LAH Study
All the following statements regarding an employer's group life insurance plan are correct EXCEPT:
Employee contributions are not permitted.
All of the following statements regarding a variable annuity's assumed interest rate (AIR) are correct, EXCEPT:
If the actual return is greater than the AIR, payments will decrease.
All the following statements regarding Section 529 prepaid tuition plans are correct EXCEPT:
Prepaid tuition plans can be used to cover elementary and secondary school tuitions as well as college tuitions.
All of the following statements about the taxation of annuities are correct EXCEPT:
Qualified annuities are taxed no differently than nonqualified annuities
All the following statements about family term riders with life insurance are correct EXCEPT:
Spouses are provided more coverage than children under a family term rider.
Life insurance has been purchased by ABC Company on the lives of two partners, Hugh and Danny, and three key employees Eileen, Vern, and June. Which of the following would apply if Hugh and June were to leave the business?
The company could keep the life insurance it has on both Hugh and June, even though both are no longer employed there.
All the following statements about ordinary (straight) whole life insurance are correct EXCEPT:
The death benefit increases during the early policy years and then levels off.
All of the following statements about the interest rates on deferred annuities are correct EXCEPT:
The guaranteed minimum rate is usually 5 to 6 percent.
All the following statements regarding children's term riders in life insurance are correct EXCEPT:
The insurer must write separate riders for each child in a family.
Which of the following most accurately describes the basic function of a life insurance policy's net premium?
The net single premium is the amount required to cover the policy's promised benefits, without accounting for the insurer's policy-related expenses.
When calculating the ongoing income that a surviving family will need after an insured dies, the insured must consider all of the following expenses EXCEPT:
final funeral expenses
Decreasing term life insurance is most commonly used to cover...
financial needs that decline over time
The process of determining life insurance needs by discounting a person's future net earnings into a single sum that represents the person's economic value is called the:
human life value approach
Insurance agents must comply with all of the following rules when selling life insurance policies in North Carolina EXCEPT:
They can never use life insurance policy illustrations during a sales presentation.
Under the "bring-back rule," the death benefit of a life insurance policy that was transferred to a third party by the insured is included in the insured's estate if made within
3 years prior to the insured's death
Which one of the following most correctly describes the process that occurs when a group annuity member retires?
An individual annuity contract is issued to the retiring member using funds from the group contract.
All of the following statements comparing whole life insurance and term life insurance are correct EXCEPT:
Both whole life insurance and term life insurance build a cash value.
If an insured dies during her life insurance policy's grace period without having paid her premium, what is the insurance company's obligation?
The insurer will pay the death benefit after first deducting the unpaid premium and any unpaid policy loans.
All the following statements about standard policy exclusions are correct EXCEPT:
The war and commission of a felony exclusions are required by law.
Which of the following statements best describes the purposes that annuities serve?
While their basic purpose is to distribute a sum of money, annuities can also be used to accumulate money.
Tax law considers any limited payment life insurance policy that is paid-up in seven years or less to be which of the following?
a modified endowment contract
The convertibility provision of a term life policy lets the owner convert the term coverage into what type of policy?
a permanent life insurance policy
Cash value withdrawals from a non-MEC life insurance policy are generally treated on a first-in/first-out (FIFO) basis for tax purposes, which means the first funds withdrawn are recognized as:
a return of premiums
People can start making catch-up contributions to a traditional IRA only if they are:
age 50 and older
A producer is not required to deliver which of the following documents to a policyowner who buys a life insurance policy that replaces another?
certificate of authority
To qualify for an insurance agent's license, a person must have all of the following EXCEPT:
college degree
With respect to annuities, the basic purpose for the exclusion ratio is to:
determine the non-taxable portion of each annuity payment
Which of the following annuities specifies the exact premium payment amounts (and when they must be paid) for the contract to generate the desired future income payments?
fixed premium deferred annuity
contracts of adhesion
insurance policies must be accepted "as-is" by policyowners
Wilson buys life insurance but commits suicide three years later. Wilson's beneficiary will get which of the following from the insurer?
the full death benefit
A whole life insurance policy matures, or endows, when:
the policy's cash value equals its face amount
When may the Commissioner of Insurance examine the books and records of an insurer?
whenever he or she deems it necessary
How long is the typical permanent life insurance policy's free-look period?
10 days
The amount of money a person might typically receive from a viatical settlement is:
50 to 80 percent of the death benefit
Life insurance waiver of premium riders most commonly require the insured to be disabled for a waiting period before premiums will be waived. How long is the typical waiting period?
