FL and CT License Study
Which of these modes would result in the insured paying the least annual outlay for life insurance? A. Annual B. Semi-Annual payroll deduction? C. Monthly automatic bank draft D. Quarterly
A.
Suicidice clause
if somone commits suicide within 2 years from issue date, insurer's liability is limited to a refun of premium. if outside of two years, the insurer must pay out the death benefit to beneficary.
A viatical settlement =
(an arrangement where a terminally ill person sells their life insurance policy to a third party for less than its mature value in order to get money/benefits while alive) agreement between a third party (specializing in such transactions) and a life insurance policyowner (viator) insuring the life of an individual with a life threatening or terminal illness normally with a life expectancy of 2years or less. The firm purchases the policy at 60-80% of the face amount expecting to profit as the new policyowner at the time of calim. IE) insured has a100,000 policy and a viactial agreement of 60,000.upon the insured's death, the new owner could profit up to 40,000.
1.The insuring agreement in a life insurance policy states which of the following? A. The obligation of the insurance company to pay the policy proceeds upon presentation of valid proof of the death of the insured while the policy is in force B. THe insurance company will not pay death claims in the event of suicide or other exclusion named in the policy unless all premiums are paid inadvance. C. The insurance company may refuse to pay a death claim in the event a mistake is found in the original applicatino for insurance at the time of the insured's death D. The policyowner will indemnify the insurance company the policy proceeds if the beneficiary is not named in the application.
A
2. The master policy for a group life plan goes to the employer. What does the employee receive? A. certificate of insurance? B. Change of beneficary form? C. Copy of the master policy? D. Claim form package
A
2. While life insurance may accumlate money that a person could use in retirment, none promise the same long term benefit of a non-qualified annuity, which is ___ A. A stream of income the annuitant cannot outlive B. Tax-free payments for the lifetime of a beneficiary C. Tax-free money for college education or other expenses D. Tax-deferred growth of principal
A
7 A ___ policy has a death benefit that can increase or decrease over time based onstock market performance, guaranteed minium death benefit, and fixed premium A. variable life B. variable universal life C. Equity indexed universal life D. Investment grade whole life
A
The spendthrift laws of each state protect life insurance proceeds against the claims of which of the following? A. Creditors of the insured and/or beneficary B. Primary beneficiaries only C. Contingent beneficiares only D. Creditors of the insured only
A
What must an insurance producer have in order to market variable annuities? A. A securities license as a variable contracts and investment company representative in addition to a life agent license B. A coy of the current prospects to give to a customer C. A good business reputation and noconvictions D. A variable contracts insurance agent license issued by resident state's regulator
A
Which of these annuity distribution options promises the largest possible payment to a single annuitant? A. Life income only B. Life income with a period certain C. INstallment refund D. Lump sum refund
A
Who is required to sign a completed application? A. Producer B. Beneficiary C. Any insurance company officer D. Producer's manager
A
9 A last to die policy would be the most appropriate to recommend to who? A Husband and wife concerned about paying estate taxes after theydie B. Business owner who wants to make sure wife can buy business from his partner if he should die before partner C. a corporation concerned CEO might die before end of employment contract D. 2 business partners concerned about future of bsueinss and want to provide funs to purchase business from decendent's family.
A Joint life (first to die) written to cover 2 lifes as income protection Joint survivorship (last to die) writen to cover 2 or more lives and death benefit isn't paid until the last indured dies.
Which of the following is not a feature of a term life insurance? A. cash surrender value B. Low cost C. Limited duration D. Pure protection
A Term insurance is considered pure insurance and provides a pure death benefit. NO cash value
Reciprocal Insurance Company
A group-owned insurer who main activity is risk sharing. unincorporated, and is formed by individuals, firms, and business corporations that exchange insurance one one another. Each member is know as a subscriber and each subscriber assumes a part of the risk of all other subscribers.
A flexible premium deferred annuity permits all of the follwoing except: A. Payments to the annuitan beginning within one month of the issuance of the contract B. Scheduled and unscheduled additions of principal at any time prior to annuitizatoin C. Limited partial surrenders each year not subject to a surrender charge D. Annuitization at any time
A. Benefits begin more than one year from issue date.
11. which principal of insurance restores the insured to the same economic condition that existed before the loss? A. Indemnity B. Insurability C. Adhesion D. Underwriting
A. Indemnity The insured should not profit from a loss. Restores the insured to the same financial or economic condition that exised prior to the loss contract of adhesion - one party writes the contract without input from other party.
