9-15
All of the following should be considered when determining whether to replace a life insurance policy EXCEPT: (a) The incontestable clause (b) The cost of "getting out of" your present coverage (c) The grace period (d) Tax consideration
C
Bill purchased a nonparticipating life insurance policy. The cash value was based on the insurer's present mortality, expense, and investment experience. His premium was guaranteed for an initial period, and is "re-determined" after three years. Bill purchased: (a) universal life insurance (b) variable life insurance (c) current assumption whole life insurance (d) indeterminate-premium whole life insurance
C
Insurable interest is required for all of the following reasons EXCEPT: (a) to prevent gambling (b) to measure the extent of loss (c) to reduce premiums (d) to reduce moral hazard
C
Rod committed suicide four months after purchasing a $100,000 life insurance policy. His insurer must pay: (a) $100,000 (b) $100,000 less the premiums paid for the coverage (c) a refund of the premium paid (d) nothing
C
Which of the following provides the most meaningful cost index (dollars and cents per thousand per year) of cash value life insurance? (a) traditional net cost (b) Linton yield (c) surrender cost index (d) human life value
C
Which statement about second-do-die life insurance is true? I. Second-to-die life insurance is often used in estate planning. II. Second-to-die life insurance costs less than purchasing two separate policies. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
Which statement about universal life insurance is true? I. Universal life allows the policy-owner to vary premium payments. II. Universal life allows the policy-owner to earn a market-based rate of return on the cash value. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
Which statement is true with regard to endorsements? I. If there is a conflict between the endorsement and the underlying contract, the endorsement usually takes precedence. II. An endorsement can be used to add coverage for additional perils. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
Which statement is true with regard to the incontestable clause? I. It protects the beneficiary if the insurer attempts to deny payment of the death claim more than two years after the policy was purchased. II. It allows the insurer to deny a death claim during the first two years of coverage on the basis of concealment or misrepresentation by the applicant. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
Which statement(s) is/are true about subrogation? I. Subrogation supports the principle of indemnity. II. Subrogation helps to keep insurance premiums lower. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
In addition to caring for their young children, Lyle and Lynn Thomas also support Lyle's father and Lynn's mother. This type of family is called a: (a) Sandwiched family (b) Blended family (c) Nuclear family (d) Traditional family
A
All of the following are settlement options EXCEPT: (a) Fixed period (b) Interest option (c) Extended term insurance (d) Life income
C
If an individual claims to represent an insurer but gives no proof of an agency relationship, you should not presume the individual is an agent for the insurer.
True
If an insurer voluntarily waives a legal right under the contract, it cannot later deny payment of a claim on the grounds that the legal right was violated.
True
If you interfere with your insurer's subrogation rights against a third party, you jeopardize your right to collect from your insurer.
True
In general, property insurance agents have greater authority to bind the companies they represent than do life insurance agents
True
In property insurance, you can purchase insurance based on the expectation of an insurable interest.
True
Other-insurance provisions are designed to prevent profiting from insurance and violating the principle of indemnity.
True
Preferred risks have a lower-than-average probability of death.
True
Riders and endorsements are used to amend insurance contracts.
True
Settlement options are available on all life insurance contracts.
True
The dependency period refers to the period until the youngest child reaches age 18.
True
The purpose of the suicide clause is to reduce adverse selection against the insurer.
True
Under a primary and excess other-insurance settlement, it is possible that only one insurer will be required to pay when a loss occurs.
True
Under a waiver-of-premium provision, if the insured becomes totally disabled before a stated age, all premiums coming due during the period of disability are waived.
True
Yearly renewable term insurance premiums increase at an increasing rate as the insured grows older.
