Chapter 2 Life Insurance Basic Part I

Which of the following would be the basic source of information used by the company in the risk selection process? A Receipt B Warranty C Representation D Application e. agent's report f. consumer report

D Application

Who makes up the Medical Information Bureau? A Former insured B Physicians and paramedics C Insurers D Hospitals

C Insurers

All of the following are true of key person insurance EXCEPT A There is no limitation on the number of key employee plans in force at any one time. B The employer is the owner, payor and beneficiary of the policy. C The key employee is the insured. D The plan is funded by permanent insurance only.

D The plan is funded by permanent insurance only.

when an applicant purchased a life insurance policy the agent dated the application 4 months prior.When asked by the applicant the agent said he was allowed to backdate policies up to 6 months if it would ? a.lower the premium b.shorten the contestability period c.eliminate pre-existing conditions d. help him meet sales quota for that period

a.lower the premium

Which of the following types of insurance policies would perform the function of cash accumulation? a. Credit life b. Increasing term c. Whole life d. Term life

c. Whole life

which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles/ a. standard risk requires extra rating. b. standard risk is also known as high exposure risk c. standard risk is representative of the majority of people d. standard risk pays a higher premium than a substandard risk.

c. standard risk is representative of the majority of people

which of the following is an example of liquidity in a life insurance contract? a. the flexible premium b. the money in a savings account c. the cash value available to the policyowner d. the death benefit paid to the beneficiary

c. the cash value available to the policyowner

An applicant who receives a preferred risk classification qualifies for a. dividends payable for lack of claims b. higher premiums than a person who receives a substandard risk c. higher premiums than a person who receives a standard risk d. lower premiums than a person who receives a standard risk

d. lower premiums than a person who receives a standard risk

a prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will a. pay the policy proceeds up to an established limit b. not pay the policy proceeds under any circumstances c. automatically pay the policy proceeds d. pay the policy proceeds only if it would have issued the policy

d. pay the policy proceeds only if it would have issued the policy

Most agent try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant? a. statement of good health b. backdated receipt c. warranty d. premium receipt

d. premium receipt

Which of the following CANNOT be included along with illustrations used to sell life insurance? a. Rating information B Original death benefit C Vanishing premium information D Name of the insurer

C Vanishing premium information

attempting to determine how much insurance an individual would require based upon their financial objectives is known as a. need approach b. human life value approach c. estate planning d. Viatical approach

a. need approach

Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy? a. the key employee is the owner and beneficiary. b. the key employee is the owner and the employer is the beneficiary c. the employer is the owner and beneficiary d. the employer is the owner and the key employee is the beneficiary

c. the employer is the owner and beneficiary

all of the following are true of key person insurance EXCEPT a. the key employee is the insured. b. the plan in funded by permanent insurance only.

b. the plan in funded by permanent insurance only.

For what reason may a life insurance producer backdate a life insurance policy? a. to shorten the period of contestability b. to avoid an increase in premium rate for the insured.

b. to avoid an increase in premium rate for the insured.

which of the following statements regarding HIV testing for life insurance purposes is NOT true? a. the testing practices must meet the criteria of the U.S. Department of Health and Human Services. b HIV testing is regulated at the state level. c. Insurers are barred from requesting HIV testing d. Positive test results will be forwarded to the state's Department of Health if a physician is not selected by the applicant

c. Insurers are barred from requesting HIV testing

all of the following are business uses of life insurance EXCEPT a. funding against financial loss caused by the death of a key employee b. funding business continuation agreements c. funding against company's general financial loss. d. compensating executives.

c. funding against company's general financial loss.

Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years? a.A notice regarding replacement b. A privacy notice c. A buyer's guide d. A policy summary

d. A policy summary

a producer agent must do all of the following when delivering a new policy to the insured EXCEPT a. explain the policy provisions, riders and exclusions b. collect any premium due c. explain the rating procedures if the policy is rated differently than applied for d. disclose commissions earned from the sale of the policy

d. disclose commissions earned from the sale of the policy

which of the following is correct concerning the taxation of premium in a key-person life insurance policy? a. premiums are tax deductible by the key employee b. premium are tax deductible as a business expense c. premiums are taxable to the employee d. premiums are not tax deductible as a business expense

d. premiums are not tax deductible as a business expense

when is the earliest a policy may go in effect? a. when the first premium is paid and the policy had been delivered b. when the insurer approves the application c. after the underwriter reviews the policy d. when the application is signed and a check is given to the agent

d. when the application is signed and a check is given to the agent

what describes the specific information about a policy? a. producer's report b policy summary c. illustration d. buyer's guide

b policy summary

what is the purpose of a conditional receipt? a. it is given only to applicants who fully prepay the premium b. It is intended to provide coverage on a date earlier than the date of the issuance of the policy issue

b. It is intended to provide coverage on a date earlier than the date of the issuance of the policy issue

