New Hampshire Life & Health Insurance Exam — All Questions

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.Decreasing term✓
• b.Level term
• c.Increasing 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.Has no cash value
• b.Can only be purchased by people over age 65
• c.Requires premiums to be paid only for a specified, shorter period while coverage lasts for life✓
• d.Provides coverage only for a set number of years

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.No cash value accumulation at all
• b.A death benefit that stays roughly level, equal to the policy's face amount✓
• c.A death benefit equal to the face amount plus the accumulated cash value
• 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.Guarantee the policyowner a minimum rate of return of 4%
• b.Only hold a life insurance license
• c.Also be registered to sell securities✓
• d.Invest all premiums in the insurer's general account

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).

A survivorship (second-to-die) life insurance policy pays the death benefit:

• a.When the first of the two insureds dies
• b.To whichever insured is still living at policy maturity
• c.When the second of the two insureds dies✓
• d.In equal monthly installments over both insureds' lives

A survivorship, or second-to-die, policy covers two lives and pays a single death benefit only after both insureds have died, which is why it is commonly used to provide estate liquidity for heirs. Paying at the first death describes a joint (first-to-die) policy. Paying a living insured at maturity describes an endowment feature. Monthly installments over both lives describes a settlement or annuity arrangement. The delayed, second-death payout is what makes survivorship policies relatively economical for estate planning.

A joint life (first-to-die) policy covering two people is designed to pay:

• a.The benefit only at the death of the second insured
• b.A benefit only if both insureds die at the same time
• c.Two separate full death benefits, one for each insured under the single contract
• d.A single death benefit when the first of the insureds dies✓

A joint life (first-to-die) policy insures two lives under one contract and pays a single death benefit at the first death, often used by business partners or spouses who need funds when either one dies. Paying at the second death describes a survivorship policy. It does not pay two full benefits, and it does not require simultaneous deaths. The first-to-die structure delivers money at the moment the first insured passes, which is when the covered need typically arises.

A modified whole life policy is characterized by:

• a.Lower premiums during the first few years and higher, level premiums thereafter✓
• b.No premiums due at all after the very first payment
• c.A single lump-sum premium that fully funds the policy, which instead describes single-premium whole life
• d.Premiums that decrease a little every single year

Modified whole life charges reduced premiums in the initial years (helpful for younger buyers with limited budgets) and then a higher, level premium for the remainder of the policy. A single lump-sum payment describes single-premium whole life. Premiums that decline annually are not the modified design. And coverage is not fully paid after one payment. The appeal of modified whole life is easing the early cost of permanent coverage while still providing lifetime protection.

Single-premium whole life insurance is funded by:

• a.One lump-sum payment that fully pays up the policy at issue✓
• b.Premiums that are waived after the first policy year
• c.A benefit amount that declines steadily over the years
• d.Level monthly premiums paid for the insured's lifetime, as in ordinary whole life

Single-premium whole life is fully paid up with one lump-sum payment at issue, immediately creating substantial cash value and lifetime coverage with no further premiums due. Level lifetime premiums describe ordinary whole life. A declining benefit describes decreasing term, not whole life. And there is no waiver of premium involved, since only one premium is ever paid. Because it is funded so heavily and quickly, single-premium whole life is usually classified as a modified endowment contract for tax purposes.

An adjustable life policy is distinctive because it allows the policyowner to:

• a.Invest the cash value directly in stock market sub-accounts, which is a feature of variable life rather than adjustable life coverage
• b.Receive a guaranteed annual dividend regardless of results
• c.Reconfigure the coverage between term and permanent and change the premium and face amount as needs change✓
• d.Skip all future underwriting for any increase in coverage

Adjustable life lets the owner change the policy's structure over time, shifting the balance between term and permanent coverage and altering the premium and face amount as circumstances change, all within a single contract. Investing cash value in sub-accounts describes variable life. Dividends are never guaranteed. And significant face-amount increases still generally require evidence of insurability. Adjustability, without switching policies, is what sets this product apart.

Current assumption (interest-sensitive) whole life differs from traditional whole life mainly in that its:

• a.Coverage lasts only for a ten-year period
• b.Premiums can never be changed for any reason
• c.Death benefit is guaranteed to increase every single year for as long as the policy remains in force and premiums are paid
• d.Cash value is credited a current interest rate that can move with the insurer's experience✓

Interest-sensitive (current assumption) whole life credits the cash value at a current rate tied to the insurer's actual investment results, subject to a guaranteed minimum, so the cash value can grow faster when rates are high. Its death benefit does not automatically increase each year. It is still permanent coverage, not a ten-year term. And while it has guaranteed elements, the crediting rate and sometimes the premium can be adjusted, which is the very feature that distinguishes it from fixed traditional whole life.

