Illinois Insurance Pre-Licensing Exam 2017 (Life)
J has a 20 year mortgage and is looking for a policy to cover her home loan if she were to die before the house is paid off. J should buy:
20 year decreasing term
Which of the following is a prohibited investment option into which to place Premium Fund Trust Account monies?
A brokerage account in which options futures are traded. PFTA money must be put in safe, secure and conservative accounts as regulated by state law which strictly prohibits placing such monies into accounts where risk to principal is great such as securities options, stock futures or purchasing equities on margin.
Under the Life Insurance Solicitation Rule, a Policy Summary need NOT include:
A definition of Whole Life Insurance A policy summer, under law, is required to contain the names of involved parties, loan interest rate, and statements about dividend use.
Many years ago G bought a life policy. Since then G decided to replace that coverage with a policy that was purchased firsthand through the insurer and then delivered constructively. This is an example of:
A direct-response sale Since there was no agent with sale or delivery this is an example of a direct response transaction.
All of the following are characteristics of a Variable Life Policy EXCEPT:
A fixed interest rate.
B has a disability policy and is employed as a construction worker. Which of the following statements would be CORRECT about B's policy?
B will have high premiums and a low benefit amount. Because B works as a construction worker which is a hazardous occupation it is most likely that if a policy were approved, premiums will be higher and benefits would be lower compared to a less-hazardous occupation, with all other underwriting factors being equal.
N has a PPO and has a terrible sinus infection. N decides to go straight to an in-network Ear, Nose and Throat specialist for an office visit. Which of the following is most likely to occur?
The PPO will cover N's claim and give the best discount under the contract. In a PPO, there is no referral requirement. Therefore, N's claim will be covered at the lowest possible cost because it was performed in-network.
In a 3-year-old policy that is being reinstated, the Incontestable clause pertains to statements made on which of the following documents?
The application for reinstatement. The Incontestability clause will be based off the reinstated policy because reinstatement is contingent on current health of insured. Therefore if an insured committed fraud to reinstate, the insurer can protect themselves.
When endowment occurs in a straight whole life policy:
The cash value equals the death benefit amount.
What is the advantage to buying Equity Index Life Policy?
The cash value is guaranteed and in good years, interest exceeds a fixed product. With an equity index, although rates may fluctuate, in good years the product will beat a fixed life policy, and in bad markets there is no threat to losing cash value but may not gain any interest.
All of the following are true about decreasing term insurance EXCEPT:
The coverage will decline over time. It is the least expensive term policy. EXCEPT: Cash Value is Guaranteed (Decreasing term does not build cash value) Uniformly decreasing term death benefit goes down by the same dollar amount every year until the policy expires.
All of the following is CORRECT about Investor Originated Life Insurance EXCEPT:
The department of insurance allows a producer to write one IOLI policy per year. Correct answers: It is an illegal transaction It is also known as a STOLI It violates insurable interest
Which of the following is true about Flexible Premium Annuities?
The income can only be deferred With a flexible premium annuity payment, the only option to withdraw income is deferred (FPDA)
In a Variable Universal Life policy, which party bears all investment risk?
The insured Since rates of return are never guaranteed in the separate account of a Variable Life Policy, the insurer bears all investment risk.
HMO policies:
are a managed care approach to preventive care services. HMO or Health Maintenance Organizations are managed care policies the stress preventative care.
IRA contributions:
Are made in cash and tax deductible
Regarding Annuities:
Benefits usually STOP upon death of the annuitant.
Who would be responsible for paying the premium for a life policy that would have the Payor Benefit Rider attached?
Parent/Guardian In a policy that has a Payor Benefit rider, the premium payor would be the parent or guardian of the insured because the insured is a minor child.
Under a life policy's Settlement Options, the beneficiary has a right to take all of the following actions EXCEPT:
Receive the policy proceeds under the Life Income option for two years and then convert to the Interest Only Option. The policy owner has the right to select the settlement option and it cannot be changed by the beneficiary.
T owns and is insured by a life policy. T has no other living family members except his minor daughter. If T were to die, he would like the proceeds to go to her, but is unsure how to make sure his daughter will receive the benefits should something happen to him. T's producer should recommend:
Set up a living trust to protect his daughter as a minor. If an insured has a concern about protecting a minor beneficiary it is advised the producer recommend setting up a living trust.
