CFP 512 Final Exam UPDATED ACTUAL
Questions and CORRECT Answers
Whole life policy illustrations - CORRECT ANSWER Exhibit all of the following except
anticipated earnings in variable subaccounts.
Dividend option - CORRECT ANSWER Paid-up additions
Extended term policy for Antonio - CORRECT ANSWER Allows the policy to last past a
normal life expectancy, with the full death benefit going to heirs without additional out-of-pocket
expenses if the insured passes away within the extended term period.
Accelerated death benefit rider - CORRECT ANSWER Pays a portion of the death benefit
to an individual deemed terminally ill, usually with a life expectancy of 24 months or less.
Policy illustrations - CORRECT ANSWER Footnotes should be evaluated as an integral
part of the illustration. Guaranteed columns present a worst-case scenario assuming highest
mortality and expense charges along with the highest interest rate.
Deferred annuity - CORRECT ANSWER One in which the first benefit payment is made
one payment interval after the date of purchase.
Flexible premium deferred equity-indexed annuity - CORRECT ANSWER An annuity
allowing variable premium payments and offering a guaranteed minimum return with returns
linked to the stock market.
Dividend option creating income tax liability - CORRECT ANSWER Accumulate at
interest
Considerations for reviewing an existing life insurance policy - CORRECT
ANSWER Client's risk tolerance level, existing policy's relative value, companies' ratings,
possible changes in client's insurability.
,Interest only settlement option - CORRECT ANSWER Pays interest annually on the
outstanding policy loan amount, with the remaining amount going to the beneficiary.
Life insurance needs calculation for college funding - CORRECT
ANSWER Approximately $107,568 to assure adequate funds for college tuition with
specified inflation and after-tax earnings.
Economic assumption for life insurance needs - CORRECT ANSWER The inflation rate
Favorable tax treatment of life insurance contracts - CORRECT ANSWER Death benefits
to beneficiaries are not usually taxable, income taxes on investment gains are tax-deferred,
earnings on cash value are not taxed during accumulation.
Limited-pay whole life insurance policies - CORRECT ANSWER Require shorter
premium payments than traditional whole life policies, provide lifetime coverage, and have cash
value accumulation.
Disadvantages of annual renewable term life insurance - CORRECT ANSWER Does not
develop cash values, becomes uneconomical with age, may lead to declination for renewal,
initially has higher premiums than whole life insurance.
Whole life insurance nonforfeiture options - CORRECT ANSWER Allow surrender for
net cash value, stop premium payments for reduced paid-up policy, or use net cash value for a
paid-up term policy.
Life insurance dividend option - CORRECT ANSWER Cash
Appropriate life insurance policy for lower premiums based on health - CORRECT
ANSWER Reentry term
,Personal risk exposures covered by life insurance - CORRECT ANSWER Include
premature death before debt repayment, children's education payment, spouse outliving annuity,
and long-term care.
Death benefit calculation for Daniele's son - CORRECT ANSWER $725,000
Registered Indexed-Linked Annuities (RILAs) - CORRECT ANSWER Ordered from
most-to-least conservative as EIAs, RILA-floor, and then RILA-buffer.
Variable universal life insurance - CORRECT ANSWER Contains investment options,
adjustable premium payments and death benefits, allows tax-free policy loans and taxable cash
value withdrawals, but may lag returns of universal life policies.
Contestable period - CORRECT ANSWER The period during which the owner is allowed
to pay an overdue premium.
Section 1035 exchange - CORRECT ANSWER Allows tax-free exchange of certain
policies.
Policy Replacement - CORRECT ANSWER Replacing an existing policy with a new one,
considering initial costs and incontestable clause
Fixed Annuity - CORRECT ANSWER An annuity with guaranteed periodic payments of a
set amount
Convertible Feature - CORRECT ANSWER Allows exchange of term life policy for
permanent life insurance without proof of insurability
Indexed Universal Life Insurance - CORRECT ANSWER Policy with investment options,
rate cap, and participation rate
, Variable Universal Life Insurance - CORRECT ANSWER Combines premium flexibility
of universal life with investment aspects of variable life
Policy Loans - CORRECT ANSWER Loans taken against the cash value of a life
insurance policy
Whole Life Insurance - CORRECT ANSWER Provides lifetime coverage with level
premiums and cash value accumulation
Term Life Insurance - CORRECT ANSWER Provides coverage for a specified period with
no cash value accumulation
Annual Renewable Term - CORRECT ANSWER Term insurance with lower initial
premium and increasing cost over time
Front-End Load Costs - CORRECT ANSWER Initial costs of a new policy relative to the
current policy
Nonforfeiture Options - CORRECT ANSWER Choices allowing policyowner to surrender,
stop paying premiums, or exchange a whole life policy
Incontestable Clause - CORRECT ANSWER Clause stating that after a specified time, the
policy cannot be contested
Modified Endowment Contracts (MECs) - CORRECT ANSWER Life insurance contracts
subject to specific tax treatment for policy loans
Cash Value Rider - CORRECT ANSWER An additional feature allowing cash value
accumulation in a life insurance policy
Questions and CORRECT Answers
Whole life policy illustrations - CORRECT ANSWER Exhibit all of the following except
anticipated earnings in variable subaccounts.