A 'jumping juvenile' policy is a form of juvenile life insurance in which the face amount:

• a.Automatically increases, often fivefold, when the child reaches a stated age, without a premium increase✓
• b.Decreases as the insured child gets older
• c.Is available only to adults over age twenty-one, even though this coverage is specifically written on the life of a young child
• d.Is payable directly to the child's school

A jumping juvenile policy is issued on a child with a small face amount that automatically 'jumps' to a larger amount (commonly five times the original) at a specified age, such as twenty-one, with no increase in premium and no new evidence of insurability. It does not decrease with age, is not paid to a school, and is specifically designed for children rather than adults. The automatic step-up in coverage is the defining feature.

Credit life insurance is generally structured as:

• a.A deferred annuity purchased by the lender
• b.Decreasing term that pays off the remaining loan balance if the borrower dies✓
• c.A permanent whole life policy owned by the borrower's estate for long-term investment
• d.A participating whole life policy sold to lenders as an investment vehicle

Credit life insurance is typically decreasing term coverage tied to a loan; as the loan balance falls, so does the coverage, and if the borrower dies the remaining balance is paid to the creditor. It is not a permanent investment policy for the estate, not a participating whole life investment, and not an annuity. Its whole purpose is to retire a specific debt on the borrower's death, which is why a declining term benefit matched to the loan is used.

Return-of-premium (ROP) term insurance is distinguished from ordinary term because it:

• a.Provides no death benefit during the level term period
• b.Pays double the face amount whenever the insured dies
• c.Refunds the premiums paid if the insured survives the level term period✓
• d.Builds guaranteed cash value in the same way whole life does throughout the entire level term period

Return-of-premium term is level term that refunds the premiums paid if the insured is still living at the end of the term; in exchange, it charges a higher premium than plain term. It does not double the death benefit, does not build cash value like whole life (its refund is a contractual feature, not accumulating cash value), and it does provide a death benefit throughout the term. The survival refund is the single feature that sets ROP term apart.

Which form of term insurance keeps both the premium and the death benefit constant for the entire term?

• a.Level term✓
• b.Increasing term
• c.Decreasing term
• d.Annual renewable term

Level term holds both the face amount and the premium steady for the full term, which is why it is the most common form for temporary needs. Decreasing term keeps a level premium but a shrinking benefit. Increasing term has a benefit that grows. Annual renewable term keeps a level benefit but a premium that rises each year. Only level term locks in both values for the whole term.

Decreasing term insurance is most commonly purchased to:

• a.Provide a benefit that grows to keep pace with inflation
• b.Fund a child's college education with a single lump sum
• c.Cover a debt that reduces over time, such as a mortgage✓
• d.Build a source of retirement savings over time

Decreasing term has a death benefit that declines over the policy period, which pairs naturally with an amortizing debt like a mortgage whose balance also falls. It builds no savings, so it is not a retirement vehicle. A benefit that grows with inflation would be increasing term. And a lump sum for education would be better matched by level term or a savings vehicle. Matching a shrinking benefit to a shrinking obligation is the classic use of decreasing term.

Increasing term insurance provides:

• a.A death benefit that stays exactly level for the whole term
• b.No death benefit unless the insured survives the entire term, which reverses how term insurance actually pays
• c.A death benefit that grows over the term, with a premium that usually rises as well✓
• d.A death benefit that declines steadily throughout the term

Increasing term features a death benefit that rises over the policy period, often used to offset inflation or as part of a return-of-premium design, and the premium generally increases along with the growing benefit. A level benefit describes level term, and a declining benefit describes decreasing term. Term insurance pays on death during the term, not on survival. The rising benefit is what defines increasing term.

Under Option B (the increasing death benefit option) of a universal life policy, the total death benefit is equal to:

• a.The face amount reduced by the cash value as it steadily accumulates
• b.The face amount plus the accumulated cash value✓
• c.The accumulated cash value alone
• d.A level face amount that never changes

Option B pays the policy's face amount plus the accumulated cash value, so the total death benefit grows as the cash value builds, at a higher cost than the level option. Subtracting cash value from the face amount is not how any standard option works. The cash value alone is not the death benefit. A level face amount that never changes describes Option A. Option B's defining feature is that the death benefit increases with the cash value.

In a variable life insurance policy, the cash value is held in:

• a.Separate account sub-accounts selected by the policyowner✓
• b.The insurer's general account, earning a fixed guaranteed rate of interest
• c.A government-managed trust fund
• d.An FDIC-insured bank savings account owned by the insured

Variable life places the cash value in separate account sub-accounts (similar to mutual funds) that the policyowner selects, so the owner bears the investment risk and the cash value rises and falls with market performance. The general account with a guaranteed rate describes traditional whole life. It is not a bank savings account, and it is not a government trust fund. Because the money is invested in securities, variable life requires a securities registration to sell.

