Final Test

88.) The premium "mode": a. Determines if the premium can be mailed in or is collected by the producer in person b. Is the frequency of the insurer's computation of the policy cash values c. Identifies whether the insured is paying by cash, check/money order, or credit/debit card d. Is the frequency of payments

d. Is the frequency of payments

The nonforfeiture options in an individual life insurance policy are: a. Cash, Paid-up additions, and One-year term b. Interest only, Period certain, and Fixed amount c. Cash surrender value, Reduced Paid-up Insurance, and Extended Term Insurance d. Life only, Life with refund, and Joint life and survivor

c. Cash surrender value, Reduced Paid-up Insurance, and Extended Term Insurance

A requirement of contract law in which the insurer promises to pay benefits in exchange for the applicant's premium and application is called: a. Capital b. Condition c. Consideration d. Collateral

c. Consideration

Which business use of life insurance could provide the funds necessary to recruit and train a replacement in the event an executive of the company dies? a. Key-person plan b. Buy-sell Cross-Purchase plan c. Buy-sell Entity-Purchase plan d. Estate plan

a. Key-person plan

Individual underwriting factors include all of the following except: a. Marital status b. Tobacco use c. Age d. Gender

a. Marital status

If a terminated employee dies during the during the conversion period in a group policy without applying for an individual policy, what happens? a. The conversion policy will only pay a death benefit if proof of the decedent's insurability prior to death is verified b. The group policy will pay a full death benefit less any premiums due c. The conversion policy will pay the full death benefit less the premium due d. No claim will be paid because the group policy does not cover terminated employees, and a new policy was not applied for

a. The conversion policy will only pay a death benefit if proof of the decedent's insurability prior to death is verified

When the youngest child reaches age 16, the widow/widower's Social Security income is discontinued due to which of the following: a. Open enrollment period b. Blackout period c. Eligibility for Medicare d. Probationary period

b. Blackout period

When the original owner of a life insurance policy transfers all rights to a new owner, this is known as a(n) a. Beneficiary designation b. Collateral assignment c. Absolute assignment d. Fiduciary transaction

c. Absolute assignment

J. buys a life insurance policy. 9 months later he commits suicide. How much will the insurer pay the beneficiary? a. The cash value b. The premiums paid c. The face amount d. Nothing

b. The premiums paid

"Flexible Premium Adjustable Life Insurance" is another name for which one of the following policies? a. Variable Whole Life b. Universal Life c. Term Life d. Single Premium Whole Life

b. Universal Life

How is a qualified annuity distribution taxed? a. 100% of the distribution is taxable to the employer b. Distributions from "qualified" annuities are entirely tax-free c. 100% of the distribution is taxable to the recipient d. 50% of the distribution is taxable to the recipient, 50% is taxable to the employer

c. 100% of the distribution is taxable to the recipient

The __________________ states the insurer's essential promise to provide the benefits described in the contract. a. Suicide provision b. Consideration clause c. Insuring Agreement d. Right of assignment

c. Insuring Agreement

Which one of the following annuity/settlement options offers the highest monthly income, all other factors remaining the same? a. Life with cash refund b. Life only c. Life with 10 year period certain d. Joint and survivor

c. Life with 10 year period certain

All of the following are true of variable annuities, except: a. They can be used to fund qualified retirement plans or IRAs b. They are regulated as both a securities and insurance product c. The account values can go up but can never go below the minimum guaranteed amount d. The account values fluctuate based on the performance of one or more separate accounts

c. The account values can go up but can never go below the minimum guaranteed amount

What happens when the insured dies with a policy loan outstanding against their life insurance policy? a. The insurer writes off the loan as uncollectable b. The loan is repaid in full by the beneficiary prior to any death claim payment c. The insurer deducts the outstanding loan balance from the death proceeds paid d. The spendthrift trust will pay off any creditors prior to claim payment

c. The insurer deducts the outstanding loan balance from the death proceeds paid

Which one of the following types of term life insurance would be the most expensive all else being equal? a. Nonrenewable and nonconvertible b. Nonrenewable and convertible c. Renewable and convertible d. Renewable and nonconvertible

d. Renewable and nonconvertible

Which nonforfeiture option allows the policyowner to stop paying premiums but maintain the same face amount of coverage? a. Premium reduction b. Cash surrender c. Reduced Paid-up Insurance d. Extended Term Insurance

d. Extended Term Insurance

In a group insurance plan, the Insurer issues a _________ to the Plan Sponsor. a. Certificate of insurance b. Franchise policy c. Blanket policy d. Master policy

d. Master policy

The policyowner must obtain permission from which of the following in order to take out a policy loan? A. Owner's spouse B. Named insured C. Insurance company D. Irrevocable beneficiary