6 months
All the following are standard life insurance policy exclusions EXCEPT:
6-month legal action limit provision
Which statement regarding Simplified Employee Pension (SEP) plans is correct?
SEP plans do not accept employee contributions.
All the following statements regarding stranger-owned life insurance (STOLI) are correct EXCEPT:
The insured retains the right to designate the policy's beneficiary.
Which of the following best describes a partial surrender of a permanent (non-universal) life insurance policy?
Under a partial surrender, the death benefit is reduced proportionately by the amount of the surrender.
A fixed deferred annuity that has a guaranteed interest rate of 3 percent and a current declared rate of 5 percent can adjust the current declared rate:
any time after the initial rate period
In an absolute assignment, what term is used to describe the new policyowner?
assignee
In a modified endowment contract, the life insurance policy's cash value grows more quickly than is permitted by the Tax Code. This results primarily from which of the following?
excessively large premiums being deposited into the contract during the first seven years or less
Most states permit insurers to include a provision in their life insurance policies that does which of the following?
excludes coverage of death that occurs while the insured is operating an aircraft
The replacement regulations apply to transactions involving which of the following?
individual life insurance
arry sells life insurance and annuities in North Carolina. Which of the following incentives can he lawfully offer to prospective clients?
insurance company memorabilia with a nominal value
The fact that ownership of a health insurance contract cannot be transferred to another party makes it what type of contract?
personal
Which of the following correctly describes an indexed annuity contract owner's option(s) at the end of the contract's term?
surrender, renew, or annuitize the contract
A currently insured worker is eligible for which of the following Social Security benefits?
survivor death benefits only
In which one of the following ways are Section 529 prepaid tuition plans and education savings plans similar?
tax treatment of distributions
What does the employer own under a group insurance plan?
the master policy
When can the owner of a deferred annuity select a settlement option?
any time prior to annuitization
An insurance company is developing a new product. Which of the following is the actuaries' most important responsibility?
determining the basic premium rates for the new product
What is the name of the period during which funds are paid out of an annuity contract in the form of periodic income payments?
the annuity payout period
Under group insurance coverage, one policy covers a number of people. Who owns these group polices?
the organization that represents the group and which sponsors the coverage
George purchased an annuity in which his wife will receive income for as long as she lives. In this scenario, what is George most correctly called?
the owner
In a third-party life insurance contract, the parties to the contract are the:
the owner, the insured, and the insurance company
What is another name for the annuitization phase of an annuity contract?
the payout stage
Alex owns a "home service" life insurance policy, which means he most likely pays his premiums in which of the following ways?
weekly or monthly, often personally to the agent who comes to Alex's home
All the following statements regarding life insurance level premiums are correct EXCEPT:
The owner of a whole life policy may elect to let the insurer raise premiums over time, resulting in a lower initial premium than would be the case with a level premium policy.
Which statement is correct about interest earnings within an individual's qualified plan account?
The participant pays no income tax on the earnings while accruing in the plan but will have to pay tax on them whenever and however they are withdrawn.
Dan owns a fixed whole life insurance policy. What type of death benefit is Dan guaranteed?
The policy guarantees a fixed death benefit amount.
Which one of the following statements about term life insurance is correct?
The policy pays a death benefit only if the insured dies during the term.
Which one of the following best describes a "level premium" payment plan?
The policyowner pays the same amount each time the premium is due for the full duration of the premium-paying period.
All of the following statements about fixed whole life insurance cash values are correct EXCEPT:
Withdrawing or borrowing from the cash value will have no impact of the policy's death benefit.
Generally speaking, which of the following most correctly describes the taxation of a Roth IRA qualified distribution?
Distributions are generally tax free.
All of the following distributions from a qualified plan are exempt from the 10 percent penalty tax on premature distributions, EXCEPT:
Distributions made because the participant needs the funds to pay for homeowners insurance premiums.
An insured's estate can be a beneficiary. However, what is the main disadvantage of that arrangement?
It places the policy benefits into the estate where they are subject to creditors and estate taxes.
Besides select policy anniversary dates, a life insurance guaranteed insurability rider usually permits special alternative option dates that typically include all the following, EXCEPT:
the policyowner's loss of a job
If a policyowner partially surrenders an adjustable life insurance policy, which of the following happens to the policy's premium?
It goes down.
Which of the following will happen if the outstanding balance of a whole life insurance policy loan, including accrued interest, ever exceeds the policy's cash value?
