CLU Life Insurance Products Practice Questions

Correct answer: B. Reduced paid-up insurance, a smaller, fully paid-up permanent death benefit that lasts for her entire lifetime with no further premiums due

Reduced paid-up insurance uses the existing cash value as a single net premium to purchase a smaller amount of the same type of permanent (whole life) insurance, fully paid-up and lasting for the insured's entire life with no expiration date and no further premiums. Extended term insurance, by contrast, buys the largest possible face amount but only for a limited, calculated term period — it will eventually expire on a specific date if the insured is still alive.

• A. Extended term insurance provides the largest possible death benefit but only for a limited, calculable period, after which coverage ends, which conflicts with her goal of coverage that never expires on a fixed date.
• B. Reduced paid-up insurance converts the cash value into a smaller amount of permanent, fully paid-up whole life coverage that lasts her entire lifetime with no further premiums, matching both of her stated goals.
• C. A lump-sum cash surrender terminates the death benefit entirely, which is the opposite of what she wants.
• D. An automatic premium loan isn't a nonforfeiture option and doesn't fit a scenario where she has already stopped paying premiums; it only forestalls lapse by borrowing against cash value until that value is exhausted, offering no permanent guarantee.

Correct answer: B. In a VUL, premiums net of charges are directed by the policyowner into separate account subaccounts, and the policyowner bears the investment risk, so cash value (and potentially the death benefit) varies with subaccount performance; a fixed UL instead credits an insurer-declared interest rate subject to a guaranteed minimum

In a VUL, premiums net of charges are invested in separate account subaccounts chosen by the policyowner, who bears the investment risk — cash value and, depending on design, the death benefit fluctuate with subaccount performance. Fixed UL instead credits an insurer-declared interest rate with a guaranteed minimum, and the insurer bears the investment risk. Because VUL involves securities, selling it requires a securities license in addition to a life license.

• A. VUL premiums are directed to subaccounts by the policyowner, not invested in the general account, and a VUL death benefit can vary with subaccount performance, so this description is wrong.
• B. Correct. In VUL, premiums net of charges go into policyowner-directed separate account subaccounts, with the policyowner bearing investment risk (cash value and potentially death benefit vary with performance); fixed UL instead credits an insurer-declared rate subject to a guaranteed minimum.
• C. VUL still assesses a cost of insurance charge just like fixed UL; the presence of investment subaccounts does not eliminate mortality charges.
• D. This is reversed. VUL, because it involves securities-like subaccounts, is the product requiring a securities license to sell, not fixed UL.

Correct answer: A. Option B's NAR stays level at $400,000; Option A's NAR is $305,000 ($400,000 - $95,000) and shrinks further as cash value grows

Under Option B, total death benefit = specified amount + cash value, so the net amount at risk (death benefit minus cash value) stays constant at the specified amount, $400,000, regardless of cash value growth. Under Option A, the level death benefit already includes the cash value, so NAR = death benefit - cash value = $400,000 - $95,000 = $305,000, and that NAR shrinks further every year cash value grows — this is exactly why Option A cost-of-insurance charges tend to decline over time while Option B's stay level (all else equal).

• A. Under Option B the death benefit rises dollar-for-dollar with cash value, so NAR (specified amount) stays level at $400,000; under Option A the level $400,000 death benefit already includes the cash value, so NAR is $400,000 minus $95,000 = $305,000 and keeps shrinking as cash value builds.
• B. This swaps the two results: Option B's NAR is the one that stays at $400,000, while Option A's NAR is the $305,000 figure, not the reverse.
• C. The specified amount not changing doesn't mean NAR is identical between the options, because Option B's actual death benefit (specified amount plus cash value) exceeds $400,000 as cash value grows.
• D. This reverses the actual pattern: it's Option A's NAR that decreases as cash value grows, while Option B's NAR remains level at the specified amount.

Correct answer: A. Level premiums for life, a guaranteed level death benefit, and a guaranteed cash value schedule per the policy's nonforfeiture values

Traditional whole life is permanent insurance with level premiums for life, a guaranteed level death benefit, and a guaranteed cash value schedule set out in the policy's nonforfeiture table.

• A. Correct. Traditional ordinary whole life is defined by level lifetime premiums, a level guaranteed death benefit, and a guaranteed cash value/nonforfeiture schedule.
• B. Increasing premiums based on attained age describes annually renewable (yearly renewable) term insurance, not whole life.
• C. Whole life builds guaranteed cash value from early policy years, well before age 100 (which is typically the maturity/endowment age, not when cash value first appears).
• D. Fluctuating death benefit and cash value tied to separate account performance describes variable life insurance, not traditional whole life.