Chapter 2 prep
group
Master policy issued to plan sponsor and typically written as annual renewable term
In order to receive a policy dividend, the policy owner must own a __________ policy. A Group B Ordinary C Industrial D Participating
d
participating
Issued by mutual insurers; dividends considered return of excess premium
Non-Participating
Issued by stock insurers and do not pay policy dividends
fixed
Specified amount of coverage, benefits and premium with no inflation protection
variable
Uses separate account for cash value accumulation; may help protect against inflation; and an Insurance license and FINRA registration required in order to sell
A Consumer Investigative Report is not completed by ___________. A A producer B A company that regularly conducts inspection reports C The insurer D A third party provider
a
All of the following statements are true regarding HIV testing, except: A The insured must pay for the cost of the testing B All tests require informed consent by the applicant C Test results must remain confidential D A current and prior HIV positive test result may be the basis of declined life insurance
a
California law requires that the purchaser of life insurance be provided with a copy of the Buyer's Guide to Life Insurance not later than: A The time of policy delivery B The first policy anniversary C The date of application D One month following the first premium due date
a
When the initial premium is not paid with the application, what must the producer do before coverage can begin? A Obtain a signed State of Good Health and policy delivery receipt from the applicant/insured when the policy is delivered B Collect the premium and obtain a signed Statement of Good Health from the applicant/insured at time of policy delivery C Collect and submit the outstanding premium to the insurer within the free look period D Deliver the policy if it is issued and obtain a policy delivery receipt
b
Which of the following is true? A Any changes to a policy must be approved by both the insured and policyowner in writing B The insured and the policyowner are usually the same, but not necessarily C The insured and the policyowner are always the same D The applicant, insured, and policyowner must approve any changes to a policy in writing
b
What is earned by a life insurer for each day a life insurance policy is in force? A Interest and dividends B Respect and trust C Commissions D Premiums
d
At the time of a life insurance policy delivery, a producer must provide which of the following? A A copy of the insurance company's most recent annual report B A copy of the fact finding data collected on the initial sales appointment C A copy of the illustration that matches the policy for which it was approved D A copy of the Buyers Guide to Health Insurance, if interest was expressed in buying health insurance
C
A business owner buys a life policy on his own life. He/she may be all of the following, EXCEPT _________. A Owner B Insured C Beneficiary D Applicant
c
Which of these modes would result in the insured paying the least amount per year for life insurance? A Semi-annual payroll deduction B Quarterly C Annual D Monthly automatic bank draft
c
A producer must include their name and address on which of the following? A A buyer's guide B An insurance policy's cover page C Any policy amendment or rider D A policy summary
d
Which of the following best describes producer field underwriting? A Taking the time to probe beyond the stated questions on the application based upon the applicant's responses B Interviewing the applicant's neighbors about the applicant's morals and character C Obtaining the applicant's medical records, conducting a credit history check, and logging in to the MIB D Conducting blood pressure readings, taking the applicant's pulse, and drawing blood
a
The factors necessary for an insurer to calculate a Net Premium are: A Mortality rate and expenses B Expenses and rate of interest assumed C Rate of interest assumed and mortality rate D Premiums paid plus interest earned
c
Any transaction in which a new life policy or annuity is to be purchased, and the producer knows, or should know, that existing contract(s) will be: lapsed, forfeited, surrendered, terminated, reduced in value, amended with a reduction in benefit or term, have a reduced cash value, or is subjected to borrowing, is best known as a __________. A Replacement B Reissuance C Conversion D Re-entry
a
Policy delivery in California will be accomplished by all of the following, except: A Calling the applicant/insured to inform him/her that the policy was issued and keep in the client file B Registered or certified mail with a signed receipt of delivery C First-class mail with a signed receipt of delivery D Personal delivery with a signed receipt of delivery
a
What should a producer do if the policy applied for is issued at a higher rate than was expected? A Personally deliver the policy, explain the rating, reinforce the value of the policy, and collect the additional premium B Immediately return the policy to the home office because the applicant will never accept it C Have the home office re-issue the policy for a reduced amount of coverage for the original premium quoted so that it will be easier to explain at time of delivery D Deliver the policy to the applicant and have the home office reduce the commission payout to cover the higher premium
a
When the initial premium is not paid with the application, what happens if the applicant is not in good health at the time of policy delivery? A The agent is to collect additional premium and remit to the insurer immediately B The agent is to delay delivery of the policy until the health condition clears up C The agent is to return the policy to the insurer for further underwriting D The agent is to deliver the policy, collect the premium, and put the coverage in force as soon as possible
c
Which of the following is not a factor in premium determination? A Interest B Mortality C Reserves D Expenses
c
A current and prior HIV positive test result (two positive blood tests) may be the basis for a life insurer to: A Offer the coverage at no better than a standard rate B Require the applicant/insured to pay for the HIV test C Issue the policy with an exclusion D Decline the application for life insurance
d
A signed statement by the applicant as to whether replacement of existing life insurance or annuity is involved in a transaction is the: A Policy summary B Conservation statement C Sales proposal D Notice Regarding Replacement
d
individual
Coverage on one named insured, may be of any classification or type, and the policyowner receives a policy and maintains control
Which of the following is not true about life insurance applications? A The application is confidential communication between the agent and the insurer B Applications for life insurance are typically divided into two parts: General Information and Health History C The application may contain all the information underwriting needs to approve the insured D The application more fully identifies the insured
a
Who is required to sign a completed application? A The producer and applicant B The beneficiary C The producer's manager D Any insurance company officer
a
A producer submits a completed application to the insurer along with the premium check after giving the applicant a conditional receipt. If the applicant completes the required medical exam, but dies prior to the insurer issuing a policy as applied for, what is the insurer's responsibility? A To pay the claim in full as long as the conditions of the receipt were fully satisfied by the insurer B To refund premiums paid less costs associated with any medical exams C To refund any and all premiums paid D To keep the premium and reject the claim
a Since all of the conditions of the receipt were satisfied is does not matter that the insured died prior to the policy being issued. Coverage was in effect as of the time the medical exam was completed.
