Exam FX

What are the two components of a universal policy?

Insurance and cash account

The premium of survivorship life policy compared with that of a join life policy would be

Lower

Which of the following will be included in a policy summary?

Premium amounts and surrender values

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

beneficiary

Which two terms are associated directly with the premium?

level or flexible

What is the waiting period on a Waiver of Premium rider in life insurance policies?

6 months

Another name for a substandard risk classification is

rated

An insurance contract must contain all of the following to be considered legally binding EXCEPT

Beneficiary's consent

Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must

Respond to the consumer's complaint.

Which is the primary source of information used for insurance underwriting?

Application

Which is true about a spouse term rider?

The rider is usually level term insurance

Life income joint and survivor settlement option guarantees

income for 2 or more recipients until they die

An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his

Attained age

Which of the following is an eligibility requirement for all Social Security Disability Income benefits?

Have attained fully insured status

What is the purpose of a conditional receipt?

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

What is the official name for the Social Security program?

Old-Age, Survivors, and Disability Insurance

What is a definition of a unilateral contract?

One-sided: only one party makes an enforceable promise

Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option?

Size of each installment

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant

With the policy

In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?

5 years

If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used?

Lump Sum

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

Cash surrender

Death benefits payable to a beneficiary under a life insurance policy are generally

Not subject to income taxation by the Federal Government

Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy?

the employer is the owner and beneficiary

Which of the following is another term for the accumulation period of an annuity?

Pay period. It is the period of time over which the annuitant makes payments (premium) into an annuity.

Which of the following is an example of a limited-pay life policy?

Life Paid-up at Age 65

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?

Medical information

To sell variable life insurance policies, an agent must receive all of the following EXCEPT

A SEC registration

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

As of the application date

A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a

Cross purchase plan

What license or licenses are required to sell variable annuities?

both a life insurance license and a securities license

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT

conditions

In a life settlement contract, whom does the life settlement broker represent?

owner

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?

Automatic premium loan

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?

Life income with period certain

What is the purpose of settlement options?

They determine how death proceeds will be paid

In insurance, an offer is usually made when

An applicant submits an application to the insurer.

What is a definition of a unilateral contract

One-sided: only one party makes an enforceable promise

An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy?

She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan.

The advantage of qualified plans to employers is

Tax-deductible contributions

All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT

Upon conversion the death benefit of the permanent policy will be reduced by 50%.

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent

An insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information?

application

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible

collateral assignment

Which of the following is true about the premium on the children's rider in a life insurance policy?

It remains the same no matter how many children are added to the policy: it is based on an average number of children.

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?

Proof of insurability is not required.

An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an

interest-sensitive whole life

The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the

Entire Contract

When must insurable interest exist in a life insurance policy?

At the time of application

Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?

Term rider

Which of the following is not true regarding the annuitant?

The annuitant cannot be the same person as the annuity owner.

What is the purpose of the buyer's guide?

To allow the consumer to compare the costs of difference policies

Which type of life insurance policy allows the policyowner to pay more or less than the planned premium?

Universal Life

When would a 20-pay whole life policy endow?

When the insured reaches age 100

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

paid up option

Children's riders attached to whole life policies are usually issued as what type of insurance?

term

The least expensive first-five year premium is found in which of the following policies?

Annually Renewable Term

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

5 days

The minimum number of credits required for partially insured status for Social Security disability benefits is

6 credits

If a company has a Simplified Employee Pension plan, what type of plan is it?

A defined contribution plan for a small business.

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process?

Buyer's Guide

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

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.

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?

Immediate annuity

The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the

Incontestability clause

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit?

Insured's contingent beneficiary

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?

Insuring clause

What is the primary purpose of a 401(k) plan?

Provide retirement income

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Reduction of Premium

Which type of life insurance policy generates immediate cash value?

Single Premium

Which two terms are associated directly with the way an annuity is funded?

Single payment or periodic payments

Which of the following riders is often used in business life insurance policies when the policyowner needs to change the insured under the policy?

Substitute insured rider

Which of the following would qualify as a competent party in an insurance contract?

The applicant is under the influence of a mind-impairing medication at the time of application.

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?

The death benefit can be increased by providing evidence of insurability.

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

the insured's premiums will be waived until she is 21.

Which statement is NOT true regarding a Straight Life policy?

Its premium steadily decreases over time, in response to its growing cash value.

All of the following are duties and responsibilities of producers at the time of application EXCEPT

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

The main difference between immediate and differed annuities is

When the income payments begin

The death benefit in a variable universal life policy

depends on the performance of a separate account

All of the following are true regarding a decreasing term policy EXCEPT

the payable premium amount steadily declines throughout the duration of the contract

An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize?

viatical settlement

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

adjustment in the amount of death benefit

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?

inspection report

All of the following entities regulate variable life policies EXCEPT

The Guaranty Association

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

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

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

It is reduced to the amount of what the cash value would buy as a single premium

Nonforfeiture values guarantee which of the following for the policyowner?

That the cash value will not be lost. Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

Which of the following would provide an underwriter with information concerning an applicant's health history?

The Medical Information Bureau

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?

The customer's associates, friends, and neighbors provide the report's data.

Which the following determines the cash value of a variable life policy?

The performance of the policy portfolio

An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term?

The insured may renew the policy for another 10 years, but at a higher premium rate.

Which is generally true regarding insureds who have been classified as preferred risks?

Their premiums are lower.

Which of the following statements is TRUE concerning irrevocable beneficiaries?

They can be changed only with the written consent of that beneficiary.

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

Unilateral

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated

An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, the stock performance declined and the cash value fell to $10,000. If the insured dies, how much will be paid out?

$50,000

Which of the following is a feature of a variable annuity?

Benefit payment amounts are not guaranteed

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

conditional

All of the following are true regarding a decreasing term policy except

the payable premium amount steadily declines throughout the duration of the contract

When would a misrepresentation on the insurance application be considered fraud?

If it is intentional and material

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to

Purchase a single premium policy for a reduced face amount

Which of the following policies would be classified as a traditional level premium contract?

Straight life

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing term

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?

If the father is disabled for more than 6 months

The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years?

2 years

For how long is an insurance company allowed to defer policy loan requests?

6 months

Which of the following statements about the reinstatement provision is true?

It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.

Which of the following best describes the MIB?

It's a nonprofit organization that maintains underwriting information on applicants for life and health insurance.

Which Universal Life option has a gradually increasing cash value and a level death benefit?

Option A