Which of the following individuals must have insurable interest in the insured? a. Producer b. Policy owner c. Beneficiary d. Actuary e. producer

b. Policy owner

all of the following about a customer must be used in determining annuity suitability EXCEPT a. financial experience b. annual income c. beneficiary's age d. tax status

c. beneficiary's age

All of the following information about the applicant is identified in the General Information section of a life insurance application except? -a. Gender. b. Occupation. c. education d. age

c. education

which of the following methods of calculating the amount of life insurance needed takes into account the insurer's wages, years until retirement and inflation? a.blackout approach b. lump-sum approach c. human life approach d. needs approach

c. human life approach

A key person insurance policy can pay for which of the following? a. hospital bills of the key employee b. costs of training a replacement c. loss of personal income d. worker compensation

b. costs of training a replacement

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT a. delivery receipt b. signed waiver of premium c. statement of good health d. payment of premium

b. signed waiver of premium

when the partners of a business develop an arrangement whereby should one of them die or become permanently disabled, the other partners would purchase the interest of the deceased or disabled partner at a predetermined price, this is called a/an a. business continuation plan b. key person plan c. business overhead expense plan d. executive bonus plan

a. business continuation plan

if a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT a. erase the incorrect answer and record the correct answer b. draw a line through the first answer, record the correct answer, and have the applicant initial the change c. note on the application the reason for the change d. destroy the application and complete a new one

a. erase the incorrect answer and record the correct answer

an individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date? a. the date of medical exam b. the date of policy delivery c. the date of issue d. the date of application

a. the date of medical exam

which of the following is the best reason to purchase life insurance rather than annuities? a. to liquidate a sum of money over a period of years b. to create regular income payments c. to liquidate a sum of money over a lifetime d. to create an estate

d. to create an estate

Are insurance company underwriters allowed to discriminate? a. no, higher risks pay higher premium b. no discrimination is an unfair practice c. yes, but only for gender d. yes, but not unfairly

d. yes, but not unfairly

which of the following documents must be provided to the policyowner or applicant during policy replacement? a. notice regarding replacement b. disclosure authorization form c. buyer's guide and policy summary

a. notice regarding replacement

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern? a. whether an insurable interest exists between the individuals b. the gender of the applicant

a. whether an insurable interest exists between the individuals

which of the following will be included in a policy summary? a. copies of illustration and application b. comparisons with similar policies c. primary and secondary beneficiary designations d. premium amounts and surrender values

d. premium amounts and surrender values

an individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. 5 days later the applicant had to submit to a medical exam, if the policy is issued, what would be the policy's effective date? a. the date of policy delivery b. the date of issues c. the date of application d. the date of medical exam

d. the date of medical exam

which of the following is NOT an example of business use of life insurance? a. key person b. worker compensation c. buy-sell funding

b. worker compensation

which of the following is Not required for a producer to tell a prospect? A) what requirements the producer needed to meet to obtain the insurance licenser B) from what outside sources the insurer would seek information regarding the insured C) how the insurer would use any outside information regarding the applicant D) an explanation of products that the insurer is selling

A) what requirements the producer needed to meet to obtain the insurance license

All advertisements are the responsibility of the a. soliciting agent b. advertising agency c. department of insurance d. insurer

d. insurer

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. stated education waiver b. viatical settlement c. estate conservation d. life insurance proceeds

d. life insurance proceeds

The Medical Information Bureau (MIB) was created to protect A Insurance departments from lawsuits by policyowners. B Insureds from unreasonable underwriting requirements by the insurance companies. C Medical examiners that perform insurance physical examinations. D Insurance companies from adverse selection by high risk persons.

D Insurance companies from adverse selection by high risk persons.

all of the following are factors that an underwriter could use to select and classify risk EXCEPT a. morals b. occupation c. avocation d. national origin

d. national origin

All of the following are duties and responsibilities of producers at the time of application EXCEPT A. Check to make sure that there are no unanswered questions on the application. B. Change any incorrect statement on the application by personally initialing next to the corrected statement. C. Explain the nature and type of any receipt the producer is giving to the applicant. D. Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information.