Variable universal life (VUL) insurance combines:

• a.Level term insurance with a fixed deferred annuity
• b.Whole life insurance with an individual disability income policy, a combination that is not what variable universal life provides
• c.The premium and death-benefit flexibility of universal life with the investment choice of variable life✓
• d.A fixed annuity with a long-term care benefit

VUL merges two feature sets: the flexible premiums and adjustable death benefit of universal life, and the policyowner-directed separate account investments of variable life. It is not a blend of term and an annuity, not whole life plus disability income, and not a fixed annuity with long-term care. Because it contains separate account investing, VUL is regulated as a security and requires the producer to hold both an insurance license and a securities registration.

Before completing the sale of a variable life insurance policy, the producer is required to deliver to the applicant a:

• a.Surety bond
• b.Prospectus✓
• c.Certificate of deposit
• d.Fidelity bond

Because variable life is a security as well as an insurance product, the producer must deliver a prospectus, which discloses the investment options, fees, and risks, before or at the time of sale. A certificate of deposit is a bank product, not a disclosure document. A surety bond and a fidelity bond are types of bonds that guarantee performance or protect against dishonesty, not sales disclosures. The prospectus requirement reflects securities regulation of variable products.

A family income policy combines a whole life base with:

• a.An annuity that automatically begins at age sixty-five, which is not the component a family income policy adds
• b.Decreasing term that pays the family a monthly income if the insured dies within the term✓
• c.A long-term care benefit for the insured's parents
• d.A health savings account for the children

A family income policy adds a decreasing term rider to a whole life base so that, if the insured dies during the income period, the family receives monthly income for the remainder of that period, followed by the face amount of the whole life. It is not built with an annuity that starts at sixty-five, a long-term care benefit, or a health savings account. The monthly income from a decreasing term component is the defining structure of a family income policy.

A juvenile life policy often includes a payor benefit rider, which:

• a.Waives the premiums if the paying adult dies or becomes disabled before the child reaches a specified age✓
• b.Converts the policy to term insurance at age eighteen, automatically ending the permanent coverage the parents originally purchased
• c.Automatically doubles the policy's face amount
• d.Pays the insured child a monthly salary

A payor benefit rider on a child's policy waives future premiums if the adult premium-payer dies or becomes totally disabled before the child reaches a stated age (often twenty-one), keeping the coverage in force. It does not pay the child a salary, does not double the face amount, and does not force a conversion to term. The rider protects the child's coverage against the loss of the person who pays for it.

A guaranteed-issue final expense policy that pays only a portion of the face amount if death occurs within the first two years is using a:

• a.Accidental death rider
• b.Level benefit structure
• c.Graded death benefit✓
• d.Return-of-premium feature

A graded death benefit limits the amount payable during the first policy years (often paying only a return of premiums plus interest, or a percentage of the face amount) before the full benefit applies, which lets the insurer offer coverage with little or no underwriting. A return-of-premium feature refunds premiums on survival of a term. A level benefit pays the full amount from day one. An accidental death rider adds benefit only for accidental death. The graded structure manages the risk of guaranteed-issue coverage.

An indexed universal life (IUL) policy credits interest to its cash value based on:

• a.A single guaranteed fixed rate set at issue and never changed
• b.The performance of a market index, subject to a stated cap and a guaranteed floor✓
• c.The insurer's annual dividend scale for participating policies, a mechanism used by participating whole life instead
• d.The prime lending rate published by banks

An indexed universal life policy ties its interest crediting to the movement of a market index (such as the S&P 500), but it applies a cap that limits the upside and a floor (often zero percent) that protects against index losses, so the cash value can grow with the market while being shielded from negative returns. It is not a single fixed rate, not the dividend scale of a participating policy, and not simply the prime rate. The index-linked crediting with a cap and floor is the essence of IUL.

When a term policy is converted to permanent coverage using the 'attained age' method, the new premium is based on:

• a.The insured's current age at the time of conversion✓
• b.A single flat rate that is the same for every insured
• c.The age of the policy's named beneficiary
• d.The insured's age when the term policy was originally issued

Under the attained age method, the permanent policy is priced using the insured's current (attained) age at conversion, which results in a higher premium than the original issue age but usually a lower immediate cost than the alternative. The original issue age method, by contrast, prices the new policy as of when the term coverage began. A single flat rate for everyone and the beneficiary's age are not used to set premiums. The two conversion methods differ in which age determines the new premium.

Modern traditional whole life policies are typically designed to mature (endow) at approximately:

• a.Age one hundred twenty-one✓
• b.Age sixty-five, which is far too early for the policy to endow
• c.Age forty
• d.Age thirty

Modern whole life policies are generally designed so the cash value equals the face amount and the policy endows at about age 121, reflecting today's longer life expectancies; older policies commonly used age 100. Ages such as sixty-five, forty, or thirty are far too early for whole life to mature and would not allow the cash value to grow into the face amount. The maturity (endowment) age matters because that is when the policy pays out even if the insured is still living.