1. Who would NOT be covered under an additional insured rider attached to a life insurance policy?
A. A spouse.
B. Employees. Correct
C. Minor children.
D. Dependent parents.
Explanation
An additional insured rider extends coverage to other parties with an insurable interest in the insured's life, such as a spouse, children, or dependent parents. Employees do not typically have an insurable interest in their employer's life in this context, and they would be covered under other types of policies like key person or group life insurance, not an additional insured rider on an individual policy.
2. A policyowner may choose to have his/her life insurance policy dividends do all of the following EXCEPT
A. reduce the policy premium.
B. accumulate without interest. Correct
C. be paid to the policyowner in cash.
D. purchase additional insurance protection.
Explanation
Life insurance policy dividends are considered a return of premium and can be used to reduce premiums, taken in cash, used to buy additional paid-up insurance, or left to accumulate with interest. They do not accumulate without interest; the interest-earning option is standard.
3. Which of the following products is designed to pay benefits that can provide a stream of retirement income to the purchaser?
A. annuity contract Correct
B. tax-deferred growth
C. variable life insurance
D. modified endowment contract
Explanation
An annuity contract is an insurance product specifically designed to convert a lump sum into a guaranteed stream of income, typically for retirement. The other options are features (tax-deferred growth) or types of life insurance policies, which are primarily designed for death benefits, not retirement income.
4. A policyowner wants to name their 10-year-old child as the beneficiary of their life insurance policy. What is the most effective way to ensure the proceeds are managed responsibly until the child reaches adulthood?
A. Name the estate as the beneficiary.
B. Name the child directly as the beneficiary.
C. Rely on the insurer to hold the proceeds.
D. Establish a trust and name it as the beneficiary. Correct
Explanation
Naming a minor directly can lead to court-supervised guardianship of the funds, which is cumbersome. Naming the estate involves probate. While insurers can hold proceeds, a trust offers the most control, flexibility, and responsibility, allowing the policyowner to specify exactly how and when the funds are managed and distributed for the child's benefit.
5. A life insurance policy's double indemnity provision would apply when the policyowner's death occurs due to
A. war.
B. illness.
C. an accident. Correct
D. natural causes.
Explanation
A double indemnity provision is an accidental death benefit rider. It pays an additional benefit (e.g., double the face amount) if the insured's death is the direct result of an accident. It explicitly excludes death from causes like war, illness, or natural causes.