Life Insurance Policies Free Practice Questions

A GMWB rider guarantees a minimum amount of income that can be withdrawn from the cash value, providing financial security in retirement.

Sales commission structures are not relevant to the policy itself and should not be the primary deciding factor. Focus on objective features and costs.

The death benefit proceeds received by beneficiaries are generally income tax-free, mitigating the financial impact of estate taxes.

Individuals requiring guaranteed income for essential expenses like medical care would benefit less from the market-dependent nature of variable life compared to guaranteed products like annuities.

Variable life offers a cash value and investment options alongside life insurance coverage, unlike term life which solely focuses on death benefit.

Prioritizing high-risk investments to chase returns can expose the entire policy to volatility, potentially hindering death benefit growth and neglecting the core life insurance purpose.

Diversifying across asset classes balances potential growth with risk, considering your personal risk tolerance for optimal investment allocation.

Some common criticisms include complexity, potentially misleading guaranteed death benefit growth projections, and potentially high fees impacting overall value.

Prioritize understanding the risks, fees, and suitability of the policy for your individual needs and financial goals before committing.

While death benefit payout options like lump sum or installments might exist, the specific payout options are typically consistent across most variable life policies.

Inheriting a policy requires continued premium payments to ensure it remains active and provides the intended death benefit.

Automatic rebalancing helps maintain your desired asset allocation, potentially adjusting investments to mitigate downside risk during market downturns.

All options contribute to the tax advantages of variable life: tax-free death benefit, potential tax-free loan access, and tax-deferred growth.

While variable life can offer flexibility for various needs, using it solely as a primary source of retirement income without other reliable sources might expose you to market volatility risks and potential shortfalls.

Variable life insurance policies include an investment component where policyholders can allocate funds to various investment options. The cash value of the policy fluctuates based on the performance of these investments.

In variable life insurance, the policyholder bears the investment risk because the cash value is tied to the performance of the chosen investment options. The insurance company does not guarantee a minimum cash value, and the policyholder’s returns depend on the market performance of the investments.

In variable life insurance, the death benefit is directly linked to the policy’s cash value, which, in turn, is influenced by the performance of the underlying investment options. As the cash value fluctuates, so does the death benefit.

If the investments within a variable life insurance policy perform well, the cash value increases, and consequently, the death benefit also rises. This positive correlation reflects the potential for growth in both components.

Variable life insurance carries the risk of poor investment performance, as the cash value is linked to the market. Unlike some other life insurance types with guaranteed returns, the variable policyholder assumes the risk associated with the chosen investments.

The surrender charge is a fee imposed by the insurance company if the policyholder chooses to surrender or withdraw the cash value before a specified period, typically during the early years of the policy.

It may fluctuate based on market conditions. In variable life insurance, the cash value is subject to the performance of the chosen investments, and as a result, it can fluctuate based on market conditions.

Variable life insurance includes an investment component, allowing policyholders to allocate funds to various investment options, differentiating it from whole life insurance, which typically lacks this investment feature.

The cash value in variable life insurance is influenced by the performance of the underlying investments. In a market downturn, the cash value may decrease, affecting the overall value of the policy.

In variable life insurance, the insurance company does not actively manage the policyholder’s investments. The policyholder has the responsibility of allocating funds among the available investment options.

Allocating more funds to conservative investments. To adopt a more conservative investment strategy within a variable life insurance policy, the policyholder can allocate more funds to conservative investment options, which typically carry lower risk.

The policyholder must make up the difference. If the cash value is insufficient to cover the policy’s expenses, the policyholder is generally required to pay additional premiums to maintain the policy or risk a reduction in the death benefit.

Through market performance of investments. The cash value in a variable life insurance policy grows based on the performance of the underlying investments chosen by the policyholder. There are no guaranteed interest rates, and growth is tied to market conditions.

Period during which surrender charges may apply. The surrender period is a specific duration during which surrendering the policy may result in charges imposed by the insurance company. After this period, surrender charges may no longer apply.

To increase the death benefit in a variable life insurance policy, the policyholder can contribute additional premium payments. This option allows for flexibility in adjusting the coverage amount based on changing needs.

The investment component in variable life insurance exposes policyholders to the risk of market fluctuations, potentially resulting in investment losses. Unlike guaranteed returns, the returns are dependent on the performance of the chosen investments.