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To sell variable life insurance policies, an agent must receive all of the following EXCEPT (Choose from the following options) 1. A life insurance license. 2. A SEC registration. 3. A FINRA registration. 4. A securities license.
2. A SEC registration.
A policy that does not pay dividends to policyowners is a (Choose from the following options) 1. Mutual life policy. 2. Nonparticipating policy. 3. Participating policy. 4. Whole life policy.
Non-Participating (stock) Life Insurance Policy
SGLI
Service Members Group Life Insurance
When must insurable interest exist in a life insurance policy?
At the time of application
According to the entire contract provision, what document must be made part of the insurance policy? a) Agent's report b) Outline of coverage c) Copy of the original application d) Buyer's Guide
C) An insurance contract must contain a copy of the original application.
What characteristic must an annuity have if it is used to accumulate funds in an IRA? a) Tax-qualified b) Fixed income c) Fixed premium d) Tax-deductible
A) Tax-qualified annuities are used to accumulate IRA funds on a tax-deferred basis. Tax-qualified annuities are subject to IRA maximum contribution limits.
A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called a) Payor rider. b) Cost of living rider. c) Accelerated benefit rider. d) Living need rider.
B) A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living.
Pertaining to insurance, what is the definition of a fiduciary responsibility? a) Offering additional coverage to clients b) Promptly forwarding premiums to the insurance company c) Helping insureds to file claims d) Performing reviews of insured's coverage
B) Fiduciary refers to a position of trust. When an agent is handling the premiums that belong to an insurance company, they are acting in a fiduciary capacity.
Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation? a) Lump-sum approach b) Human life value approach c) Needs approach d) Blackout approach
B) Human life value approach is determined by the loss of income that would result with the death of the insured, after making adjustments for expenses, inflation, etc.
The requirement that producers must account for all insurance funds collected, and without the expressed consent of the insurance company(ies) are not permitted to co-mingle those funds with their own funds is known as a) Accepted accounting principal. b) Fiduciary responsibility. c) Premium accountability. d) Fiscal responsibility.
B) Money collected with respect to an insurance transaction must be held in a position of trust by the producer.
Which of the following would provide an underwriter with information concerning an applicant's health history? a) A medical examination b) The agent's report c) The inspection report d) The Medical Information Bureau
D) An agent's report and inspection report provides personal information. Medical exams provide information on current health. Only the MIB will provide information about an applicant's medical history.
An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay? a) No penalties, since the owner is older than 59 ½ b) 10% for early withdrawal c) 15% for early withdrawal d) 50% tax on the amount not distributed as required
D) When immediate annuities are used to pay IRA benefits, distributions must begin no later than age 70½ in order for the annuitant to avoid penalties. The penalty is 50% of the shortfall from the required annual amount.
Indeterminate Premium
Life insurance policy premium charged the policyowner that can be less than that guaranteed in the contract
Which of the following would be the best option that would help the surviving spouse of the insured to put her child through daycare after the insured's death? A. Estate conservation B. Life insurance proceeds C. State Education Waiver D. Viatical settlement
Life insurance proceeds
Which of the following is usually true of a participating life insurance policy?
It may pay dividends to policyowners. Participating is a term used to refer to any insurance policy that distributes its dividends by cash payments, reduced premiums, units of paid-up life insurance, a savings program, or by the purchase of term insurance. Dividends, however, are not guaranteed.
Which of the following is NOT an allowable 1035 exchange? (Choose from the following options) 1. A whole life insurance policy is exchanged for a Universal life insurance policy. 2. An annuity is exchanged for another annuity. 3. A life insurance policy is exchanged for an annuity. 4. A whole life insurance policy is exchanged for a term insurance policy.
A whole life insurance policy is exchanged for a term insurance policy
Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE? a) Withdrawals are not taxable. b) Distributions before age 59 1/2 incur a 10% penalty on policy gains. c) Policy loans are taxable distributions. d) Accumulations are tax deferred.
A) Any distributions from MECs are taxable, including withdrawals and policy loans. All of the other statements are true.
