid into the policy as premium is credited with interest based upon a rate set by the insurer and also is debited with cost of insurance charges based upon the insured’s demographic information and the amount of net amount at risk (excess of death benefit over cash value). The death benefits can be much higher for a given level of premium than in a whole life contract, but the charges taken from policy values will be higher. The risk to a policyholder is that rates will decline and additional premium payments will be required to keep the policy from lapsing. A universal life insurance purchaser falls in the middle of the insurance risk spectrum, retaining exposure to cash value growth through the crediting rate and keeping premium flexibility, but also taking on the additional risk that comes with a lower guaranteed performance.
Incorrect
A universal life policy differs from a whole life policy primarily through the flexibility of premium payments. Additionally, any amount paid into the policy as premium is credited with interest based upon a rate set by the insurer and also is debited with cost of insurance charges based upon the insured’s demographic information and the amount of net amount at risk (excess of death benefit over cash value). The death benefits can be much higher for a given level of premium than in a whole life contract, but the charges taken from policy values will be higher. The risk to a policyholder is that rates will decline and additional premium payments will be required to keep the policy from lapsing. A universal life insurance purchaser falls in the middle of the insurance risk spectrum, retaining exposure to cash value growth through the crediting rate and keeping premium flexibility, but also taking on the additional risk that comes with a lower guaranteed performance.
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Question 6 of 10
6. Question
Which of the following statement(s) is(are) true about taking a loan from a life insurance policy?
I. Life insurance policies typically contain provisions that allow the policyholder to take a loan against the policy up to a certain percentage of the policy’s cash value (often 90%).
II. The life insurance policy will specify the amount of the interest that will accrue on the loan balance, which will be due at the next policy anniversary.
III. The policy will specify a rate of interest to be credited on the borrowed cash value that will be some spread below the loan interest rate.
IV. Policy loans are oftentimes an efficient source of borrowing.Correct
Life insurance policies typically contain provisions that allow the policyholder to take a loan against the policy up to a certain percentage of the policy’s cash value (often 90%). The life insurance policy will specify the amount of the interest that will accrue on the loan balance, which will be due at the next policy anniversary.
Additionally, the policy will specify a rate of interest to be credited on the borrowed cash value that will be some spread below the loan interest rate. Thus, policy loans are oftentimes an efficient source of borrowing because of the minimal loan spreads in most products and because the loan is tax-free to the policyholder. If a policy lapses while there is a loan outstanding, then the amount of the loan immediately becomes taxable income to the policyholder. However, if the policyholder dies while a loan is outstanding, the loan is repaid through a portion of the proceeds and the beneficiary simply receives the death benefit net of the outstanding loan. This does not impact the taxability of either the death proceeds or the loaned amount.Incorrect
Life insurance policies typically contain provisions that allow the policyholder to take a loan against the policy up to a certain percentage of the policy’s cash value (often 90%). The life insurance policy will specify the amount of the interest that will accrue on the loan balance, which will be due at the next policy anniversary.
Additionally, the policy will specify a rate of interest to be credited on the borrowed cash value that will be some spread below the loan interest rate. Thus, policy loans are oftentimes an efficient source of borrowing because of the minimal loan spreads in most products and because the loan is tax-free to the policyholder. If a policy lapses while there is a loan outstanding, then the amount of the loan immediately becomes taxable income to the policyholder. However, if the policyholder dies while a loan is outstanding, the loan is repaid through a portion of the proceeds and the beneficiary simply receives the death benefit net of the outstanding loan. This does not impact the taxability of either the death proceeds or the loaned amount. -
Question 7 of 10
7. Question
Which of the following risks will an investor purchasing domestic corporate bonds face?
I. Interest rate risk
II. Reinvestment risk
III. Social and political risk
IV. Currency exchange riskCorrect
An investor purchasing domestic corporate bonds will face a number of risks. Two of the most important of these risks include interest rate risk and reinvestment risk.
Incorrect
An investor purchasing domestic corporate bonds will face a number of risks. Two of the most important of these risks include interest rate risk and reinvestment risk.
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Question 8 of 10
8. Question
Which of the following risks will an investor purchasing an emerging markets equity security?
I. Social and political risk
II. Liquidity risk
III. Business risk
IV. Currency exchange riskCorrect
An investor purchasing an emerging markets equity security will face a number of risks. Two of the most important of these risks include social and political risk and currency exchange risk.
Incorrect
An investor purchasing an emerging markets equity security will face a number of risks. Two of the most important of these risks include social and political risk and currency exchange risk.
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Question 9 of 10
9. Question
Which of the following risks will an investor purchasing a market neutral hedge fund?
I. Liquidity risk
II. Currency exchange risk
III. Market risk
IV. Business riskCorrect
An investor purchasing a market neutral hedge fund will face a number of risks. Two of the most important of these risks include liquidity risk and business risk.
Incorrect
An investor purchasing a market neutral hedge fund will face a number of risks. Two of the most important of these risks include liquidity risk and business risk.
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Question 10 of 10
10. Question
Which of the following risks will an investor purchasing a domestic equity security?
I. Business risk
II. Market risk
III. Terrorist attack
IV. Natural disasterCorrect
An investor purchasing a domestic equity security may be subject to a number of risks, but two of the most important of these risks include business risk and market risk. Additionally, the investor will be subject to risks that are systemic and not specific to the company issuing the equity security. These risks could include a terrorist attack or natural disaster.
Incorrect
An investor purchasing a domestic equity security may be subject to a number of risks, but two of the most important of these risks include business risk and market risk. Additionally, the investor will be subject to risks that are systemic and not specific to the company issuing the equity security. These risks could include a terrorist attack or natural disaster.