D. Irrevocable beneficiary

If the insured is certified as terminally ill (life expectancy less than 12 months), which provision would allow the policyowner to receive a specified amount of the face value prior to the death of the insured? a. Accelerated Death Benefit b. Waiver of Premium c. Disability Income d. Return of Premium

a. Accelerated Death Benefit

Which one of the following products is designed to liquidate an estate? a. An annuity b. Variable life insurance c. Term life insurance d. Whole life insurance

a. An annuity

Which one of the following policy provisions starts at the time the policy is delivered and allows the owner to return the policy for a full refund within a specified period of time? a. Free look period b. Grace period c. Suicide clause d. Contestable clause

a. Free look period

_________________ term riders are normally used to fund Return of Premium benefits. a. Increasing b. Level c. Re-entry d. Decreasing

a. Increasing

A form attached to the policy which enhances or supplements the existing policy benefits is called a(n): a. Rider b. Receipt c. Exclusion d. Application

a. Rider

All of the following are characteristics of a mutual insurance company, except: a. Stockholders own the company b. The policyholders vote for the Board of Trustees c. Issues participating policies d. Any divisible surplus is distributed as dividends to policyholders

a. Stockholders own the company

Which one of the following statements about fixed annuities is false? a. The insured bears the investment risk b. The fixed annuity's values are backed by the insurer's general account c. The fixed payout amount is subject to loss of purchasing power over time d. A fixed annuity has a guaranteed minimum interest rate

a. The insured bears the investment risk

A mother purchases a $50,000 whole life policy on the life of her 13-year-old son, and includes a payor benefit rider. If she dies or becomes disabled before he turns age 21: a. The policy becomes fully paid up b. The insurance company will credit the policy's cash value as if the premiums were paid c. The policy is in danger of lapsing due to nonpayment of premiums d. The policy automatically converts to reduced paid-up insurance

a. The policy becomes fully paid up

A life insurance waiver of premium rider usually has a ______ month elimination period prior to the premiums being waived by the insurer. a. 6 b. 1 c. 3 d. 2

a.6

An insurance company admitted to transact business in California, but incorporated under the laws of Spain, would be considered: a. Domestic b. Alien c. International d. Foreign

b. Alien

An insurer organized under the laws of Kansas is considered______________ to Kansas: a. Foreign b. Domestic c. Admitted d. Alien

b. Domestic

All of the following are true regarding employer qualified plans, except: a. Distributions taken prior to 59 ½ are generally subject to taxation and a 10% penalty b. Employer contributions are not tax deductible and upon withdrawal, only the earnings are taxable c. Employer contributions are immediately tax deductible to the employer at the time the contribution is made d. Employer contributions are not taxable to the employee until withdrawn

b. Employer contributions are not tax deductible and upon withdrawal, only the earnings are taxable

Annuities funded with continuing premium contributions that fluctuate based on amount and timing are referred to as a. Flexible Premium Immediate Annuities b. Flexible Premium Deferred Annuities c. Single Premium Deferred Annuities d. Fixed Premium Immediate Annuities

b. Flexible Premium Deferred Annuities

Q secured a $12,000, 48-month, loan from a bank to purchase a boat. In order to provide for payment of the outstanding loan balance over the entire 48 months, which one of the following policies would be the best choice? a. Universal life b. Level term c. Decreasing term d. Increasing term

c. Decreasing term

An annuity that is payable to annuitants A & B while both are living,and continues to pay after A dies until B's death, but reduced to just 50 percent of the original payment amount, is providing ___________________. a. Life Income with Refund b. Joint Life c. Joint and Survivor Life Income d. Life Income with Period Certain

c. Joint and Survivor Life Income

If all of the following policies were issued to 25-year-old individuals with the same risk classification, face amount, and from the same company, which policy will the cash value grow at the fastest rate? a. Annual renewable term b. Life paid up at 65 c. Ordinary (straight) life d. 20-pay life

d. 20-pay life

Which of these persons would not be legally disqualified from entering into a contract? a. An intoxicated person b. A minor age person c. An insane person d. A retired person

d. A retired person

The ________ period is when an annuitant starts to receive their monthly income benefit check. a. Accumulation b. Deferral c. Exclusion d. Annuity (or Annuitization)

d. Annuity (or Annuitization)