True
All of the following are characteristics of variable life insurance EXCEPT: (a) the premium payments are flexible (fixed, not flexible w/ variable life insurance) (b) the cash value is not guaranteed (c) the policyowner selects where the savings reserve is invested (d) a minimum death benefit is guaranteed, but the death benefit can be higher if the investment performance is favorable
A
All of the following are exceptions to the principle of indemnity EXCEPT: (a) actual cash value insurance (b) replacement cost insurance (c) life insurance (d) valued policies
A
All of the following conditions must be met to form a binding property insurance contract EXCEPT: (a) contract must be in writing (b) exchange of consideration (c) competent parties (d) offer and acceptance
A
Bert purchased fire insurance on his dwelling. Shortly thereafter, he began to manufacture fireworks in the basement, near the furnace. When a fire severely damaged his home, the insurer denied liability because the policy stated, "we will not be liable for any losses directly attributable to a material increase in hazard." This clause is an example of a(n): (a) condition (b) declaration (c) definition (d) insuring agreement
A
Brad's homeowners insurance excludes losses if there is a "material increase in hazard." After buying the policy, Brad started to make fireworks in the basement. A spark from a wood stove ignited some gunpowder, and the home burned to the ground. Which legal characteristic of insurance contracts may prevent Brad from collecting under his policy? (a) conditional contracts (b) personal contracts (c) contracts of adhesion (d) aleatory contracts
A
Exclusions are used in insurance contracts for all of the following reasons EXCEPT: (a) to provide a physical description of the property to be insured (b) to prevent moral hazard from occurring (c) to eliminate the duplication of coverage (d) to avoid coverage of uninsurable perils
A
Mary is concerned that inflation will reduce the purchasing power of her life insurance proceeds when she dies. To provide protection against this risk, she added a rider to her policy that allows her to purchase one-year term insurance equal to the cumulative change in the consumer price index from the issue date of the policy. This provision is called a: (a) Cost-of-living rider (b) Guaranteed purchase option (c) Waiver-of-premium provision (d) Change of plan provision
A
One other-insurance provision assesses liability of an insurer in relation to the proportion that the company's insurance bears to the total amount of insurance in force. This other-insurance provision is: (a) pro rata liability (b) contribution by equal shares (c) percentage participation (d) primary and excess
A
The part of an insurance contract that can be written on a named-perils or all-risk basis is the: (a) insuring agreement (b) conditions (c) exclusions (d) declarations
A
Which statement is true with regard to the human life value approach? I. It crudely measures the economic value of a human life. II. It considers the specific needs of the family in determining the amount of life insurance to purchase. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
Which statement(s) is(are) true with regard to the surrender cost index? I. It is based upon the assumption that the policy will be surrendered after a specific period. II. It ignores the time value of money. (a) I only (b) II only (c) Both I and II (d) Neither I nor II
A
A written provision that adds to, deletes from or in some other way alters an insurance contract is called a(n): (a) deductible (b) endorsement or rider (c) binder (d) coinsurance provision
B
All of the following are costs associated with premature death of the breadwinner EXCEPT: (a) loss of the family's share of the deceased breadwinner's future income (b) personal maintenance expenses of the deceased (c) a reduction in the family's standard of living (d) additional expenses, such as funeral expenses and uninsured medical bills
B
All of the following are dividend options EXCEPT: (a) Dividend accumulations (b) Fixed-period options (c) Paid-up additions (d) Reduction of premiums
B
An important consideration in determining the amount of life insurance to purchase is the need for income during the one- or two-year period after the death of the breadwinner. The period is called the: (a) Blackout period (b) Readjustment period (c) Accumulation period (d) Dependency period
B
Bill called his insurance agent to check whether his auto insurance would apply to a rental car. The agent said, "No sweat, you're covered." Bill was involved in an accident while driving the rental car. The claim submitted to his insurer was denied. Bill may be able to collect because of the doctrine of: (a) reasonable expectations (b) estoppel (c) waiver (d) conditional contracts
B
If there is ambiguity in an insurance contract, it is construed in favor of the insured because of which legal characteristics of insurance contracts? (a) principle of indemnity (b) contract of adhesion (c) aleatory contracts (d) doctrine of concealment
B
Insurance contracts have which of the following legal characteristics: I. They are bilateral contracts. II. They are aleatory contracts. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