A generic brochure developed by the NAIC to provide consumers with descriptions of basic types of life insurance as well as the comparative costs of each is called the _______. A Buyer's Guide B Policy Summary C Consumer Information Kit D Sales Illustration
b
Under California life insurance replacement legislation, conservation is defined as: A Replacing an existing policy with a new policy in order to reduce premium B Any transaction in which new life insurance is to be purchased and it is known to the agent that existing insurance will be forfeited, lapsed, or surrendered C An attempt on the part of the replacing insurer to have one of their policies replace 2 of the existing insurer's policies D An attempt by the existing insurer or agent to keep a policy in force where replacement is contemplated
d
Which of the following is a false statement regarding insurable interest? A In life insurance, insurable interest must be proven at the time loss or claim B With the exception of a parent purchasing insurance on a minor child, no one may purchase insurance on the life of another person without that person's consent C The insurable interest on one's own life is generally regarded as unlimited D Insurable interest can be defined as the possibility of economic loss due to sickness or death
A
What information must appear on the policy summary provided to a life insurance client? A A copy of the producer's license B The producer's name and address C The producer's name and home address D The producer's agency's name and address
B
All of the following are examples of a third-party ownership, EXCEPT: A T applies for and owns his 2-year-old son's policy, but names his wife as beneficiary B S applies for a policy on herself and names her husband as the beneficiary C J applies for his life insurance policy and names his trust as the owner and beneficiary D J is named as the owner and beneficiary of G's policy
B Third-party ownership exists when the insured and the owner of the policy are different persons.
Interest earned on premiums paid to an insurer helps to ________ the premiums charged. A Increase B Standardize C Lower D Stabilize
C
term
Lowest premium outlay, temporary coverage for short term need , no cash value, and the benefit can be level, increasing, or decreasing
permanent
Premium higher than term when other factors equal, protection continues to age 100 or until surrendered, and provides cash accumulation
An applicant for life insurance realizes several days later that she may have answered a question about a health issue incorrectly. She should do which of the following? A Contact either her agent or the insurance company and make sure they have the correct information B Wait to find out if she is approved for the insurance first, and then she can let the company know she may have made a mistake C Nothing. Answers in the application must only be true to the best of her knowledge at the time she submits the application D Hope that nothing happens in the first year after the policy is issued, because after that it won't matter if the answer was or wasn't correct
a
When determining an appropriate amount of life insurance, an agent takes into consideration the existing mortgage and other debt, future education expenses for the client's children and continuing income for his surviving spouse. This approach is known as: A Needs analysis B The DIME method of insurance planning C Human life value D The NAIC Mode
a
If premiums were submitted at the time of application, when is a life insurance policy considered constructively or legally delivered by the insurer? A Once the insurer mails the issued policy as applied for to the producer B At the time of application if premiums were collected and a conditional coverage receipt was issued by the producer C Once the producer delivers the policy to the applicant and obtains a signed delivery receipt D At the time the producer receives the rated policy and is required to collect additional premiums
a Once the insurer mails the issued policy as applied for to the producer, it is considered constructively or legally delivered by the insurer, if premiums were submitted at the time of application.