Common exclusions in a life insurance policy do not include which one of the following? a. War or Acts of War b. Hazardous occupation c. Military service d. Aviation for fare-paying passengers on a regularly scheduled commercial flight

d. Aviation for fare-paying passengers on a regularly scheduled commercial flight

Which one of the following is not a type of annuity offered by insurers? a. Single premium immediate b. Flexible premium deferred c. Single premium deferred d. Flexible premium immediate

d. Flexible premium immediate

Overall, the least expensive mode of premium is: A. Quarterly B. Semi-annual C. Monthly D. Annual

D. Annual

Which nonforfeiture option provides the longest period of coverage? a. Reduced paid-up b. Cash surrender value c. Cash value d. Extended term

a. Reduced paid-up

If written consent of the beneficiary is required to change policyownership or to assign the policy, then the beneficiary designation must be: a. Per stirpes b. Irrevocable c. Tertiary d. Revocable

b. Irrevocable

The insured no longer has life insurance coverage if which nonforfeiture option is exercised? a. Reduced paid-up b. Extended term c. Cash surrender d. Automatic premium loan

c. Cash surrender

The policy, any riders, and a copy of the application are part of the: a. Aleatory contract b. Valued contract c. Entire contract d. Unilateral contract

c. Entire contract

The _______ period is the time allowed to pay premiums after the due date before a policy lapses. a. Nonforfeiture b. Dividend payment c. Automatic premium loan d. Grace

d. Grace

Which one of the following policies allows for a partial surrender? A. Variable Universal Life B. Variable Whole Life C. Ordinary Term Life D. Ordinary Whole Life

A. Variable Universal Life

76.) Which one of the following dividend options creates an immediate taxable event for the policyowner? a. Accumulate at interest b. Paid in cash c. Premium reduction d. One-year term

a. Accumulate at interest

________________ is the principle that an insured must not profit from an insured loss, and should only be restored to the same financial or physical condition that existed prior to the loss. a. Indemnity b. Risk sharing c. Utmost good faith d. Subrogation

a. Indemnity

Annuities are categorized by all of the following except: a. Issuer b. When income benefits begin after the first premium is paid c. Type of investment and which party bears the investment risk d. Timing and amount of premium payments

a. Issuer

How does a policyowner reinstate a lapsed life insurance policy? A. By paying all past due premiums plus interest within 30 days of the insured's death B. By submitting a completed reinstatement application C. By paying past due premiums plus interest and proving insurability D. By paying all past due premiums for the number of years stated in the policy 6.) Which policy's cash accumulation is tied directly to the performance of the stock market?

B. By submitting a completed reinstatement application

Which policy's cash accumulation is tied directly to the performance of the stock market? A. Universal Life B. Variable universal life C. Whole life D. Adjustable life

B. Variable universal life

If a terminally ill insured sells an insurance policy to a third party for less than the death benefit but more than the cash surrender value, the transaction is known as a A. Endowment B. Viatical life settlement C. 1035 exchange D. Replacement

B. Viatical life settlement

A(n) ________ insurer is authorized by the Insurance Commissioner to transact business in California and has received a Certificate of Authority. A. Admitted B. Permitted C. Surplus lines D. Endorsed

C. Surplus lines

If a life insurance policy is said to have failed the 7-pay test, the policy is known as a(n): a. Modified Endowment Contract b. Void Contract c. STOLI Contract d. Irreversible Annuity Contract

a. Modified Endowment Contract

A misstatement of an insured's age is not discovered until after the insured died. The policy was in force for 22 months at the time of the insured's death. What must the insurance company do? a. Pay a death claim based on what the actual premiums paid would have purchased at the correct age b. Cancel the policy due to material misrepresentation c. The company must deny the claim because the contestability period has not yet expired d. Pay a death claim for the full death benefit, deducting the amount of premiums which should have been paid

a. Pay a death claim based on what the actual premiums paid would have purchased at the correct age

