INSURANCE EXAM (LIFE)

what are some examples of qualified plans?

- IRA - 401(k) - HR10 (Keogh) - SEP - SIMPLE

Activities of daily living (ADLs)

A person's essential activities that include bathing, dressing, eating, transferring, toileting, continence

Indemnity

A principle of reimbursement on which insurance is based; in the event of loss, an insurer reimburses the insureds or beneficiaries for the loss

According to the Entire Contract provision, a policy must contain: A. A copy of the original application for insurance B. A declarations page with a summary of insureds C. Buyer's guide to life insurance D. Limiting of the insured's former insurer(s) for incontestability provision

A. A copy of the original application for insurance

If the owner of a whole life policy who is also the insured dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary? A. A full death benefit B. A death benefit equal to the cash value of the policy C. 50& of the death benefit D. The face amount minus the premiums that would have been collected until the insured reached the age of 100

A. A full death benefit

Which of the following is the basic source of information used by the company in the risk selection process? A. Application B. Agent's Report C. Warranty D. Consumer Report

A. Application

Which of the following is INCORRECT regarding a $100,000 20-year level term policy? A. At the end of 20 years, the policy's cash value will equal $100,000 B. The policy premiums will remain level for 20 years C. If the insured dies before the policy expired, the beneficiary will receive $100,000 D. The policy will expire at the end of the 20 year period

A. At the end of 20 years, the policy's cash value will equal $100,000

Which of the following best describes the aleatory nature of an insurance contract? A. Exchange of unequal values B. Only one of the parties is legally bound to the contract C. Ambiguities are interpreted in favor of the insured D. Policies are submitted to the insurer on a take-it-or-leave-it basis

A. Exchange of unequal values

When would a misrepresentation on the insurance application be considered fraud? A. If it is intentional and material B. Never; statements by the applicant are only representations C. When the application is incomplete D. Any misrepresentation is considered fraud

A. If it is intentional and material

In which of the following cases will the insured be able to receive the full face amount from a whole life policy? A. If the insured lives to age 100 B. As soon as the cash value exceeds the face amount C. If there are no named beneficiaries when the policy is paid out D. At age 65

A. If the insured lives to age 100

In which of the following cases will the insured by able to receive the full face amount from a whole life policy? A. If the insured lives to age 100 B. As soon as the cash value exceeded the face amount C. If there are no named beneficiaries when the policy is paid up D. At age 65

A. If the insured lives to age 100

Which of the following would be considered an advantage of owning term insurance? A. It provides the highest amount of coverage for a temporary period of time B. It provides the greatest cash value for a temporary period of time C. It provides the death benefit regardless of when the insured dies D. It provides the greatest living benefits to the insured

A. It provides the highest amount of coverage for a temporary period of time

An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium? A. It will increase because the insured will be 5 years older than when the policy was originated B. It will remain the same for the new 5-year term C. It will decrease for the new 5-year term since the insured is now a lesser risk to the company D. It will increase each

A. It will increase because the insured will be 5 years older than when the policy was originated

Insurance is a contract by which one seeks to protect another from? A. Loss B. Exposure C. Uncertainty D. Hazards

A. Loss

What is the definition of a unilateral contract? A. One-sided; only one party makes an enforceable promise B. Two or more parties go into contract understanding there may be an unequal exchange of value C. One author; the company wrote the contract, the insured must except it as written D. If one party makes a condition, the other party can counteroffer

A. One-sided; only one party makes an enforceable promise

Another name for a substandard risk classification is? A. Rated B. Controlled C. Declined D. Elevated

A. Rated

Insurance is the transfer of? A. Risk B. Loss C. Hazard D. Peril

A. Risk

Which of the following is a risk classification used by underwriters for life insurance? A. Standard B. Poor C. Normal D. Excellent

A. Standard

Which of the following information will be stated in the consideration clause of a life insurance policy? A. The amount of premium payment B. The parties to the contract C. The time period allowed for the payment of premium D. The conditions for insurability

A. The amount of premium payment

Which is generally true regarding insureds who have been classified as preferred risk? A. Their premiums are lower B. They can borrow higher amounts off of their policies C. They can decide when to pay their monthly premiums D. They keep a higher percentage of any interest earned on their policies

A. Their premiums are lower

Reinstatement Provision

Allows a lapsed policy to be put back in force. The maximum time limits is usually 3 years after the policy has lapsed

National Association of Insurance Commissioners (NAIC)

An organization composed of insurance commissioners from all states and jurisdictions formed to resolve insurance regulatory issues

Dividends

Are a return of excess premiums; therefore, not taxable when paid out to the policyowner