Which of the following is a short term strategy for funding an annuity?
Single Premium (The most limited way to fund an annuity)
The name of the organization that made the Payment of Claims provision mandatory in all health policies is:
National Association of Insurance Commissioners The NAIC or National Association of Insurance Commissioners established the mandatory provisions found in health policies in 1950
A Whole Life policy would be deemed by the IRS as a:
Non-qualified Tax Plan Since life insurance premiums are not tax deductible and benefits are paid tax free, a whole life policy would be an example of a Non-qualified life plan.
In which of the following policies would the death benefit decrease over time?
Decreasing Term In a Decreasing term policy, the death benefit declines until death or policy expiration.
What type of application must be filed to obtain a business entity license?
Uniform Business Entity Application
Adverse Selection would fall under which underwriting class?
Uninsurable Risk Adverse Selection is just another way of saying an individual is uninsurable because the risk potential is too great for the insurer.
K has a life insurance policy that allows him to skip premium payments but still keeps the policy in force. What type of policy does K have?
Universal Life Universal Life allows a minimum and target premium in which the policyholder can flexibly pay for their premiums.
In a life insurance transaction, an offer is made when:
When an insured applies for coverage.
Producer S has just collected the first year premium and an application from a client. Within how many days is S expected to turn the money over to the insurance company on whose behalf S collected the premium?
Within 15 days. The law says that a producer who holds premiums funds in excess of 15 days without depositing them into a PFTA has breached their fiduciary duty.
All of the following amounts of premiums which are misappropriated by a producer are considered to be a felony violation:
$150 Misappropriating more than $150 is a Class 3 felony.
A Viatical Settlement Provider license has a renewal fee of:
$1500
A producer violates the written order from the Director pertaining to their market conduct activities. What is the maximum civil penalty that can be assessed by the Director against a producer in this circumstance?
$20000 Any person who violates, or aids or abets the violation of, a written order of the Director pertaining to market conduct examination, is subject to the possible suspension, revocation or denial of license in addition to a civil penalty maximum of $20000.
The fine for willful violation of the Fair Credit Reporting Act is?
$2500 Civil penalty up to...
What is the total fee a producer must pay to reinstate a lapsed license within the allowed statutory period?
$360 The penalty to reinstate a lapsed license is the requirement of the producer to pay a double license fee which will total $360.
What is the maximum number of continuing education credits which can be earned by taking a single certified course?
12 hours
B has a permanent policy that has endowed at age 85. Which of the following scenarios would make this possible?
B has a whole life policy and used a dividend to endow the policy sooner than age 100. When the policyholder selects the endow the policy option as a dividend selection for a permanent policy, the endowment age is accelerated sooner than age 100.
Written notice of an investigative Report must be given within ______ advance notice before the report begins.
3 days
Once a producer has been notified that her license has been suspended by the Director, how many days does she have in which to request a hearing, in writing, from the date the Director mailed the termination notice?
30 days A producer has 30 days from the date a suspension, revocation or denial notice is mailed by the Director in which to make a written demand for a hearing on the matter.
How long does an insurance agency with a business entity license have to notify the Director pertaining to a change of business address?
30 days Change of address notice is required by all producers and business entities within 30 days of the move.
If an insured leaves a group they are allowed to convert their group coverage to an individual policy within ____ days.
31
MAY NOT engage in the business of offering insurance advice for a fee:
A CPA can offer advice about insurance matters and charge a fee but cannot solicit the sale off insurance without the appropriate producer licensing authority.
If an individual sells insurance without a license and steals premium funds collected, this person is guilty of:
A Class 4 felony.
Who would be the insured on a policy that contained the Payor Benefit rider?
A Minor Child A Juvenile insured would be covered under a policy with a Payor Benefit rider which waives all premiums until adulthood if the parent/guardian who pays the policy were to die or become disabled.
A Viator has 15 days to rescind a Viatical Settlement even though payment has not yet been processed.
A Viator has 30 days to stop a Viatical Settlement if no payment has yet been made.
The Waiver of Premium with Disability Income rider can be added at extra cost to a policy. What will determine how much disability income is paid with a qualifying loss?
A percentage of the Face Value With a Waiver of Premium with Disability Income rider, the benefit amount depends on the percentage of the face value of the policy.
