Florida Life & Health Insurance Exam — All Questions
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A policyowner buys a term policy in which the death benefit steadily declines over the years while the premium stays level. This is commonly used to cover a mortgage. What is it called?
- a.Increasing term
- b.Decreasing term✓
- c.Level term
- d.Return-of-premium term
Decreasing term has a death benefit that reduces over the policy period while the premium remains level, making it a natural fit for a declining debt such as a mortgage. Increasing term does the opposite, with a benefit that grows over time. Level term keeps both the face amount and premium constant. Return-of-premium term is level term that refunds premiums if the insured survives the term; it does not have a declining benefit.
A limited-pay whole life policy differs from ordinary (straight) whole life in that limited-pay:
- a.Provides coverage only for a set number of years
- b.Has no cash value
- c.Requires premiums to be paid only for a specified, shorter period while coverage lasts for life✓
- d.Can only be purchased by people over age 65
Limited-pay whole life is permanent insurance in which premiums are paid over a shortened, defined period (for example, 20-pay life or paid-up at 65), after which the policy is fully paid up and coverage continues for life. Coverage is still lifetime, so the first option is wrong. Like all whole life, it builds cash value, so the second is wrong. There is no age-65 purchase restriction, so the fourth is wrong. The trade-off is higher premiums during the payment period in exchange for finishing payments sooner.
In a universal life policy, choosing the 'level death benefit' option (Option A) rather than the 'increasing death benefit' option (Option B) generally results in:
- a.A death benefit that stays roughly level, equal to the policy's face amount✓
- b.A death benefit equal to the face amount plus the accumulated cash value
- c.No cash value accumulation at all
- d.Premiums that the insurer can raise without limit each year
Under Option A (level), the total death benefit stays approximately equal to the face amount; as the cash value grows, the pure insurance (net amount at risk) shrinks so the total stays level. Option B (increasing) pays the face amount plus the accumulated cash value, which is what the second choice describes. Universal life does accumulate cash value under either option, so the third is wrong. And while universal life premiums are flexible, the insurer cannot raise a policyowner's required premium without limit; cost-of-insurance charges are capped by guarantees in the contract.
In a variable life insurance policy, the cash value and (in part) the death benefit can rise or fall based on the performance of separate account investments. Because of this investment risk, the producer selling it generally must:
- a.Only hold a life insurance license
- b.Guarantee the policyowner a minimum rate of return of 4%
- c.Invest all premiums in the insurer's general account
- d.Also be registered to sell securities✓
Variable life places cash value in separate accounts (sub-accounts) whose performance the policyowner selects and bears the investment risk for; because these are securities, the producer must hold both a life insurance license and a securities registration (FINRA). A life-only license is therefore not enough. The insurer does not guarantee the account's return, so the second option is wrong. The premiums go into separate accounts, not the insurer's general account, so the third is wrong (that describes traditional whole life).