The insurer will cancel the policy.
which of the following entities would be eligible to set up a Keogh plan?
a three-person law partnership -keogh plans are for sole proprietorships and partnerships
Social Security's full retirement age (FRA), currently age 66, will gradually rise to what age for workers born in 1960 or later?
age 67
Which statement about Roth IRAs is correct?
Contributions to a Roth IRA cannot be deducted.
Which statement about deferred annuity surrender charges is correct?
The surrender charge percentage typically decreases over the surrender charge period.
With a joint life insurance policy, which of the following best describes the coverage continuation option available to the surviving insured upon the death of the first insured?
The surviving insured may buy an individual policy with the same or a lesser face amount, without having to provide evidence of insurability.
Under the life insurance transfer-for-value rule, to what extent are death benefits from a policy sold to another party considered taxable income to the new owner?
The taxable portion equals the death benefit minus the sum of the initial purchase price and all subsequent premiums paid by the new owner.
Which one of the following most accurately describes the income tax treatment of life insurance death benefits received by a terminally ill insured under the accelerated benefits rider?
They are generally income tax free.
When do funds in a deferred annuity become the owner's property?
They are nonforfeitable and always belong to the contract owner.
Which statement about multiple employer welfare arrangements (MEWAs) is correct?
They are usually created by employers in the same industry.
Kelly owns a deferred annuity. What options does she have for using the funds accumulating in her contract before the annuitization date?
They can be withdrawn, partially or in full, before the contract annuitizes.
All the following statements regarding deferred annuity beneficiaries are correct EXCEPT:
With an annuitant-driven contract, the beneficiary must annuitize the contract immediately if the annuitant dies before annuitization.
Which of the following would provide instant liquidity upon the death of an estate owner?
a life insurance policy on the owner's life, payable to his estate
A worker can choose to collect permanently reduced Social Security retirement benefits as early as what age?
62
With respect to adjustable life insurance, which of the following statements is correct?
Premiums can increase or decrease to suit the policyowner's changing needs.
Life and health insurance can be classified as participating or nonparticipating. This classification determines which of the following?
whether or not the policy distributes policy dividends to its owner
What does a family life insurance policy offer?
whole life insurance on the primary insured and term life insurance coverage on the spouse and each child to age 21
Replacement occurs if a life insurance policy is purchased and, in conjunction, any of the following happen EXCEPT:
The existing policy's beneficiary designation is changed.
Which one of the following statements about indexed whole life insurance is correct?
There are two different premium plans available to indexed whole life policyowners, with one plan starting out with a lower premium than the other.
Under the re-entry method, an insured can renew a level term life insurance policy at the end of the specified term at a lower rate than the guaranteed rate by doing which of the following?
proving insurability
With interest-sensitive whole life insurance policies, insurers may change premium rates after reviewing their investment experience in a process called:
redetermination
In-person delivery of a whole life insurance policy gives the producer the opportunity to do all of the following, EXCEPT:
review coverage to determine if the policyowner wants to increase the policy's face amount
With certain limitations, a policyowner may change all of the following in a life insurance policy, EXCEPT:
the incontestability provision
In the purchase of a life insurance contract, the applicant's consideration consists of:
the signed application and the first premium
What is the typical life insurance contract's reinstatement provision period?
three to five years, but may be longer depending on the case and the laws of the state that control the policy
The policyowner is usually __________ of the reinsurance arrangement; a claim is paid entirely by the ____________ company that issued the policy.
unaware; ceding
The insurance company function responsible for evaluating the insurable risks and assigning appropriate premium rates, is the:
underwriting division
Under which of the following circumstances might life insurance policy dividends represent a taxable event?
the interest earned on dividends left with the insurer to accumulate interest
Upon receiving proof of the insured's death, a life insurer has how many days in which to pay the death benefit before interest begins to accrue on the proceeds?
30
ABC Life Insurance Co. just sold Alex a new life insurance policy that will replace his existing policy. Alex may examine the policy and return it within how many days if he is not satisfied for any reason?
30 days
All the following statements about term life insurance are correct EXCEPT:
A small cash value gradually accumulates while the policy is in force.
Gloria chooses to take her life insurance policy dividends in cash. The insurance company sends a check for the amount of the declared dividend on the anniversary date of the policy. What is the tax consequence to Gloria for receiving cash dividends?
Her dividends are not income taxable.
When a person retires before full retirement age, what happens to the monthly income amount of his or her Social Security retirement benefits?