A producer explaining that a senior's policy is endorsed by the federal government
A producer cannot imply that benefits are endorsed by government agencies. All of the remaining answers are excluded from advertising regulations.
Change of Address:
A producer has 30 days in which to report to the Director a change of residential address.
V has just paid money into a variable annuity and purchased:
Accumulation Units When an annuity owner funds a variable annuity, they purchase accumulation units which is the individuals ownership value in the insurer's separate account.
Which of the following best explains the taxation of a Life Settlement?
Additional profit up to current cash value amount is taxed as income and any payment exceeding cash value is subject to capital gains taxation. According to Life Settlement taxation IRS Revenue Ruling 2009-19, any additional profit up to current cash value amount is taxed as income and payment exceeding cash value is subject to capital gains taxation.
A famous actor endorses a whole life policy and states that he has had the same coverage and is extremely happy with the policy. It is found soon thereafter that the actor does not currently have or previously had a policy. Under which regulation would this be considered an unlawful action?
Advertising Law Under advertising law, all testimonials and endorsements must be truthful and genuine.
Regarding who needs producer license:
All persons who work with or for an insurance company, who are not being paid a direct commission based on the sale, solicitation or negotiation of an insurance contract are exempt from licensing requirements.
Which of the following activities does not require a producer license?
An attorney licensed to practice law who advises his client about a life insurance matter. Illinois law requires a person to possess an insurance producer license in order to sell, solicit, negotiate, continue or bind insurance risks within the state. Attorneys may offer advice about matters incidental to insurance and charge for their time without a license required.
C, who is currently a college student wants a short term, inexpensive temporary policy with a level death benefit. C should buy:
Annual Renewable Term Being that C is a young person and wants inexpensive premiums, Annual Renewable Term would give short term coverage and the cheapest rates due to the fact that C is so young and ART cost is based off attained age rates.
X has a policy that is temporary and has a level coverage however, X's premiums increase every year based on attained age rates. X has a(an):
Annual Renewable Term In annual renewable term (ART) insurance, the death benefit stays level, it is temporary coverage and the cost of insurance increases every year based on attained age.
Who receives income from an Annuity contract?
Annuitant The annuitant is the name of the person who receives income when an annuity pays out at annuitization.
The best definition of a "fiduciary" is
Any licensed person who collects money in the course of their employment. A fiduciary is a person who is in a position of trust in which they handle the money of other people in the course of their employment and who are expected to tender the funds to the appropriate party in a timely manner.
How often must accounting posting occur with a Premium Fund Trust Account (PFTA)?
At least every 30 days A PFTA must post all transactions no less often than every 30 days. A producer who fails to do so is considered incompetent and untrustworthy which can lead to license termination.
Rip Off Auto Mechanics have a group policy covering each employee for $100,000. Which of the following statement best describes the tax implications of this group's policy?
Benefits are paid tax free, but any premiums paid on benefits in excess of $50,000 is taxable wages to the employees In group life, premiums paid by the employer are always tax deductible however, premiums paid on benefits exceeding $50,000 are income taxable as wages to the employees covered by the group policy.
COBRA benefits:
COBRA benefits are continuation benefits for employees that used to be covered under a group of 20 or more. The individual must pay all premiums solely while under COBRA benefits.
Which of the following factors is acceptable to use on the part of an insurer in determining premium pricing in the insurance marketplace?
Charging an fifty-year old person more premium for life insurance than a thirty-year old. Basing premium rates on blindness, whether partial or total or property insurance based on geography are illegal trade practices. Basing life insurance rates on the age of the insured is accepted and sound actuarial science.
Misrepresentation:
Civil fines for misrepresentation can range between $200 and $10,000.
Single act of Misrepresentation:
Civil fines for misrepresentation can range from between $200-$10000
Survivorship life is a form of:
Combination Plan Survivorship life is a form of combination insurance where two or more lives are insured under one policy.
In which of the following policies would the death benefit decrease over time?
Decreasing Term In a decreasing term policy, the death benefit declines until death or policy expiration.
What kind of loss would activate the Waiver of Premium rider on a life policy?
Disability A disability caused by injury or illness would cause the waiver of premium rider to go into effect.
Which of the following policies can offer returns linked to a stock index without any threat to cash value?