5. Which of the following individuals represents the insurance company when selling an insurance policy? A. Producer B. Broker. C. Adjuster D. Insurer
A. Producer (agent) Broker = a licensed individual who negotiates insurance contracts with insurers on behalf of the applicant. a broker represents the applicants and doesn't have legal authority to bind the insurer. Insurer (princiapl) = source of authority from which the producer must abide. insurerer appoints the producer to act on its behalf in transacting the business of insurance.
14. Underwriting factors used to determine premium include all except: A. Age B. Marital Status C. Gender D. Hazardous occupation
Age, gender, tobacco use, medical history, hazardous hobbies, and hazardous occupations. B. Marital status
Self-Insurers
Assume all of the financial risk faced without transferring risk to insurer.
3. The grace period in a life insurance policy is typically 31 days, which allows: A. The insurance company to delay payment of the death benefit while it determines the validity of the proof of death B. The payment of the premium after the due date without a penalty or lapse in coverage. C. The payment of the premium after the due date with a maximum 5% penalty D. The policyowner to reinstate the policy before it laps
B
8 What "jumps" in a jumping juvenile policy A. Premium jumps 5 times over the life of the policy beginning atage 21or 25 B. Face amount jumps one time, usually to five times the amount of insurance at age 21 or 25 C. Premium increases by a factor of five on the children's 21st or 25th bday D. Premium and face amount jump by a factor of five after the children's 21st or 25th bday
B
A personal use of life insurance does which of the follwing? A. Creates an insurable interest B. Creates an immediate estate C. Provides protection against living too long D. compensates a business for the death of key person
B
What is "fixed" in a fixed annuity? A. The annuitant B. The interest crediting rate C. The beneficiary D. The investment option in the seperate account
B
Which of the following is not true about life insurance applications? A. The application more fully identifies the insured B. The application is confidential communication between agent and insured C. The application may contain all the info underwriting needs to approve insured D. applications for life insurance are typically divided into two parts: genearl info and health history
B
When a group insurance plan is identified as contributory, it means all of the following EXCEPT A. Employees pay a portion of the cost of their benefit B. Employers must enroll 100% of eligible employees C. Employees must be eligible to participate D. Employers are responsible for collecting the premiums employees pay
B contributory = 75% of all elible employees must participate, employees must contribute to the premium payments noncontributory - employer pays enitre premium with a mandatory 100% of eligible employees participating.
9. Interest only, life income with period certain, lump sum, and life income only are all forms of which of the life insurance policy options? A. Nonforfeiture options B. Settlement options C. Dividend options D. Beneficiary options
B Settlement options: IE) interested only, fixed amount, fixed period, life income otion Nonforfeiture options (guaranteed values) = found in polcies that accumulate cash values and protect the policyowner against total loss of benefits if the policy should lapse due to nonpayment of preium. IE) cash surrender, reduced-paid up, and extended term Divdiened options - available on policies issued by mutual insureres. issued annually. IE) cash, premium reduction, accumulate at interest, paid up additions
12 A viatical settlement is made between a purchaser of a person's life insurance policy and ____?
B - The terminaly ill insured who mus receive at least as much as would be available from the insurance company under any full cash surrender or living needs rider.
What is the difference between a corporate owned nonqualifed annuity compared to an individually owned nonqualifed annuity
B Interest or gains are taxable as income in the year earned
When the owner an annuitant is the same person, a spouse beneficary is permitted what choice under the Internal Revenue Code if the annuitant dies prior to annuitizing the contract?
B To adopt the annuity as his/her own and become the annuitan or to name another annuitan.
13. A warranty is defined as which of the following? A. intentional misrepresentation of the application? B. Statement in the application that is guaranteed to be true? C. false statement in the application? D. What a reasonable and prudent buyer can expect?
B.