It is permanently reduced.
hich type of life insurance company pays taxable dividends to its stockholders?
stock company
With a traditional whole life insurance policy, policy loans can be as high as:
100 percent of the cash value, less any outstanding debt against the policy
All the following statements regarding life insurance cost comparison methods are correct EXCEPT:
All cost comparison methods recognize the role of the cash value in projecting future costs of coverage.
Which of the following best explains why Section 1035 of the Tax Code does NOT permit a tax-free exchange of an annuity for a life insurance policy?
Allowing a tax-free exchange of an annuity for life insurance would enable taxable annuity gain to escape taxation via the life insurance death benefit.
Which statement regarding life insurance accelerated benefits is correct?
An accelerated benefit rider pays out part or all of the policy's face value while the insured is still living.
Which of the following statements regarding the accidental death benefit (ADB) rider to a life insurance policy is correct ?
Benefits are payable under the accidental death benefit rider only if the insured dies as the direct result of an accident.
What impact will a worker's decision to begin receiving OASDI retirement benefits at age 69 have on his or her retirement benefit amount?
Benefits will be higher than the PIA at the worker's FRA.
What will happen if a person starts receiving Social Security retirement benefits before reaching his or her full retirement age and continues to work and earn money that exceeds specified earnings limits?
Benefits will be reduced each year until the worker attains full retirement age.
Dave receives Social Security retirement benefits. His wife Cathy is still working. Which statement about Cathy's Social Security spousal benefit is CORRECT?
Cathy can choose either the spousal benefit or the worker's benefit.
Which of the following statements is true if a traditional IRA owner is covered by an employer-sponsored defined benefit retirement plan?
Contributions to the IRA may or may not be deductible, depending on his or her income level.
When does a fixed deferred annuity contract provide a death benefit?
only if the contract owner or annuitant dies during the accumulation period
Which of the following actions is taken if the amount of OASDI benefits that a family receives, based on the earnings of a single worker, exceeds the maximum family retirement benefit?
Future benefits payable to the family members will be reduced proportionately.
What type of life insurance policy distributes its divisible surplus to policyowners in the form of policy dividends?
participating policies
All the following are parties to an annuity contract EXCEPT:
the agent
In general, all settlement options with a life contingency base payments on which of the following?
the beneficiary's life expectancy
A person must be at least what age to purchase life insurance or annuities in North Carolina?
15
Individual life insurance policies must include a grace period of how many days for paying any premium except the first?
31
Which of the following types of qualified retirement plan can include life insurance in the plan funding?
412(i) plan.
To avoid immediate taxation of IRA funds paid to the IRA owner in a rollover IRA transaction, the owner must deposit the funds into the new IRA within how many days of receiving them?
60 days
Cindy, age 51, withdraws $15,000 from her 401(k) plan so that she can buy a new boat. All the following statements regarding this are correct, EXCEPT:
Cindy can avoid any penalty taxes if she can demonstrate to the IRS that the boat was essential to her financial well-being.
Which statement regarding an insurer's general account is correct?
General account funds are invested only in safe, secure long-term assets such as U.S. government securities, blue-chip dividend-producing stocks, and investment-grade bonds.
Which of the following most accurately describes who can be a life insurance policy beneficiary?
It can be virtually any person or entity the policyowner chooses.
Which of the following most correctly describes death benefit Option 1 of a universal life insurance policy?
It has a level death benefit, equal to the cash value and a net amount at risk that decreases at the same rate that the cash value increases.
Which of the following best describes the premium tax insurance companies must pay when they receive premiums?
It is a state tax imposed by relatively few states.
To be eligible to set up a SIMPLE plan, a business has to meet which one of the following basic requirements?
It must employ no more than 100 people.
Paul, who owns a Roth IRA worth $100,000, turned age 70½ last year. Which statement correctly describes his distribution options?
Paul is not required to take any distributions from his Roth IRA.
What is the purpose of the bailout provision of a deferred annuity contract?
Permit the owner to withdraw funds at any time, without a surrender charge, if the interest rate falls below a specified level
Which of the following statements about nonqualified deferred compensation plans is correct?
When an executive receives the deferred compensation, he or she will generally be in a lower tax bracket and will pay lower taxes.
Cal bought a $100,000 universal life policy ten years ago. He has paid $8,000 in premiums into the policy. He now decides to surrender the policy for its full $15,000 cash value. What amount is taxable?