An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen? a) Because the insured is currently not a drug user, his policy will not be affected. b) The policy will not be affected. c) The policy will be voided. d) The insurer will sue the insured for committing fraud.
B) In insurance, fraud is the intentional misrepresentation of material information that is crucial when deciding whether or not to write a contract for an applicant. If an insurer finds that an applicant has committed fraud, it can void the contract, provided that the discovery occurs within the first two years of the effective policy date. In this particular instance the applicant did not commit intentional fraud.
The Waiver of Cost of Insurance rider is found in what type of insurance? a) Juvenile Life b) Universal Life c) Whole Life d) Joint and Survivor
B) The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value
Which nonforfeiture option provides coverage for the longest period of time? a) Accumulated at interest b) Reduced paid-up c) Extended term d) Paid-up option
B) The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.
An insurer or producer may NOT knowingly employ an individual to act in a fiduciary capacity if that individual has been convicted of a felony or crime of moral turpitude within the past a) Year only. b) 5 years only. c) 10 years. d) 15 years.
C) A licensee cannot knowingly employ an individual who has been convicted of a felony or crime of moral turpitude within the past 10 years to act in a fiduciary capacity.
Annually renewable term policies provide a level death benefit for a premium that a) Remains level. b) Fluctuates. c) Increases annually. d) Decreases annually.
C) Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.
Non-Participating (stock) Life Insurance Policy
Does not pay dividends to policyowners; however, taxable dividends are paid to stockholder. The safety margin is narrower, because the cost of the insurance to the policyholder cannot be adjusted at a later time. The gross premium charged must reflect, at least for competitive reasons, the actual cost of providing the insurance. Any profit realized in the operation will be used to provide dividends to stockholders as well as surplus funds that may be used as a buffer for future adverse experience.
The premium is guaranteed for an initial period and then the insurer can charge up to a maximum premium charge in what type of policy? a) Indeterminate Premium b) Increasing Premium c) Variable Premium d) Graded Premium
A) An indeterminate premium reduction policy is a policy in which the premium is guaranteed for an initial period, then the insurer can charge up to a maximum premium charge that is specified in the policy.
Who assumes control over an insurance company's funds and management if it becomes insolvent? a) The policyholders or stockowners of the company b) State attorney general c) National Association of Insurance Commissioners d) The Guaranty Corporation
D) The Life and Health Insurance Guaranty Corporation protects Maryland residents who are policyholders, insureds, beneficiaries, annuitants, and assignees of life and health insurance policies, annuities, and supplemental contracts, if the insurer issuing the policies fails to perform its contractual obligations because it becomes impaired. Members are assessed to fund the corporation. The corporation also helps detect and prevent insurer impairments.
Who must notify the replacement company of a policy that is being replaced? a) Executive offer of the replacing company b) Policyholder c) Counselor d) Producer
D) When replacement is involved, a producer must perform the following duties: sign replacement notice (and keep a copy), provide a list of items being replaced, leave all brochures/sales material used in the sale, take new application, submit "Copy to Replacement" notice, and it attach to application. The replacing company notifies the replacement company.
An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company? a) Consumer Privacy Act b) Conditional receipt c) Disclosure rule d) Fair Credit Reporting Act
D) The Fair Credit Reporting Act governs what information can be collected and how the information can be used.
For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become a) More active. b) Larger. c) Smaller. d) Older.
B) According to the law of large numbers, the larger a group becomes, the easier it is to predict losses. Insurers use this law in order to predict certain types of losses and set appropriate premiums.
What happens when a policy is surrendered for its cash value? a) The policy can be converted to term coverage. b) Coverage ends and the policy cannot be reinstated. c) Coverage ends but the policy can be reinstated at any time. d) The policy can be reinstated by paying back all policy loans and premiums.
B) Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.
What insurance concept is associated with the names Weiss and Fitch? a) Types of mutual companies b) Index used by stock companies c) Guides describing company financial integrity d) Policy dividends
C) Because an insurance company's strength and stability are two very crucial factors in its sustainability, independent rating services have formed to publish regular updates on the financial integrity of different insurance companies. Weiss and Fitch are two of these services, although there are more.