Ned purchased a life insurance policy on his own life. He was concerned that he might not be able to pay premiums if he became disabled. He added a provision to his policy that relieved him from paying premiums if he becomes totally disabled before a specified age. This provisions is called a(n): (a) guaranteed purchase option (b) waiver-of-premium provision (c) automatic premium loan provision (d) reinstatement provision
B
Ted owns an auto parts store. In exchange for a premium discount from his insurer, he promised that no cash would be kept on the premises overnight and that two guard dogs would patrol the grounds at night. Ted's promises were incorporated into the insurance contract. His promises are: (a) representations (b) warranties (c) waivers (d) expressed powers
B
The difference between the face amount of a life insurance policy and the legal reserve of the policy is called: (a) The human life value (b) The net amount risk (c) The level premium (d) The cash value
B
The gross estate can be reduced by the value of property passed to a surviving spouse. This reduction is known as (a) The unified tax credit (b) The marital deduction (c) The absolute assignment (d) The homestead exemption
B
To collect for a covered loss under a property insurance contract, when must an insurable interest exist? I. At the inception of the contract II. At the time of the loss (a) I only (b) II only (c) both I and II (d) neither I nor II
B
Tom was disabled and unable to work. Before he was able to collect benefits under his disability income insurance policy, he was required to serve a two-week period during which no benefits were paid. This two-week period is called a(n): (a) franchise deductible (b) elimination (waiting) period (c) corridor deductible (d) percentage participation clause
B
Tom was just diagnosed with an inoperable brain tumor. According to his doctor, Tom has less than three months to live. A life insurance premium notice just arrived. Tom purchased this whole life policy over 40 years ago. Tom does not want to pay the premium. Which nonforfeiture option should Tom exercise? (a) reduced paid-up insurance (b) extended term insurance (c) cash value (d) life income
B
Which of the following $100,000 yearly renewable term(YRT) policies would require the LOWEST premium? (a) YRT purchased by a man age 30 (b) YRT purchased by a woman age 30 (c) YRT purchased by a man age 60 (d) YRT purchased by a woman age 60
B
Which statement about the principle of indemnity is correct? I. The principle of indemnity reduces moral hazard. II. Replacement cost insurance supports the principle of indemnity (a) I only (b) II only (c) both I and II (d) neither I nor II
B
Which statement is true with regard to deductibles? I. Property insurance premiums are unrelated to deductibles. II. Deductibles help to eliminate small claims. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
Which statement is true with regard to yearly renewable term insurance? (a) Premiums remain level from year to year (b) Premiums increase at an increase rate from year to year (c) The insured must demonstrate insurability to renew the coverage (d) Yearly renewable term premiums are unrelated to the probability of death
B
Which statement(s) is (are) true with regard to the Linton yield technique? I. It determines a cost per thousand dollars of life insurance per year. II. It requires dividing the premium into two components: the cost of insurance protection and savings. (a) I only (b) II only (c) Both I and II (d) Neither I nor II
B
Barb purchased a whole life policy on her son, Tom, twelve years ago. She named herself the beneficiary. Tom, now age 19, would like to take out a policy loan to help fund the purchase of a sports car. Barb does not believe that Tom has the right to take out a policy loan. Which contractual provision supports Barb's position? (a) the assignment clause (b) the incontestable clause (c) the reinstatement clause (d) the ownership clause
D
Carson Company purchased a commercial property insurance policy. Under one provision of the policy, Carson would pay all covered losses until the sum paid reached $50,000; then the insurer would cover all future losses. This provision is a(n): (a) corridor deductible (b) percentage participation clause (c) coinsurance clause (d) aggregate deductible
D
Christine has a paid-up $50,000 whole life policy. She would like to transfer all ownership right to the policy to her favorite charity. Christine can accomplish the transfer through a(n): (a) Change of plan provision (b) Guarantee purchase option (c) Reinstatement provision (d) Absolute assignment
D
Kate completed a life insurance application. Her agent forwarded the application to the insurer. The insurer issued the policy. The agent delivered the policy to Kate. When Kate received the policy, she paid the premium. When was the offer accepted in this case? (a) when Kate completed the application (b) when the agent forwarded the application to the insurer (c) when the insurer issued the policy (d) when Kate received the policy and paid the first premium
D
One form of life insurance has a reduced premium for the first three to five years, with the premium increased after the initial period. This type of whole life insurance is called: (a) Variable life insurance (b) Universal life insurance (c) Current assumption whole life insurance (d) Modified life insurance