All of the following are examples of a third party ownership EXCEPT: A. J is named as the owner and beneficary of G's policy B. S. Applies for a policy on herself and names her husband as the beneficary C. T. Applies for and owns his 2 year old son's policy but names his wife beneficary D. J applies for his life insurance policy and names his trust as the owner and beneficary
B. Third party ownership is a policy owned by a person other than the insured.
9. Dishonest tendencies that increase the probability of loss are what types of hazard? A. Physical B. Moral C. Emotional D. Legal
B. Moral
If an insurance company wants to transfer all or part of the risk it has accepted, it would by which of the following types of insurance? A. Residual B. Reinsurance C. Reciprocal D. Insurer
B. Reinsurance
What is the face amount of insurance? A. cash value B. the limit of liability C. cash surrender value d. maxium loan value
B. The death benefit amount or coverage.
1 In a group life insurance plan, the employee has control over which of the following? A. Choice of insurance company B. Type of policy C. Choice of beneficary D. Mode of premium payments
C
5.Policy loan provisions include all of the following, EXCEPT A. Interest is charged annually B. Unpaid interest is added to the value of the loan C. The death benefit of a policy is automatically reduced when a loan is requested. D. Outstanding loans will be deducted from the face amount of any claim
C
6. A contingent beneficary has the right to which of the following? A. share in the death benefit with the primary beneficiary B. Prevent the policyowner from taking a loan against the cash value C. The policy proceeds only when there is no primary beneficiary D. The policy proceeds if the primary beneficiary is a minor chlid
C
All of the following are correct regarding an annuity, EXCEPT A. an annuity can be immediate or deferred B. An annuity can be paid with a single premium or periodic premium C. An immediate annuity must start proving income within 3 years of the first premium payment D. The accumulation an annuity grows tax-deffered
C
Dividend options don't include which of the following: A. Refund in cash B. Reduce premiums due C. Lifetime income D. Paid-up additional insurance
C
When a whole life policy endows (matures), what happens to the policy's cash value? A. Cash value reverts to insurance company B cash value deducted from death benefit remainder paid to policyowner. C. face amount of policy paid to policyowner' D. cash value is only found in term policies not whole life
C
Which is characterisic of universal life policy? A. Fixed death benefit, premiums may be incresed or decreased? B. Adjustable death benefit, premiums are fixed for life? C. Death benefit options, premiums fixed for life? D. Dath benefit options, death benefit and premiums may be changed
D
2. What is meant when a life insurance policy becomes incontestable? A. After 2 years, the insurer will not argue about which beneficiary is primary or contingent B. After 2 years, the insurer will only pay for suicide if the insured was insane at the time C. After 2 years, the insurer will not refuse to pay a death claim based on misinformation in the original application for insurance. D. After 2 years, the policyowner cannot sue the insurer for misstatements made by the producer in the sale of the policy.
C insurer has two years to contest a claim and void a contract upon proof of misstatment or fraud.
10 Disabilty income rider
C pays a percentage of the death benefit as a monthly income to the insured when totally disabled.
2. A business owner buys a life policy on his own life. He may be all of the following except: A. owner B. Applicant C. Beneficary D. Insured
C.
An applicant for life insurance realizes several days later taht she may have answered a qestuion about a health issue incorrectly. She should do which of the follwing: A. Nothing. B. Wait C. Contact agent. D. Hope that nothign happens
C.
What approach is when a producer takes into consideration the existing mortgage, other debt, future education expenses, and continuing income for spouse? A. human life valvue B.The DIME method C. Needs analysis C. The NAIC model
C.
3. Which of the following is an insurance company that is organized under the laws of another state within the united states? A. Domestic. B. Alien C. Foreign D. Authorized *Domicile refers to the state in which an insurer incorporated
C. Foreign
6. Which of the following type of authority does the public assume an agent has when quoting insurance? A. Authorized? B. Express C. Implied D. Apparent
C. Implied
10. Each of the following must be included in an insurable risk, EXCEPT: A. Calculable chance of loss B. excluded catastrophic perils C. Large group with dissimilar members D. accidental loss
C. Large group with dissimilar members Needs to be a large group with similar members
4. A "level term" policy means that the ___ remains the same throughout the lifetime of the policy A. cash value B. pure cost of insurance c. Policyowner D. Policy proceeds
D
4. What is the primary advantage to the policyowner in the reinstatement of a life insurance policy? A. The insurance company cannot start a new period of contestability. B. The insured is not required to prove insurability if under age 40 C. All policy loans that were outstanding at the time of lapse are forgiven and full cash is restored D. The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium.