A personal use of life insurance does which of the following? A Provides protection against living too long B Creates an immediate estate C Compensates a business for the death of a key person D Creates an insurable interest
b
An application is submitted without the initial premium. Upon delivery of an issued policy, the producer is responsible for all of the following, except: A Explain the benefits, ratings, riders, and exclusions B Perform a medical exam C Obtaining a Statement of Good Health D Collecting the premium
b
California law requires that the purchaser of life insurance be provided with a copy of a Buyer's Guide to Life Insurance produced by: A The Insurance Commissioner's office B The NAIC C The insurer D The Federal Department of Insurance
b
The Attending Physician's Statement (APS) is completed by: A The agent after the medical questions are answered by the applicant B An applicant's physician to provide information about the applicant's medical history C The Medical Information Bureau D A physician providing a required medical exam at the time of application
b
The replacement rules apply to which one of the following? A Conversion of an existing policy B Proposed life insurance that is to replace life insurance issued by a different insurer C Group life insurance or annuities D Credit life insurance
b
What is the relationship that must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid? A They must be married B There must be an insurable interest C They must work together D They must be dating
b
What is the name of the document that shows the cash accumulation in a life policy over a minimum of 20 years on both a 'guaranteed' (maximum cost of insurance, minimum interest credits) and a 'nonguaranteed' (current cost of insurance and interest credits assumptions) basis? A An in-force illustration B A basic life insurance illustration C A life insurance policy D Sales literature
b A basic life insurance illustrations should be presented to be understandable and not misleading. A basic life insurance illustration is a document that shows the cash accumulation in a life policy over a minimum of 20 years on both a 'guaranteed' (maximum cost of insurance, minimum interest credits) and a 'nonguaranteed' (current cost of insurance and interest credits assumptions) basis.
Which of the following is a type of rating that does not involve an extra premium being assessed? A Rated up age B The lien plan C The flat rate D Sub-standard
b With the lien plan, initially, only the premium would be refunded in case of death. The death benefit increases over time with the full face amount eventually payable. This is generally used with Senior Life Insurance plans to provide minimal benefits without a medical examination.
An applicant submits the initial premium at the time of application and is provided a conditional receipt requiring a medical exam to determine insurability. The applicant is killed in a car accident before the medical exam can be performed. Which of the following statements regarding coverage is correct: A Coverage is dependent on the insurer completing the underwriting process to determine if the policy would be issued as applied B Temporary term insurance is used to pay the death benefit C There is no coverage D Coverage is effective on the date of the application
c
Confidential information shared by the producer to the insurer and does not become part of the policy is the __________. A Medical Examination B Consumer Investigative Report C Agent's Report D Attending Physician Statement
c
In determining the proper amount of life insurance, the Needs Analysis Approach takes into consideration all of the following factors, except: A The creation of college funds for surviving children B The paying off of personal debts, medical bills, and final expenses C The projected future value of services provided by the insured D The payoff of any outstanding mortgage balance
c
Policy __________ are the net premiums paid plus interest earned and reflect potential insurance contract obligations. A Dividends B Liabilities C Reserves D Assumptions
c
Which of the following statements correctly describes the difference between gross premium and net premium? A Net premium is the cost per $1,000 of insurance; Gross premium excludes insurance company expenses B Net premium is the total paid to the insurance company each month; Gross premium is described in terms of the number of dollars per $1000 a person pays for his/her insurance C Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying commissions and other expenses D Gross premium is what the insured pays to the insurance company each month; Net premium is what the agent's commission is based on
c
Why have many states prohibited STOLI transactions? A Mostly the investors are not licensed to conduct such a transaction B The amount the policyowner obtains is too little in relationship to the death benefit C It is a violation of the insurable interest rule D Consumers are not reporting the cash received as taxable income
c
Normally, when the insurer determines that the insured is an acceptable risk, the insurer will send the policy to the ____________. A Policyowner B Beneficiary C Producer D Insured
c Normally, the insurer will mail the issued policy to the producer for delivery so that if any outstanding premium is due, it can be collected, if a statement of good health is required, it can be obtained, and any questions the applicant has about the policy can be answered.
Before the process of underwriting begins, who will make the final determination as to whether insurable interest exists? A The agent B The applicant C The insured D The underwriter
d
How does life insurance reduce financial loss upon the insured's death? A By eliminating the risk B Through applicant risk retention strategies C Through reinsurance risk techniques D By transferring the risk to the insurer
d
When using an illustration for life insurance, an insurer or agent can do which one of the following? A Use the term 'vanishing' or 'vanishing premium,' or a similar term that implies the policy becomes paid up, to describe a plan for using non-guaranteed elements to pay a portion of future premiums B Use an illustration that at any policy duration depicts policy performance more favorable to the policyowner than that produced by the illustrated scale of the insurer whose policy is being illustrated C Provide an applicant with an incomplete illustration D Represent the policy as a life insurance policy
d
Which of the following describes group life insurance? A A single policy issued to a group of individuals who have formed an alliance to obtain life insurance at reduced rates B A single policy issued to an individual covering husband, wife and children C Multiple policies issued to an employer to cover a specific group of executives D A single policy issued to a business to cover the lives of employees
d