Exclusions

Are the types of risks the policy will not cover

Nonforfeiture Options

Are triggered by policy surrender or lapse

Riders

Are written modifications attached to a policy that provide benefits not found in the original policy

An insured pays $100 premium every month for his insurance coverage, yet the insurer promises to pay $100,000 for a covered loss. What characteristic of an insurance does this describe? A. Conditional B. Aleatory C. Good Health D. Adhesion

B. Aleatory

According to the entire contract provision, what document must be made part of the insurance policy? A. Outline of coverage B. Copy of the original application C. Buyer's Guide D. Agent's Report

B. Copy of the original application

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? A. Whole life B. Decreasing term C. Variable life D. Universal life

B. Decreasing term

The factor added to the net premium to cover the costs of the insurer in obtaining and maintain the business is called? A. Premium Tax B. Expenses C. Legal Reserve D. Dividend Accumulation

B. Expenses

Which of the following terms best describe the coverage provided by term policies, as compared to any other form of protection? A. Longest B. Greatest C. Least D. Most Comprehensive

B. Greatest

A return of premium term life policy is written as what type of term coverage? A. Level B. Increasing C. Decreasing D. Renewable

B. Increasing

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? A. Consideration clause B. Insuring clause C. Entire contract clause D. Beneficiary clause

B. Insuring clause

Which of the following best describes annually renewable insurance? A. It provides an annually increasing death benefit B. It is level term insurance C. It requires proof of insurability at each renewal D. Neither the premium nor the death benefit is affected by the insured's age

B. It is level term insurance

In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium? A. It will likely be lower because the applicant is a preferred risk. B. It will likely be higher because the applicant is a substandard risk. C. It will likely be the average premium issued to standard risks. D. The applicant's habits and health do not affect the premiums.

B. It will likely be higher because the applicant is a substandard risk

A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after 20-year period. What type of policy is this? A. Limited pay whole life B. Level term C. Term to specified age D. Ordinary life policy

B. Level term

All of the following are true regarding a decreasing term policy EXCEPT? A. The face amount steadily declines throughout the duration of the contract B. The payable premium amount steadily declines throughout the duration of the contract C. The death benefit is $0 at the end of the policy term D. The contract pays only in the event of death during the term and there is no cash value

B. The payable premium amount steadily declines throughout the duration of the contract

Which of the following statements is correct regarding a whole life policy? A. The death benefit may increase or decrease during the policy period B. The policyowner is entitled to policy loans C. Cash values are not guaranteed D. The policy premium is based on the attained age

B. The policy owner is entities to policy loans

Which of the following types of policies will provide permanent protection? A. Group Life B. Whole Life C. Credit Life D. Term Life

B. Whole Life

Insuring Clause

Basic agreement between the insurer and the pollicyowner

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract it? A. Unilateral B. Conditional C. Aleatory D. Personal

C. Conditional

An insured pays an annual premium to his insurer. In return, the insurer promises to pay benefits in accordance with the terms of the contract. This is called: A. Utmost good faith B. Acceptance C. Consideration D. Conditions

C. Consideration

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: A. Aleatory Contract B. Complete Contract C. Entire Contract D. Total Contract

C. Entire Contract

What do individuals use to transfer their risk of loss to a larger group? A. Exposure B. Indemnity C. Insurance D. Insurable Interest

C. Insurance

Which of the following policy components contains the company's promise to pay? A. Owner's rights B. Entire contract provision C. Insuring clause D. Premium mode

C. Insuring clause

Which of the following is NOT a type of whole life insurance? A. Straight Life B. Limited Payment C. Level Term D. Single Premium

C. Level Term

Which of the following is NOT one of the 3 types of term coverage based on what happens to the face amount during the policy term? A. Level B. Increasing C. Renewable D. Decreasing

C. Renewable

A man decided to purchase a $100,00 annually renewable term life policy to provide additional protection until his children finished college. He discovered that his policy? A. Required proof of insurability every year B. Decreased death benefit at each renewal C. Required a premium increase each renewal D. Built cash value

C. Required a premium increase each renewal

All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT? A. Evidence of insurability is not required B. Most term policies contain a convertibility option C. Upon conversation, the premium of the permanent policy will be based upon attained age D. Upon conversation, the death benefit of the permanent policy will be reduced by 50%

C. Upon conversation, the death benefit of the permanent policy will be reduced by 50%

Settlement Options

Choices available to the insured/owner for distribution of insurance proceeds either to the insured or the insured's beneficiary, instead of an immediate cash lump-sum payment