Which one of the following policies covers two insureds, but pays the death benefit only after the second death? a. Survivorship Life b. Joint life c. Variable Universal Life d. Variable Whole Life

a. Survivorship Life

All of the following statements about life insurance settlement options are true, except: a. The beneficiary can change the settlement option at any time b. The policyowner has the right to select a settlement option prior to the insured's death c. If the policyowner did not select a settlement option prior to the insured's death, a beneficiary is free to do so d. The settlement option can be changed by the policyowner while the insured is still alive

a. The beneficiary can change the settlement option at any time

If an insured and primary beneficiary both die within 30 minutes of each other as a result of the same accident, the common disaster clause applies as follows: a. Assumes the beneficiary predeceased the insured b. Assumes the insured predeceased the primary beneficiary c. Requires the District Court to determine the order of death based on medical evidence d. Automatically pays a benefit to the primary beneficiary's estate

b. Assumes the insured predeceased the primary beneficiary

While life insurance may be used to fulfill numerous personal insurance needs, it is primarily used for all of the following situations, EXCEPT: a. Providing immediate funds available upon the insured's death allowing survivors to pay creditors, taxes, and the costs of the deceased's final expenses b. Creating an investment vehicle for a specified number of years to accumulate funds to pay for the cost of a child's college education c. Immediate creation of an estate upon death of the insured to help maintain the survivor's standard of living d. Preserving an estate by creating funds necessary to pay estate taxes due upon the death of the insured

b. Creating an investment vehicle for a specified number of years to accumulate funds to pay for the cost of a child's college education

What is the name of the dividend option that is used to offset any or all future premium payments on a continuing basis? a. Reduced Paid-up b. Accumulate at Interest c. Paid-up Additions d. Premium Reduction

c. Paid-up Additions

An applicant's answers to questions in a disability income may be changed at any time except. a. After the application is received by the insurer b. Before the policy is issued by the insurer c. Before the application is submitted by the agent d. After the policy is issued by the insurer

d. After the policy is issued by the insurer

Policy loans may: a. Require the insured is creditworthy before being granted b. Be forgiven by the insurer upon death of the insured c. Exceed the cash surrender value d. Charge either a fixed or variable loan interest rate

d. Charge either a fixed or variable loan interest rate

29.) If the insured dies and the policy proceeds are paid to the beneficiary over a specified period of time, this would be an example of the ___________ settlement option. a. Interest only b. Fixed period c. Life only d. Fixed amount

d. Fixed amount

Which of the following statements concerning federal taxation of individually owned life insurance is true? a. Which of the following statements concerning federal taxation of individually owned life insurance is true? b. Only the death benefit is taxable c. Both the premiums and the death benefit are taxable to the beneficiary or the insured's estate d. Lump sum death benefits are normally received 100% tax free by the beneficiary

d. Lump sum death benefits are normally received 100% tax free by the beneficiary

B decides to buy a single premium immediate annuity with a straight life only income option. How long will the insurer make payments to B? a. For a period of time in which B recovers the initial premium amount or life, whichever is longer b. For a guaranteed period of time, whether or not B survives to the end of that period c. Only until the principal and interest are exhausted d. Only for as long as B is alive

d. Only for as long as B is alive

Which of the following provides information regarding the applicant's medical history to a home office underwriter? a. Part 1 of the application b. An agent's report c. An inspection report d. Part 2 of the application

d. Part 2 of the application

If the primary beneficiary dies and the insured dies later with no other beneficiaries listed in the policy, the proceeds are payable to: a. The estate of the beneficiary b. The tertiary beneficiary c. The contingent beneficiary d. The estate of the insured

d. The estate of the insured

A policyowner agrees to give his entire policy's value over to a creditor as a promise to repay a loan. In the event the insured dies, how much will the creditor receive? a. The balance of the death benefit, after paying not less than half of the death benefit to the beneficiaries b. The outstanding loan balance plus any unpaid interest or fees c. Nothing. Such agreements violate public policy and are void as a matter of law d. The full death benefit

d. The full death benefit

Which one of the following elements is an advantage of group life insurance? a. Evidence of insurability is always required for newly hired employees, and any employee during open enrollment b. The group coverage automatically doubles at retirement c. It is typically permanent coverage with cash value d. The open enrollment and conversion privilege

d. The open enrollment and conversion privilege

If a life insurance policy is issued with questions left unanswered in the application, the A. Contract will be interpreted as if the answer to the unanswered question was not material to the issuance of the policy and the insurer waives its right to contest a claim based on that information B. Policy is null and void C. Insurer can refuse to pay a claim if death was a result of the missing information on the application d. Contract can be contested by the insurer at any time in the future