Equity Equity Index life insurance policies allow the cash value rate or return to be based on an index's performance without losing any cash value.
D has a flexible premium policy on his daughter that gains interest from the S&P 500 but does not lose any cash value in poor market conditions. D has:
Equity Index Universal Life Equity Index life insurance is sometimes marketed in Universal Life format in the fact that premiums are flexible, but still have floor and cap guarantees on cash value.
Variable Whole Life requires
Fixed and Level Premium Although the interest rate is not guaranteed, Variable Whole Life requires a fixed and level premium payment.
All of the following premiums for life policies purchases by a business are not tax deductible EXCEPT:
Group Life Group life premiums paid by an employer are tax deductible.
H let their policy lapse and is now asking the company for reinstatement. Which of the following will occur?
H may have to pay back all premiums plus interest H may have to prove insurability to be reinstated The insurer may deny coverage due to reasonable cause The insurer can deny reinstatement based on underwriting which may be required for reinstatement. If H was to be reinstated, premiums plus interest would like have to be paid back to restore the policy to its original status.
Which of the following plans would be considered to be Tax Qualified by the IRS?
IRA, Keogh, Annuity purchased through an IRA
R purchased a life policy in which the agent described that the actual cash value rate or return could fluctuate depending on market performance, but still guaranteed a minimum rate or return. R purchased a(an):
Interest Sensitive Whole Life Interest Sensitive Whole Life offers a minimum guaranteed interest rate, but the rate can fluctuate depending on market performance.
Which of the following policies offers a minimum guaranteed interest rate?
Interest Sensitive Whole Life Interest Sensitive Whole Life offers a minimum guaranteed interest rate, but the rate can fluctuate on market performance.
Regarding Index Annuity:
Interest rate performance depends on an index of stock market and guarantees principal. Interest can be allocated to the account month to month or year to year. Equity index annuities provide guaranteed principal and a return based off an index of the stock market which can be applied monthly or annually.
Each of the following is true regarding a Joint Life policy:
It insures two or more lives at the same time. It insures two or more lives under one policy. It pays the death benefit when the first insured dies. EXCEPT: Only one insured must be healthy for the policy to be issued. (Since Joint life is a first to die policy, it requires all insured to be insurable at application time)
Why do insurers place exclusions in life policies?
It is actuarially unsound to insure certain risks.
Written defamation is know as:
Libel It is libel when unfounded written statements are made to intentionally injure the reputation of another.
Which of the following would be an example of a Limited Pay Whole Life policy?
Life Paid @ Age 65. Life Paid @ age 65 is an example of a limited pay whole life policy because the policy is paid up sooner than age 100.
B no longer needs her policy because she has won the lottery. B has explored a possible transaction where she can sell her policy for more than the cash value, but less than the death benefit while she is still alive. This transaction is known as a(an):
Life Settlement Life Settlements allow an insured to sell their policy for more than the surrender value and less than the face amount. There are many situations in which an insured would consider life settlements including, divorce, loss of job, retirement, and sale/termination of a business.
A policy that provides coverage for losses over an extended period of time up to a maximum benefit limit is known as a:
Lifetime Limit Benefits that are covered for an extended period of time up to a maximum dollar amount is a lifetime limit.
Company Q, a health insurer headquartered in Indiana is advertising directly to Illinois residents about their health plans but Company Q is not a licensed insurance company in Illinois. Company Q is violating which of the following Illinois insurance regulations?
Misrepresentation It is misrepresentation in Illinois for an insurer without a certificate of authority to advertise or prospect for sales leads in Illinois.
All of the following statements regarding the Misstatement of Age provision is not correct EXCEPT:
Misstatement of Age is an optional provision. Misstatement of Age provision is optional in individual health policies that will not cancel a policy. In addition, it allows the insurer to adjust the claim benefit to the correct age of the insured. The other remaining answers are all not correct about the provision.
Which of the following whole life policies would require premium payment annually?
Ordinary Whole Life Ordinary/Straight whole life premiums are level and paid annually for life.
All of the following Premium Fund Trust Account disbursements are allowed EXCEPT:
Payment to producer's business phone carrier. A producer is not allowed to use PFTA money to pay operating expenses.
