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AAMS EXAM 2024 QUESTIONS WITH COMPLETE SOLUTIONS!!
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AAMS EXAM 2024 QUESTIONS WITH COMPLETE SOLUTIONS!!
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AAMS EXAM 2024 QUESTIONS WITH COMPLETE SOLUTIONS!!4 main purposes for life insurance Answer- Family needs, creating retirement nest egg, insurance for estate planning, serving small business needs
Insurance needs calculation Answer- cash needs upon death - liquid assets
two commonly overlooked risks (insurance) Answer- disability (disability insurance) and LT care (long term care insurance)
renewable term life Answer- policy ensures policy owner of the ability to renew at same level of coverage as each policy ends. Cost of renewing is higher the start of each new year (eg one or 5 years)
decreasing term insurance Answer- offers level premiums but declining face amounts of coverage from year to year. Mortgage insurance is a good example
suitable candidates for term insurance Answer- clients working for large organizations, self employed individuals, clients currently unemployed and homemakers
Whole life insurance Answer- whole life has a stated faced amount, a lifetime term (usually 100) and often a level premium pat of which pays for pure insurance and expenses and another part of which adds to policy reserve thus contributing to cash value. Policy normally is structure so that the guaranteed cash value will be the policy face amount by time insured is 100. sometimes called ordinary lifer straight life
limited payment whole life Answer- popular variation of whole life. remiss are paid only until specific time usually 65. After which, no more premiums are due and policy
remains effective for life
Variable life Answer- like whole life, provides face amount of insurance paid in the event of death and a savings or investment element Portion of each premium is used
to purchase shares of investments. growth of polices cash value is a function fo sub accounts . Variable life combines traditional protection and savings with growth potential. premiums are fixed but face amounts vary with performance
Universal life Answer- Policy face values, cash values and premiums are flexible. UL
combines the characteristics of term life and a side fund that is responsive to changing interest rates. Premium dollars pay for insurance protection and expense of the policy, and remainder if for cash value. Cash value is credited with interest t companies specified rate, which fluctuates over time. Policy owner can contribute more than minimum premiums due. Benefits can increase or decrease at option of policy owner
Suitable candidate for variable life insurance Answer- client who needs or prefers discipline of regular, periodic investments with likelihood of growing insurance needs,
tax sensitive investors who have ongoing need for insurance, clients with estate planning concerns and many businessees
5 principles of income tax to any life insurance policy with cash vaue Answer- increases in cash value generally are tax deferred, if cash if surrender the amount of cash that exceeds net premiums is taxed at ordinary income, policies of some firms pay dividends and these are not taxable since they are a credit to living policy owners for excess premiums collected however if dividends accumulate at interest then the interest is currently taxable, loans taken against cash value are not taxed as
income, while death generally passes to genes on tax free basis any subsequent earnings on death are subject to income tax
explain loan provisions option on cash value policies Answer- policy owners can borrow an amount equal to some or all accumulated cash value. Typically, loans can
be made to policy owners up to current surrender. Interest charges are not tax deductible for individuals
installments of fixed amount (insurance) Answer- owner or bene might want specific, fixed payment each month until proceeds are exhausted. The amount of months is a function fo payments and face value of policy, and the interest paid by the insurance company
installments over a fixed period (insurance) Answer- this option pays out everything, including all credited interest, over a fixed period of time the size of each monthly payment is a function flume sum interest credited on remaining balance and number of payments
straight life income insurance Answer- insurance company considers age and gender of bene and commits to a specified level payment as long at that person lives. Once that bene dies, all future payments stop. An unhealthy bene would rarely choose this option
life income with period certain insurance Answer- lifetime income is guaranteed to bene, but a minimum number of payments is guranteeed
life income with refund Answer- income I guaranteed for life of bene, if that individual
dies before proceeds repaid the remaining are refunded to contingency bene as continued payments or lump um
joint and survivor income Answer- insurance company sends regular checks for as long as either joint bene if living Magnitude of payment under one of the life income options is affecter by the conditions attached insurance company will pay less per month on a life income settlement option if it obligated to continue full payments for two lives instead of one
interest only insurance Answer- bene chooses to preserve principal amount of insurance proceeds and simply receive interest. the interest will be currently taxable most insurance companies limit number of months proceeds may remain under this option
fixed immediate annuity Answer- fixed, periodic payment is paid by contract to annuitant. a fixed sum for each month for rest of annuitants life is called a life annuity. all settlement options are available with this annuity contract. main risk is selecting option that inflation will erode the purchasing power of stream of payments
variable immediate annuity Answer- a fixed number of annuity units are redeemed to
make annuity payments since the value of the units change with underlying security in separate accounts chosen by annuity owner the dollar amount of payments can fluctuate. annuitant assumes investment risk
deferred annuity contract function Answer- accumulates financial value over period of time (accumulation phase, with actual payout deferred until specific date) annuitization phase
difference between fixed and variable annuity Answer- fixed annuity pays fixed return
for certain period. Variable return is based on investment performance. Fixed annuity
premiums are deposited to general account where variable premiums go into separate account
difference between accumulation unit and annuity unit Answer- accumulation units are bought during accumulation period, at annuitization accumulation are converted to annuity units on which annuity payments are based
contingent deferred sales charge (surrender charge) Answer- sales charge assessed
if annuity owner surrenders contact within certain number of years of purchase. it is assessed on declining basis, usually 7% if surrendered within first year, then 6 % and so on
administrative service chrge Answer- usually a percentage of the amount invested in separate account funds, covers cost of transiting money among annuity various accounts, cost of issuing periodic reports and record keeping
maintenance charge Answer- annual, fixed charge for issuing and maintaining annuity
morality and expense risk charge Answer- morality risk charge is to cover the risk that the annuity owner will die prior to annuitizatin, triggering insurance companies contractual obligation to pay a death benefit to bene, which may be more than annuity account value. Morality risk charge also compensates the insurer for assuming risk that annuitant will live longer than expected.l The expense risk charge compensates insurance for assuming risk that actual expenses in administering
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