$7,000 -difference between what Cal paid into the policy and the cash value he receives
Tom is a 45-year-old senior accountant employed by ABC, Inc. Under ABC's employer-pay-all group life plan, Tom's coverage is $120,000. What amount of that coverage is taxable to Tom?
$70,000
The terms "double indemnity rider" and "triple indemnity rider" are common names for which type of life insurance policy rider?
accidental death benefit rider
When completing an application for life insurance, Andrew states that he is 39 years old, though he is actually 45. When the insurer discovers this, what will it probably do?
adjust the benefits
Which of the following correctly describes a life insurance policy dividend?
an amount returned to a policyowner out of an insurance company's surplus funds, effectively representing unused premiums
Which of the following would be most appropriate for Haley, 55, if her primary objective is to ensure having an income she cannot outlive?
an annuity
A two-tiered fixed annuity is designed to credit a higher rate of interest to:
annuity owners who annuitize the contract
For Mary, who is preparing to annuitize her fixed deferred annuity, every $1,000 of annuitized principle will produce $6.33 of monthly income. In this example, $6.33 represents the:
annuity purchase rate
If a permanent life insurance policy lapses and the owner does NOT select a nonforfeiture option, the insurer will automatically:
apply the extended term insurance option
Which of the following information about a proposed life insurance policy is not contained in the policy summary given to a buyer?
appropriate amount of insurance
In addition to ordinary income taxation, what else is a distribution from a modified endowment contract (MEC) before age 59½ subject to?
10 percent premature distribution tax penalty on the withdrawn amount
Which statement about current declared interest rates on deferred fixed annuities is correct?
Beyond the initial rate period, renewal rates can be changed at any time
All of the following statements about binding receipts are correct EXCEPT:
Binding receipts are the most common type of premium receipt used with life insurance sales.
Bob bought a $100,000 ten-year level term insurance policy on March 1, 2012. What will happen if he dies on April 1, 2022?
Bob's beneficiary will not get any benefits.
Which statement is correct with respect to the contract charges and fees charged by variable life and traditional whole life policies?
Both base the premium on a mortality charge that reflects the insured's risk of death.
For which of the following people would an annuity probably NOT be suitable?
Charlie, age 79, who is looking for a place to save the proceeds from the recent sale of his vacation home.
Which statement about converting coverage under a children's term rider is correct?
Conversion is possible even if the child is uninsurable, and the converted policy coverage amount may be greater than the amount provided under the rider.
The needs approach to determining life insurance needs quantifies two basic categories of life insurance needs, which are:
immediate lump-sum cash needs and ongoing income needs
A term life insurance policy in which the protection and premium amounts stay the same during the term period is known as:
level term policy
The amount of coverage provided by a children's term life rider is usually:
limited to a modest flat dollar amount or a small percentage of the base policy's face amount
Howard, 33, and Mary, 32, want to fund their 13-year-old daughter's college education. Which of the following is the most appropriate advice about using a deferred annuity for this purpose?
It is not recommended. Deferred annuities typically impose surrender charges on funds withdrawn during a contract's early years, and withdrawals from annuities before the owners reach age 59½ may be subject to a tax penalty.
If an employer sets up a profit-sharing plan, which statement is correct?
It must establish individual accounts for each participant.
The charge-free withdrawals provision of a deferred annuity contract does which of the following?
It permits annuity contract owners to withdraw a specified percentage of the accumulated value annually without imposing a surrender charge.
What is the standard life insurance policy suicide exclusion period?
one to two years
Most disability income benefit riders also include which of the following?
provision for a waiver of premium
Jan and David both work for Acme Motors and earn $50,000 of taxable income annually. If Jan contributes to Acme's 401(k) plan this year and David does not, which of the following statements is true?
Jan's taxable income will be lower than David's.
Jim, age 45, is single and earned $50,000 this year. He owns both a Roth IRA and a traditional IRA. Which statement is correct?
Jim can contribute to both his traditional IRA and Roth IRA, provided the total amount contributed does not exceed the overall contribution limit.
All of the following statements regarding joint life insurance and survivorship life insurance are correct EXCEPT:
Joint life insurance is especially popular in the estate planning market.
All the following statements regarding withdrawals from a universal life policy are correct EXCEPT:
Policy loans are not permitted with universal life insurance policies
The exclusion ratio applies until all principal in the annuity contract has been paid out. After that, what happens?
The full amount of future annuity payments is treated as taxable income.
Which of the following statements about the tax treatment of funds received through a qualified viatical settlement is correct?