A. Contract will be interpreted as if the answer to the unanswered question was not material to the issuance of the policy and the insurer waives its right to contest a claim based on that information

Death proceeds paid under the Life Income (Life Only) settlement option are: A. Guaranteed to be paid out over the lifetime of the beneficiary B. Made for a set period of time or the beneficiary's lifetime, whichever is longer C. Guaranteed to be paid out for the lifetimes of a primary and a contingent beneficiary D. A specified dollar amount paid out until principal and interest is depleted

A. Guaranteed to be paid out over the lifetime of the beneficiary

All of the following are true about the automatic premium loan provision, except: a. The automatic premium loan is treated like any other policy loan b. It is available on cash value policies only without an additional charge c. It is available on all policies for an additional premium d. The provision becomes effective if the premiums is not paid by the end of the grace period

c. It is available on all policies for an additional premium

A life insurance contract that violates the "Seven Pay Test" becomes a(n) ____________________. a. Void Contract b. Limited Liability Contract c. Modified Endowment Contract d. Fixed Annuity Contract

c. Modified Endowment Contract

A life insurance transaction in which a new life insurance policy is being purchased and an existing policy will be surrendered, lapse, or forfeited, is known as: a. Extension b. Conversion c. Replacement d. Twisting

c. Replacement

The guaranteed insurability rider provides for which of the following? a. The ability to convert whole life into term b. The insurer guarantees the policy will not be cancelled if the insured's health changes c. The ability to purchase more of the same kind of insurance without evidence of insurability d. The insurer waives the premium in case of the insured's disability

c. The ability to purchase more of the same kind of insurance without evidence of insurability

All of the following are components or features of an Indexed Universal Life (IUL) insurance policy, except: a. The insurer may use the premiums to purchase options and hedges tied to a stock market or other index b. In "down markets" there is no reduction of the cash value due to the markets' declining performance c. The cash value is a liability of the insurer's separate account

c. The cash value is a liability of the insurer's separate account

All of the following are characteristics of a fixed annuity except: a. It offers a guaranteed minimum interest rate and credits a current interest rate which may be higher b. The cash surrender value of the contract is a liability of the insurer's general account c. The insurer bears all of the investment risk d. The cash value of the contract is a liability of the insurer's separate account

c. The insurer bears all of the investment risk

All of the following regarding participating policy dividends are true, except: a. If the sum of dividends received exceeds the total premium paid for the life insurance policy, the excess dividends are considered taxable income b. The dividends themselves are not taxable since dividends are considered a return of unearned premium c. When dividends are left on deposit with the insurance company, the interest earned on the dividends is taxable as ordinary income in the year earned d. Higher dividends are the result of higher mortality and expense costs than the insurer expected

d. Higher dividends are the result of higher mortality and expense costs than the insurer expected

A life insurance policy becomes ____________ after it has been in force for two years from the issue date, even in cases of material misrepresentation. a. Aleatory b. Permanent c. Modified d. Incontestable

d. Incontestable

The sale of an existing life insurance policy to a third-party for more than its cash surrender value but less than its death benefit because the premiums are too high describes which of the following transactions? a. Conversion b. Replacement c. Viatical settlement d. Life settlement

d. Life settlement

The party that has the right to exercise all the rights in an individual life insurance policy is called the: a. Insurer b. Beneficiary c. Insured d. Policyowner

d. Policyowner

If an annuity is described as having accumulation units that convert to annuity units, what type of an annuity is it? a. Fixed b. Equity indexed c. Single premium d. Variable

d. Variable

The cash values of which one of the following policies builds up the quickest? a.) Ordinary straight whole life b.) Indeterminate premium term life c.) Limited pay whole life d.) Single premium whole life

d.) Single premium whole life