The part of a contract that allows an insurer to deny benefits under a PPO policy because the subscriber didn't giver advanced notice before a covered procedure is known as:
Pre-authorization/Prior Approval Requirement Pre-authorization and Prior Approval is a contractual requirement that the insurer be authorized for a planned hospital stay before surgery takes place. It is common for managed care policies, such as a PPO, to have such a requirement.
Exclusions may include all of the following items EXCEPT:
Preexisting conditions Self-Inflicted injury Injuries received during wartime war activities EXCEPT: Injuries sustained while a far-paying passenger on a commercial airline Although aviation is sometimes excluded except when an insured suffers a loss when they are a fare-paying passenger on a common carrier airline.
K is a single mother and is considering buying a life insurance policy on her 10 year old son to protect his insurability as he grows up. K is concerned that if she were to die, no one would be able to pay for her son's policy. K should consider:
Purchase a Payor Benefit Rider A Payor Benefit Rider would waive premiums until K's son would hit age 21-25 if she were to die while he was still an minor child.
G purchased a level term policy with a rider that pays back all of the premiums if G outlives his policy. What is the name of G's rider?
Return of Premium Rider.
Roth IRA:
Roth IRA plan contributions are NOT tax deductible and funds grow without taxation if withdrawn later according to IRS rules, making withdrawals income tax free.
Of the following statements regarding a producer hearing to determine whether or not rebating was occurring, which is FALSE:
Self-incrimination CAN NOT be used as a defense FALSE: A participant in such a hearing is immune from perjury charges even if perjury is committed in the hearing. A participant in such a hearing is immune from prosecution A producer found guilty of rebating can be fined. Perjury by a participant in a rebate hearing is not immune for prosecution for perjury.
J wants to purchase a life policy but has recently had gender reassignment surgery. Because the policy did not require a medical exam and the surgery was done without record, the insurer did not find out during underwriting. When J dies the insurer will:
The insurer will adjust the death benefit if needed, based off birth sex. Misstatement of Gender is not a material misrepresentation and if found at death, the insurer will adjust the death benefit based on the birth sex of the insured.
H is 65 and enrolled into Part A of Medicare. Three months into enrollment H applies for a Medigap Plan A. Which of the following is most likely to happen?
The insurer will deny the application The insurer will deny the Medigap application because H is not eligible for Medigap enrollment. H must have Parts A & B and has 6 months to enroll into a supplement.
Which of the following is not true about a fixed annuity?
The interest rate is variable and depends on stock market performance. In a fixed annuity, the interest rate usually has a minimal guarantee. A Variable annuity's interest rate is contingent upon market performance.
A group health insurance policy master application must bear the name and signature of which of the following entities?
The licensee who solicited and wrote the application. State law requires certain insurance application to bear the name and signature of the soliciting producer on the application.
Under a Guaranteed Renewable policy, which party has the right to renew the contract?
The policyholder Guaranteed Renewable provisions means that insurer cannot cancel a policy, except for nonpayment of premium. In addition, it allows the policyholder the unilateral right to renew, however, premiums can be increased on a class of insureds at anniversary by the insurer.
An annuitant is deferring their income payments until a later date. What are the tax considerations during the accumulation period?
The principal and interest grows tax deferred until annuitization. An annuity grows tax deferred with interest until it pays out in which interest is taxable income.
Which of the following circumstances may lead to the renewal of a producer license without the requirement of completing continuing education requirements?
The producer is called up to military duty and secures a military waiver.
Which of the following actions on the part of a producer could lead to a license denial?
The producer signed an insurance application on behalf of the applicant with the applicant's full knowledge and verbal permission to do so. A producer is never allowed to sign an insurance application on behalf of an applicant or proposed insured because such an action constitutes forgery, punishable by termination of license plus a fine.
All of the following are CORRECT about a Basic Medical Policy EXCEPT:
They provide first dollar coverage. EXCEPT: The benefits will always cover the full medical expense They have specified time coverage They have very low daily benefit limits. Basic Plans rarely cover the full medical bill because they are limited first dollar coverage with low maximum benefits.
Producer J has just received a policy offer from an insurer on behalf of an application J recently wrote. J must deliver the policy and collect the first premium payment. Within how many days must J accomplish this action without violating fiduciary duty?
Within 90 days A producer must deliver a policy and collect the first premium within 90 days for the insurance of a policy on behalf of an insurer offering the coverage.