D
7 Which of the following is a reason why "class" designations of beneficiaries may be a problem? A. They are indended to allow unnamed persons to share policy proceeds B. They specifiy the exact persons who may claim policy proceeds? C. they prevent contingent benefiicarys from being named? D. They are vague descriptions of beneficiaries that could result in a court having to decide which person will or will not receive the policy proceeds?
D
A contract that is designed to accumulate value over time with the intent to distribute the funds over the lifetime of an individual is called___ A. Whole life insurance B. Variable life insurance C. An endownment D. An annuity
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 ofthe fact finding datea collected on the initial sales appointment C. A copy of the buyers guide to health insurance D. A copy of the illustration that matches the policy for whic hwas approved
D
Information from a third party collected by the insurance company in the application for insuracne and during underwriting of the polcy may be subject to the jurisdiction of the A. unfair claims practices act B. Deceptive trade practices act. C. Fair claims reporting act D. Fair credit reporting act.
D
Which best describes group life insurance? A. single policy for individual for husband, wife, children b. multiple polices issued to an employer to cover a specific group of executives C. single policy issued to a group of indivudals who have formed an alliance to obtain life insurance at reduced rates D. single policy issue to a business to cover lives of employess
D
Which is incorrect of limited-pay insurance? A. paying over a shorter period of time = each of the payments will be higher B. paying over a longer period of time = wlil make total payments higher C. A polic is fully paid up at age 65, won't endow until age 100 D. by paying over a shorter period of time,each of the payments will be lower
D
In a credit life plan, who is the beneficiary? A. wife of insured B husband of insured C children of insured D. Creditor
D form of individual coverage on the life of a debtor or group insurance issued to creditor for the benefit of creditors.
11 What does a long-term care rider do that a living needs (terminal illess rider does not?
D - provides up to 100% of the death benefit in a daily or monthly amount for the non hospital expenses of a chronically ill person who cannot perofmr any two of the six activities of daily living.
A "joint and a 1/2 survior" Distribution option means what?
D When one of the joint annuitants dies, the survivor's continuing payments will be one-half of the total payment both were recieving.
7. A producer has each of the following responsibilities to the insurer, EXCEPT: A. A fiduciary duty B. Forwarding premiums o the insurer on a timely bassis C. Reporting material facts that may affect underwriting D. A duty to recommend only high premium policies
D. A duty to recommend only high premium policies
A federal regulation called the ___ protects consumer privacy. A. Consolidated Omnibus budged reconciliation Act B. Fraudulent Insurance Act. C. Privacy Protection Act D. Fair Credit Reporting act
D. Fair credit reporting act
12. Each of the following is an element of a legal contract, EXCEPT A. Consideration B. Legal purpose C. Agreement D. Indemnity
D. Indemnity the four elements of a legal party are Competent parties (no drugs, mental incompetent) legal purpose (contract) agreement (offer, accept) consideration (money = agreement)
4. Which insurance company department accepts the insurance risk? A. Executive B. Actuarial C. Claims D. Underwriting
D. Underwriting
Domicile refers to the state in which an insurer incorporated: Domestic insurer: Foreign insurer: Alien insurer:
Domestic - insurer organized under the laws of the state. Ie New york = new york. Foreign - organized under the laws of another state or district of columber. IE) insurer incorporate in new york = foreign to kansas. Alien = organized under the laws of a country outside of the U.S.
Distribution models include: Exclusive or captive agency system *direct writing system *independent agency Career agency system personal producing general agent Direct mail or direct response company mass marketing
Exclusive or captive agency system - deals with insured through an exclusive or captive agent (agent represents one company or group of companies having common ownership). Insurer retains ownership rights to the business written by agent. *Direct writing system - an agent can be the employee of an insurance company that owns the agent's book of business. *independant agent - independent agent or agency enters into selling agreements with more than one insurer. They retain ownership of their books of business Career agency system - agents are recruited, trained, and employed, contracted with insurance company. Personal producing agent - Doesn't recruit career agents. Sells insurance for contracted carriers Direct mail or direct response - insurers who sell insurance policies directly to the public with licensed employers or contracters. Mass market - targets a specific type of insurance to a large group of people such as the american association of retired people AARP.