Dividend option - CORRECT ANSWER Paid-up additions
Extended term policy for Antonio - CORRECT ANSWER Allows the policy to last past a
normal life expectancy, with the full death benefit going to heirs without additional out-of-pocket
expenses if the insured passes away within the extended term period.
Accelerated death benefit rider - CORRECT ANSWER Pays a portion of the death benefit
to an individual deemed terminally ill, usually with a life expectancy of 24 months or less.
Policy illustrations - CORRECT ANSWER Footnotes should be evaluated as an integral
part of the illustration. Guaranteed columns present a worst-case scenario assuming highest
mortality and expense charges along with the highest interest rate.
Deferred annuity - CORRECT ANSWER One in which the first benefit payment is made
one payment interval after the date of purchase.
Flexible premium deferred equity-indexed annuity - CORRECT ANSWER An annuity
allowing variable premium payments and offering a guaranteed minimum return with returns
linked to the stock market.
Dividend option creating income tax liability - CORRECT ANSWER Accumulate at
interest
Considerations for reviewing an existing life insurance policy - CORRECT
ANSWER Client's risk tolerance level, existing policy's relative value, companies' ratings,
possible changes in client's insurability.
,Interest only settlement option - CORRECT ANSWER Pays interest annually on the
outstanding policy loan amount, with the remaining amount going to the beneficiary.
Life insurance needs calculation for college funding - CORRECT
ANSWER Approximately $107,568 to assure adequate funds for college tuition with
specified inflation and after-tax earnings.
Economic assumption for life insurance needs - CORRECT ANSWER The inflation rate
Favorable tax treatment of life insurance contracts - CORRECT ANSWER Death benefits
to beneficiaries are not usually taxable, income taxes on investment gains are tax-deferred,
earnings on cash value are not taxed during accumulation.
Limited-pay whole life insurance policies - CORRECT ANSWER Require shorter
premium payments than traditional whole life policies, provide lifetime coverage, and have cash
value accumulation.
Disadvantages of annual renewable term life insurance - CORRECT ANSWER Does not
develop cash values, becomes uneconomical with age, may lead to declination for renewal,
initially has higher premiums than whole life insurance.
Whole life insurance nonforfeiture options - CORRECT ANSWER Allow surrender for
net cash value, stop premium payments for reduced paid-up policy, or use net cash value for a
paid-up term policy.
Life insurance dividend option - CORRECT ANSWER Cash
Appropriate life insurance policy for lower premiums based on health - CORRECT
ANSWER Reentry term
,Personal risk exposures covered by life insurance - CORRECT ANSWER Include
premature death before debt repayment, children's education payment, spouse outliving annuity,
and long-term care.
Death benefit calculation for Daniele's son - CORRECT ANSWER $725,000
Registered Indexed-Linked Annuities (RILAs) - CORRECT ANSWER Ordered from
most-to-least conservative as EIAs, RILA-floor, and then RILA-buffer.
Variable universal life insurance - CORRECT ANSWER Contains investment options,
adjustable premium payments and death benefits, allows tax-free policy loans and taxable cash
value withdrawals, but may lag returns of universal life policies.
Contestable period - CORRECT ANSWER The period during which the owner is allowed
to pay an overdue premium.
Section 1035 exchange - CORRECT ANSWER Allows tax-free exchange of certain
policies.
Policy Replacement - CORRECT ANSWER Replacing an existing policy with a new one,
considering initial costs and incontestable clause
Fixed Annuity - CORRECT ANSWER An annuity with guaranteed periodic payments of a
set amount
Convertible Feature - CORRECT ANSWER Allows exchange of term life policy for
permanent life insurance without proof of insurability
Indexed Universal Life Insurance - CORRECT ANSWER Policy with investment options,
rate cap, and participation rate
, Variable Universal Life Insurance - CORRECT ANSWER Combines premium flexibility
of universal life with investment aspects of variable life
Policy Loans - CORRECT ANSWER Loans taken against the cash value of a life
insurance policy
Whole Life Insurance - CORRECT ANSWER Provides lifetime coverage with level
premiums and cash value accumulation
Term Life Insurance - CORRECT ANSWER Provides coverage for a specified period with
no cash value accumulation
Annual Renewable Term - CORRECT ANSWER Term insurance with lower initial
premium and increasing cost over time
Front-End Load Costs - CORRECT ANSWER Initial costs of a new policy relative to the
current policy
Nonforfeiture Options - CORRECT ANSWER Choices allowing policyowner to surrender,
stop paying premiums, or exchange a whole life policy
Incontestable Clause - CORRECT ANSWER Clause stating that after a specified time, the
policy cannot be contested
Modified Endowment Contracts (MECs) - CORRECT ANSWER Life insurance contracts
subject to specific tax treatment for policy loans
Cash Value Rider - CORRECT ANSWER An additional feature allowing cash value
accumulation in a life insurance policy