D
Sandy purchased renter's insurance that covered personal property on an actual cash value basis. She paid $2000 for a living room set three years ago. When the living room set was destroyed by fire, it was 20 percent depreciated. A comparable new living room set will cost $2400. How much will Sandy collect from her insurer? (a) $2000 (b) $2400 (c) $1600 (d) $1920
D
The best life insurance for you to purchase is: (a) The policy with the highest surrender cost index (b) The policy that pays the highest dividends (c) The policy that has the highest Linton yield (d) The policy that best fits your needs
D
When Ellen completed her life insurance application, she answered "No" to the question, "Have you ever had hepatitis?" She had hepatitis two years ago. If Ellen dies shortly after the policy is issued, the insurer may be able to deny the claim because of the doctrine of: (a) concealment (b) insurable interest (c) warranty (d) misrepresentation
D
Which $50,000 life insurance policy, if purchased at age 32, would have the highest cash value when the insured was 50 years old? (a) whole life paid-up at age 65 (b) 10-year level term insurance (c) continuous premium whole life insurance (d) 10-payment whole life insurance
D
Which statement is true about the conditions section of an insurance policy? I. It contains a description of the property or life that is insured. (explains declarations) II. It explains what types of perils, losses, and property are not covered under the contract. (explains exclusions) (a) I only (b) II only (c) both I and II (d) neither I nor II
D
Which statement is true with regard to the options available in life insurance contracts? I. All life insurance policies provide dividend options. II. All life insurance policies provide nonforfeiture options. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
A blended family is one in which a son or daughter with children is also supporting an aged parent or parents.
False
Actual cash value coverage on your personal property costs more than replacement cost coverage.
False
All ownership rights in a policy are transferred through a collateral assignment.
False
Coinsurance in property insurance and coinsurance (percentage participation) in health insurance operate in the same way.
False
Coverage ceases after the last premium is paid on a limited-payment whole life policy.
False
Each family head needs exactly five times his or her annual salary in life insurance.
False
Evidence of insurability must be demonstrated to purchase additional life insurance under a guaranteed purchase option.
False
Failure to pay a life insurance premium by the due date automatically results in a policy lapse.
False
If you knowingly withhold information that will affect the underwriting decision, you have committed misrepresentation.
False
Individuals must be mentioned by name in order to be covered under insurance contracts.
False
Industrial life insurance is group term coverage sold to industrial workers.
False
Insurance contracts are characterized by an equal exchange of value by the parties to the contract.
False
Insurance policies written on an all-risk (open-perils) basis cover all perils.
False
Interest is not required on life insurance policy loans. (is required)
False
It's better for insurance applicants to have their statements construed as warranties rather than as representations.
False
Life insurance is an example of a named-peril coverage.
False
Premature death is defined as death before reaching life expectancy.
False
Reduced paid-up insurance is a dividend option. (nonforfeiture option)
False
The blackout period is the one- or two-year period following the death of the breadwinner. (readjustment period)
False
The cover page of an insurance contact is called a binder.
False
The difference between the face amount of a life insurance policy and the legal reserve is the cash value.
False
To determine if a peril is covered under an all-risk policy, you have to read the list of covered perils.
False
Under the level premium method of providing life insurance protection, premiums paid during the early years are lower than what is needed to pay death claims.
False
While the applicant for insurance coverage gives consideration in the form of the premium, the insurance company does not give any consideration.
False
If a policy loan has not been repaid by the time the insured dies, the amount paid to the beneficiary is reduced by the amount of the debt.
True
A change-of-plan provision permits the policy owner to exchange his/her present policy for a different life insurance contract.
True
A principal is responsible for the acts of an agent when the agent is acting within the scope of his or her authority.
True
A straight deductible requires the insured to bear a portion of each loss before the insurer has any liability.
True
An aggregate deductible may be based on losses that occur during a calendar year.
True
Cancellation rights and subrogation provisions are miscellaneous provisions in insurance contracts.
True
Cash value life insurance contracts include nonforfeiture options.
True
Deductibles are not used in life insurance.
True
Financial dependency is a major justification for the purchase of life insurance.
True