Management includes: Executives Actuarial Department Underwriting Department Marketing/Sales Department Claims Department
Executives: oversee the operation of business Acturial - gather and interpret statistical info use in rate making. Underwriting - Selects people or property to insure and rating that determines premium policy. Marketing/sales - advertise/sell Claims - assists policyholder/insured/beneficary to pay claim in event of loss based on contract requirments and insured amount.
Producer (agent) = appointed by an insurance company to represent it and to sell policies on its behalf. They act with one or more of the following THREE types of authority: 1. express 2. Implied 3. Apparent EIA (eating inside Always)
Express - authority that is written into the producer's contract. An example would be the producer's binding authority if written in the contract. Implied- authority the public assumes the producer has. an example would be the business activities of providing quote, compleig applications, and accepting premiums. Apparent - authority created when the producer exceeds the authority expressed in the agency contract. Company provides individual items such as business cards or a company truck with logo (but this person has no authority to make decisions or to contract)
Surplus Lines Insurance
Finds coverage when insurance cannot be obtained from admitted insurers. However, it cannot be utilized solely to receive lower cost coverage than would be available from an admitted carrier. *each state regulates the procurement of surplus lines insurance in its stated. *can be placed though non-admitted carriers. non-admitted business must be transacted through a surplus lines broker or producer.
Insurable interest
For life insurance, it must exist only at the time of application, but not at time of loss. property/casualty = time of loss
*Mutual Insurance Company
Issues participating policies and is owned by it's policyholders who may receive NONtaxable dividends as a return of any divisible surplus.
Insurable risks must include: - large number of homogeneous (same) units or groups with the same perils -calculable -measurable -premiums must be affordable -accidental *CATASTROPHIC PERILS AREN'T COVERED (war, illegal operations)
Law of large numbers - as the number of units in a group increases, the more likely it is to predicat a particular outcome
A _____ insurance company is owned by it's policyholders. A. Stock B. Reciprocal C. Fraternal Benefits Society D. Mutual
Mutual
LLoyd's of London
Not an insurance company, but consists of groups of underwriters called Syndicates, which specialize in insuring particular type of risk. members are individually liable for each risk they assume.
Risk Retention Groups (RRG)
Owned by their policyholders and licensed in at least one state. May insure members of the group in other states.
The Fair Credit Reporting ACT (FCRA)
Protects consumer privacy by ensuring that any data collected by an insurer remains confidential, and is accurate, relevant, and used for a proper specific reason
Admitted vs Non-admitted
Refers to whether or not an insurer is approved or authorized to write business in this state. The domicille does not impact whether an insurer may be admitted to do business in this state. -Admitted (authorized) insurer is authorized by this stat's commissioner of insurance to do business in this stated and has received a CERTIFICATE OF AUTHORITY by the state's department of insurance to do business in this state. - Non-admitted (unauthorized) insurer has either applied for authorization to do business in this state and was decline or they have not applied. They're not authorized to transact insurance in this stated. *excess lines insurance can be placed through non-admitted carriers.
The law of agency
Relationship where a principal authorizes an agent to act on its behalf in the business of insurance. An act of the agent is an act of the agent's principal.
Risk peril Hazard
Risk - the condition where the chance, probability or potential for a loss exists. Types: Speculative risk - gambling, investing. Chance for loss or gain. Pure risk - no chance for gain, only loss. damage to property by fire. Loss - reduction, decrease, or disappearance of value. A loss is the basis of a claim under the terms of an insurance policy. Peril - causes or source of loss (fire, disease) Hazard - specific condition that increases the probability of a loss. THREE TYPES OF HAZARD: are physical, moral, and morale physical- physicall increases likelihood (putting flammable material near a furnace) moral -dishonest tendencies. burning down house to collect insurnce payout. moral - attitude or indifference. driving too fast, ignoring stops signs.
_____ Are group-owned insurers that primarily assume and spread the liability related risks of its members. A. Risk Retention Groups (RRG) B. Self-Insurers C. Lloyd's of London
Risk Retention Groups
Five ways of managing risk STARR
Sharing - spreading risk amont a large group of people transfer, - transfer risk from consumer to an insurance company Avoidance - avoid risk , Reduction, - cameras/burglar alarms to prevent risk Retention - choosing deductibles or assume responsibility for loss.