Pre-tax Contribution

Contribution made before federal and/or state taxes are deducted from earnings

The insured is also the policyowner of a whole life policy. What age must the insured attain in order to receive the policy's face amount? A. 65 B. 70 1/2 C. 90 D. 100

D. 100

The type of policy that can be changed from one that does not accumulate cash value to the one that does is a? A. Renewable Term Policy B. Decreasing Term Policy C. Whole Life Policy D. Convertible Term Policy

D. Convertible Term Policy

What does "level" refer to in level term insurance? A. Premium B. Cash Value C. Interest Rate D. Face Amount

D. Face Amount

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? A. Adhesion B. Conditional C. A legal (but unethical) contract D. Unilateral

D. Unilateral

Misstatement of age or gender

Death benefit is adjusted according to the correct age and gender at policy issue

Accelerated Benefit

Early payment of part of death benefit to the insured from the insurer for qualifying medical expenses

Surrender

Early termination of a policy by the policyowner

what type of policy is typically issued without proof of insurability from the insured?

Group Policy

what qualified plan is suitable for the self-employed?

HR-10 or Keogh

Primary Beneficiary

Has first claim to the policy proceeds following the death of the insured. The policyowner may name more than one primary beneficiary, as well as how the proceeds are to be divided.

Contingent Beneficiary

Has second claim in the event that the primary beneficiary dies before the insured. They do NOT receive anything if the primary beneficiary is still living at the time of the insured's death

Long-Term Care (LTC)

Health and social services provided under the supervision of physicians and medical health professionals for persons with chronic diseases or disabilities. Care is usually provided in a long-term care facility which is a state licensed facility that provides services

Incontestability

Insurer cannot contest misstatements on the application after a period of time

Collateral Assignment

Involves the transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction. Partial or temporary transfer of some of the policy rights. Once debt or loan is repaid, the assigned rights are returned to the policyowner

Absolute Assignment

Involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does NOT need to have an insurable interest in the insured

Automatic Premium Loan Provision

Is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium

Beneficiary

Is the person or interest in which the policy proceeds will be paid upon the death of the insured

Policy Endowment

Maturity date

Lump Sum

Payment of the entire benefit in one sum

Grace Period

Period of time after the premium due date that the policyowner has to pay the premium before the policy lapses

Free Look

Policy can be returned for a refund of premium within a specific time period

Incontestability Clause

Prevents the insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact

Common Disaster Clause

Provides that if the insured and the primary beneficiary died in a common disaster, it is presumed that the primary beneficiary died first, so the proceeds will be paid to either the contingent beneficiary or to the insured's estate

Consideration

Something of value that each party gives to the other (binding force in any contract)

Tax Deferred

Taxes on investments or gains (such as interest or dividends) are paid at a future date instead of in the period in which they are incurred tax

Principal

The face value of the policy; the original amount invested before the earnings

Vesting

The right of a participant in a retirement plan to retain part or all of the benefits

Assignment

Transfer of rights of policy ownership

Waiver of Premium Rider

Waives the premium for a total disability after a waiting period

Rollover

Withdrawal of the money from one qualified plan and placing it into another plan

what is the name for an overfunded life insurance policy?

a modified endowment contract (MEC)

group life insurance policies are written as what type of insurance?

annually renewable term

what does liquidity mean in a life insurance policy?

availability of cash value

according to the taxation rules of life insurance policies, how are cash value increased taxed?

cash value growth is tax deferred

what is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?

death benefits are generally not subject to income taxes

what is required to qualify an individual to contribute to a traditional IRA?

earned income

for a retirement plan to be qualified, it must be designed for whose benefit?

employees

who qualifies for tax-sheltered annuities, or 403(b) plans?

employees of nonprofit organizations under Section 501(c) (3) and employees of public school systems

what is the main advantage of converting from group life insurance to individual coverage?

evidence of insurability is not required

what policy component must decrease in decreasing term insurance?

face amount

SIMPLE plans are available to groups of how many employees?

no more than 100

in qualified plans, are employer contributions taxed as income to the employees?

no, employer contributions are not taxed as income to the employees

what universal life option has a gradually increasing cash value and a level death benefit

option A

LIFO

principle applied to asset management in life insurance products, under which it is assumed that the funds paid into the policy last will be paid out first

FIFO

principle under which it is assumed that the funds paid into the policy first will be paid out first

who owns a group life insurance contract?

the employer (also known as the sponsor of the group)

when planning for survivor protection in life insurance, what needs to be considered?

the insured's current assets, liabilities and survivor's needs

if a retirement plan is qualified, what does that mean?

the plan has favorable tax treatment

when would life insurance policy proceeds be included in the insured's taxable estate?

when there is an incident of ownership at the time of death