Death Benefit

The suicide clause in a life policy typically provides that, if suicide occurs within the first two years:

1. A.The insurer refunds premiums instead of paying the full benefitCorrect - premiums returned during the exclusion period.
2. B.The full benefit is always paidThis ignores the exclusion altogether. Within the period stated in the contract the insurer's obligation is deliberately limited, which is the entire reason the clause exists.
3. C.The benefit doublesDoubling is a feature of accidental death benefits, and a suicide is not an accident. This clause narrows what the insurer pays rather than enlarging it.
4. D.Nothing is ever paidThis overstates the consequence. The insurer is not relieved of everything; the premiums paid are returned, so a payment is made even though the face amount is not.

Why: During the suicide-exclusion period (usually two years), the insurer refunds premiums paid rather than the full death benefit.

Decreasing term insurance is commonly used to:

1. A.Cover a declining debt like a mortgageCorrect - benefit tracks the shrinking loan.
2. B.Fund retirement incomeRetirement income requires an accumulating asset the client can draw from. This product holds no cash value, and its benefit shrinks as time passes rather than growing.
3. C.Insure a growing liabilityThis runs backwards. A benefit that declines is built to track an obligation that declines; a growing liability calls for level or increasing coverage instead.
4. D.Build large cash valueNo term product accumulates cash value. The premium buys pure protection for the stated period, which is exactly why this design is inexpensive.

Why: Decreasing term has a death benefit that declines over time, matching a falling balance such as a mortgage.

A client wanting a death benefit plus market-linked growth with a floor is suited to:

1. A.Accidental death coverageThis pays only when death results from an accident and accumulates nothing along the way. It supplies neither the broad death benefit nor the growth component described.
2. B.A fixed immediate annuityAn immediate annuity does offer a kind of floor, since the payments are fixed, which gives it some appeal. But it begins paying out at once, has no index linkage, and provides no death benefit.
3. C.Level term insuranceLevel term supplies the death benefit and stops there. With no cash value there is nothing to link to an index and no floor to protect.
4. D.Indexed universal lifeCorrect - index-linked with a floor.

Why: Indexed universal life links cash-value growth to an index with a cap and a floor.

In a joint (first-to-die) life insurance policy, the death benefit is paid:

1. A.When the first insured diesCorrect - pays at the first death.
2. B.When the second insured diesThis describes survivorship, or second-to-die, coverage. The stem specifies first-to-die, where the payout is triggered by the earlier of the two deaths.
3. C.Only if both dieThis would force the survivor's family to wait for a second death before any money arrived, defeating the purpose of the design. The benefit turns on the first death, not on both.
4. D.At policy maturity onlyMaturity is a feature of a permanent contract endowing at a stated age, not the trigger here. This design pays upon a death, and specifically upon the first one.

Why: A first-to-die policy pays upon the death of the first of the insureds.