What is the purpose of a suicide provision within a life insurance policy? a) To limit the insurer's liability after the 2 year waiting period b) To deter the policyowner from committing suicide c) To protect the policyowner d) To protect the insurer from persons who purchase life insurance with the intention of committing suicide
D) The suicide provision protects the company from those individuals who purchase life insurance with the intention of committing suicide. If the insured commits suicide after the 2 year period, the policy will pay the death proceeds to the designated beneficiary the same as if the insured had died of natural causes.
Concerning insurance, the definition of a fiduciary is a) A retail clerk. b) A producer who handles insurer funds in a trust capacity. c) A person who handles assets or money belonging to others. d) All of the above.
B) A fiduciary is a producer who handles insurer funds in a trust capacity.
Rebating is an unfair trade practice and is regulated by law. All of the following would be considered to be rebating EXCEPT a) An agent offers the use of his lake house to person as an inducement to buy. b) An agent offers to share his commission with a policyholder. c) An agent offers tickets to a baseball game as an inducement to buy insurance. d) An agent misrepresents policy benefits to convince a policyowner to replace policies.
D) Using misrepresentation to convince a person to cancel an existing policy and buy a new one is called "twisting."
All of the following statements are true regarding mortgage protection insurance EXCEPT A. It is used to pay off the balance on the mortgage. B. The face amount decreases as the amount owed on the mortgage decreases. C. It's a decreasing term insurance. D. The face amount remains the same throughout the life of the policy.
D. The face amount remains the same throughout the life of the policy. Mortgage Protection Term (or Mortgage Redemption) policy is a type of decreasing term insurance in which the face amount directly correlates with the amount of outstanding loan and length of time remaining on a mortgage. The face amount decreases as the amount owed on the mortgage decreases.
Which of the following will be included in a policy summary? a) Premium amounts and surrender values b) Copies of illustrations and application c) Comparisons with similar policies d) Primary and secondary beneficiary designations
A) A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.
All of the following statements are TRUE concerning Debtor Groups EXCEPT a) The amount of insurance on the life of any debtor may exceed the greater of the scheduled or actual amount of unpaid indebtedness to the creditor. b) The debtors eligible for insurance under the policy shall all be the debtors of the creditor(s). c) The premium for the policy shall be paid either from the creditor's funds, or from charges collected from the insured debtors, or from both. d) An insurer may exclude any debtors as to whom evidence of individual insurability is not satisfactory to the insurer.
A) The amount of insurance of the life of any debtor may at no time exceed the greater of the scheduled or actual amount of unpaid indebtedness to the creditor.
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? a) Universal life b) Adjustable life c) Term life d) Limited pay
A) Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.
Are insurance company underwriters allowed to discriminate?
Yes, but not unfairly The company will discriminate in favor of good risks and not of poor risks; however, it cannot discriminate unfairly by using factors such as race or national origin in their underwriting.
Graded Premium
premium increases gradually during the first few years and then levels off
Which of the following is an example of an unfair claims settlement practice? a) Using arbitration when the insured and insurer cannot reach agreement b) Failure to promptly settle a claim when liability has been clearly established c) Denying coverage after a reasonable investigation has been conducted d) Making claims payments which clearly indicate under which coverage payment has been made
B) After a claim has been adjusted and is found to be covered under the policy, the insurer must pay the claim upon receipt of a signed proof of loss.
Which of the following is the basis for a claim against an insurance policy? a) Material change b) Hazard c) Misrepresentation d) Loss
D) Claims result from losses by a peril insured against in an insurance policy.
Who would be eligible to obtain SGLI? a) Small employers b) The elderly c) Low-income individuals and families d) Military personnel
D) Members of the uniformed forces can obtain term group life insurance through Servicemembers' Group Life Insurance (SGLI). Coverage is available in $50,000 increments up to the maximum of $400,000.
An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe? a) Aleatory b) Unilateral c) Conditional d) Contingent
c) Conditional A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies, which put the burden of condition on either the insurer or the policyowner.
An illustration
may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.