*Reinsurance companies
Transfer of risk between insurance companies. The risk of loss is shared with one or more insurance companies. All contractual obligations are on the original (primary company) and consumers have no direct contact with reinsurance companies. Reinsurance = affordable. No single insurance company is exposed to 100% of the losses it insures. Types of reinsurance agreements: Treaty - agreement that automatically accepts all new risks presented by the ceding insurer (company seeking or requesting the reinsurance from reinsurer) Faculative - agreement that allows the reinsurance company an opportunity to reject coverage for individuals risk or price them higher due to riskier nature.
Whole life Universal life Variable life Variable universal life
Whole life = fixed death benefit, guaranted cash valuve, fixed premiums, loans avilable, insurer has risk universal life = adjustable; guaranteed minimum death benefit, guaranted minimum cash value, flexible premiums, loans and partial surrenders, insurer has risk variable life = fixed; guaranteed minimum death benefit, not guaranteed cash value, fixed premiums, loans available, policyowner has risk variable universal life - adjustable, no guaranteed minium death benefit, not guranteed cash value, flexible premiums, loans and partial surrenders, policyowner has risk
Residual Markets
a last resort private coverage source for businesses and individuals who have been rejected by the voluntary insurance market.. Coverage is typically workmen's compensation, personal auto liability, or property insurance on real property
Absolute assignment - owner or assignor names a new owner. new owner then = permanent assignmetn. collateral assignment - doens't cause permanent change in owernship. Temporary assignemtn.
absolute - owner of juvenile policy is name child new owner once turns 18 collateral - owner of policy takes out loan to use as life insurance policy as collateral for loan in case he dies prior to paying off loan. owner may temporarily assign to the policy to creditor until loan is paid off.
*Stock Insurance Company
company isues non-participating policies and is owned by stockholders or shareholders. Dividends aren't guaranteed, but they may receive taxable corporate dividends as a share of company's profit if and when declared by directors.
Gross premium vs net premium mortality - interest = net premium net premium (mortality - interest) + expenses = gross preium
gross premium = total amount paid for policy. net premium = doesn't include insurance company's cost of doing business such as paying claims.
The state commissioner, supervisor, or director of insurance -
is the chief insurance regulator and has the power to issue rules and regulations to enforce state insurance statutes.
Fraternal Benefit Societies
primarily social organizations that engage in charitable and benevolent activities . Usually organized on a non-profit basis. Consists of members of faith, lodge, or society.
Beneficiaries revocable - policyowner may change at any time irrevocable - policyowner can't change uless beneficiary dies or provides written consent. Primary contigent or secondary teritary
primary = 1st in line contingent = 2nd up if primary dies teritary = if both above die
Classifications of risks for underwritiers -standard risk -preferred risk -substandard risk (higher risk exposure) -Declined
standard = people who have the same health/habits/sex/gender, and occupational characteristis as reflect in the mortality table. Average life expectancy preferred = ideal health, height, weight. Lower premiums. longer than average life expectancy. Substandard risks = not acceptable at standard rates because of poor health, bad habits, or occupational hazards. Issued rated policies known as SURCHARGES= -graded (lien) plan = initaly, only the preiumium would be refunded in case of death. Death benefit increases over time with the full face amount eventually payable. Normally used with senior life -rated up age - rates an insured at older than actual age -flat rate - student pilot or someone who has a hazardous hobby. A constant dollar amount added to the standard rate per 1,000 of coverage. if standard preiumis $25 annually for $1000 of insurance with a flat rate of $5/$1000, new total preium per $1000 is now $30. -tabular rate - a surcharge is calculated using a table showing past claims history of indivudals with similar impariments. decline = insurere refuses to issue insurance.
Loss exposure = the conditation of being at risk of loss
to an insurance company, each insured person or their covered property represents the risk of loss and the value of each potential claim is know as loss exposure.
Mortality - interest + expenses =
total premium paid to the insurer
Free look allows the policyowner # of days to look it over and has the right to return if or full refund of any preiums
usually 10 days