B. Change any incorrect statement on the application by personally initialing next to the corrected statement.

When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will A Issue the policy anyway and pay the face value to the beneficiary. B Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. C Return the premium to Y's estate, since it has no obligation to pay the death claim. D Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued.

A Issue the policy anyway and pay the face value to the beneficiary.

If an agent fails to obtain the applicant's signature on the insurance application, the agent must a. return the application to the applicant for signature b. sign the application for the applicant c. sign the application, stating it was by the agent d. send the application to the insurer with a note explaining the absence of signature

a. return the application to the applicant for signature

a producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance know as a. survivor protection b. life planning c. survivorship insurance d. juvenile protection provision

a. survivor protection

When must insurable interest exist for a life insurance policy? a. at the time of loss b. at the time of application c. at the time of policy delivery d. when there is a change of the beneficiary

b. at the time of application

all of the following are personal uses of life insurance EXCEPT a. cash accumulation b. buy-sell agreement c. survivor protection d. Estate creation

b. buy-sell agreement

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? a. underwriter report b. inspection report c. medical information bureau d. agent's report

b. inspection report

which of the following best details the underwriting process for life insurance? a. reporting and rejection of risks b. selection, classification, and rating of risks c. solicitation, negotiation and sale of policies d. issuance of policies

b. selection, classification, and rating of risks

During replacement of life insurance, a replacing insurer must do which of the following? a. guarantee a replacement for each existing policy b. designate a new producer for a replace policy c. send a copy of the Notice Regarding Replacement to the Department of Insurance d. Obtain a list of all life insurance policies that will be replaced

d. Obtain a list of all life insurance policies that will be replaced

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then a. The benefit is subject to the exclusionary rule. b. IRS has no jurisdiction. c. The benefit is received as taxable income. d. The benefit is received tax free.

d. The benefit is received tax free.

Which of the following is NOT an example of insurable interest? a. business partners in each other b. employer in employee c. child in parent d. debtor in creditor

d. debtor in creditor

In term of social security, what is the name for the time period after the youngest child of family turn 16 and before the surviving spouse may start receiving retirement benefits? a. accumulation period b. blackout period c. nonpayment interval d. benefit reduction

b. blackout period

Jason wants to advertise his life insurance practice. which of the following musson wants to advertise his life insurance practice. which of the following must be include in his advertisements? a. his insurance certification b. the name of commissioner of insurance c. the name of the city in which he has his principal officet be include in his advertisements? a. his insurance certification b. the name of commissioner of insurance c. the name of the city in which he has his principal office

c. the name of the city in which he has his principal office

The responsibility of making certain that an application for insurance is filled out correctly completely and the best of his/her knowledge is the responsibility of whom? a. the beneficiary of the applicant b. the insurance company c. the applicant d. the producer

d. the producer

which of the following premium modes would result in the highest annual cost for an insurance policy? a. monthly b. quarterly c. semi-annual d. annual

a. monthly

an underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require? a. statement of continued good health b. attending physician statement c. a complete medical report d. sworn health affidavit from the applicant

b. attending physician statement

When J. applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by a. a physician of the applicant's choice and at his expense b. a home office underwriter c. a paramedic or examining physician at the insurer's expense d. the agent

c. a paramedic or examining physician at the insurer's expense

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? a Term insurance only b. Permanent insurance only c. Universal life insurance only d Any form of life insurance

d Any form of life insurance

which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? a. inspection report b. agent's report c. general information d medical information

d medical information

If an insured changes his payment plan from monthly to annually, what happens to the total premium? a. stay the same b. doubles c. increases d. decreases

d. decreases

The mode of premium payment A. is the factor which determines the amount of dividends in a policy B. is the method used to compute the cash surrender value of a policy C. does not affect the amount of premium paid D. is defined as the frequency and the amount of the premium payment

D. is defined as the frequency and the amount of the premium payment

All of the following are true of key person insurance EXCEPT a. The plan is funded by permanent insurance only. b. There is no limitation on the number of key employee plans in force at any one time. c. The employer is the owner, payor and beneficiary of the policy. d. The key employee is the insured.

a. The plan is funded by permanent insurance only.

a key person insurance policy can pay for which of the following? a. costs of training a replacement b. loss of personal income c. workers compensation d. hospital bills of the key employee

a. costs of training a replacement

When is the earliest a policy may go into effect? a. when the first premium is paid and the policy has been delivered b. when the insurer approves the application c. after the underwriter reviews the policy d. when the application is signed and a check is given to the agent

d. when the application is signed and a check is given to the agent