The insured pays no federal income tax but may have to pay state income tax.
Under the interest-only life insurance settlement option, what happens to the death benefit proceeds at the end of the payment period (or upon request by the beneficiary)?
The insurer pays the proceeds, either in a lump sum or under one of the other settlement options.
All the following statements about the interest-only life insurance settlement option are correct EXCEPT:
The interest rate used with this option is the lower of a current rate or the guaranteed rate specified in the policy.
Which of the following correctly describes the effect that a 14 percent rate cap would have on an indexed annuity?
The maximum rate that will be credited to the annuity is 14 percent.
All the following statements about the accumulate at interest dividend option are correct EXCEPT:
The policyowner can only withdraw the accumulated dividends and interest on the policy's anniversary date.
All of the following statements regarding life insurance premium modes are correct EXCEPT:
There is no additional cost for paying premiums more frequently than annually.
When an employee retires, what is the general income tax treatment of the benefit payments he or she receives under a deferred compensation plan?
They are fully taxable.
When received in a lump sum, how are life insurance death benefits commonly taxed to the beneficiary?
They are generally income tax free to the beneficiary.
If Sam makes a full or partial withdrawal from his deferred annuity before the contract annuitizes, which of the following statements applies?
Withdrawals are fully taxable until they equal the contract's gain (i.e., interest earnings), after which all subsequent withdrawals are tax free.
How is increasing term life insurance normally sold?
as a rider attached to a permanent life insurance policy -"cost-of-living increase" rider on a permanent life policy
Phil selected the uncommon paid-up insurance option for his participating whole life insurance policy. Which of the following best describes the purpose for this type of dividend option?
pay up the whole life insurance policy several years early
Billy, age 10, is insured under a juvenile life insurance policy purchased by his father, who pays the premiums. Which of the following would ensure that the insurance stays in force if the father dies or becomes disabled?
payor benefit rider
The primary reason for using third-party ownership in personal life insurance for estate planning purposes is to:
remove the life insurance proceeds from the insured's estate and thus reduce the value of the taxable estate
Which of the following distributes income payments over time beginning soon after purchase and can be funded only with a single lump-sum premium payment?
single premium immediate annuity
To be considered currently insured, a worker must have earned how many quarters of coverage in the 13-quarter period before he or she dies?
six
Life insurance policy proceeds are protected from the claims of creditors due to the policy's
spendthrift clause
Section 457 plans are qualified retirement plans that are reserved for employees of which type of organization?
state and local government units
Julie is the beneficiary of her husband's $150,000 life insurance policy. When he dies, she chooses a settlement option that will pay monthly benefits to her as long as she lives, and will cease when she dies, with no further payments owed to anyone. Julie has chosen which settlement option?
straight life income settlement option
Grace's annuity pays her an income for her lifetime, regardless of how long she lives. When she dies, no further payments are made to anyone. Which type of settlement options does she have?
straight, or pure, life income
An insurer may recoup acquisition fees associated with the sale and administration of universal life insurance by assessing a cash value withdrawal fee called a(n):
surrender charge
In a collateral assignment, policyowners may do all the following, EXCEPT:
surrender the policy
What do most insurance producers use today to determine a prospective customer's life insurance needs?
the needs approach
What is the primary difference between a revocable and an irrevocable beneficiary?
the policyowner's ability or inability to change the beneficiary designation
In which one of the following situations would the premiums paid for individual life insurance be tax-deductible?
the premium is for a policy the premium payer donated to a charitable organization
Deferred annuities accumulate funds for future distribution. Under what circumstances are these funds forfeitable to the insurer?
under no circumstances
All the following statements regarding adjustable life insurance are correct EXCEPT:
Policy premiums can be changed up or down whenever the policyowner wants to do so.
Which of the following best describes how the insured's money is handled in a variable life insurance policy?
Premiums are placed in investment subaccounts selected by the policyowner.
All of the following statements about indexed life insurance are correct EXCEPT:
The insured bears all of the investment risk with an indexed life insurance policy.
Carl is a policyowner who prefers to pay premiums monthly rather than annually. How will Carl's insurance company adjust his premium to accommodate this request?
The insurer divides the annual premium by 12 and then adds a modest charge.
In what form does the MIB present its information to insurers?
numeric codes, indicating risks identified in previous applications, that are communicated electronically
Mutual insurance companies are owned by their _______________
policyowners
Amanda, age 45, bought a $50,000 ten-year renewable and convertible term life policy. Regarding this, all the following statements are correct EXCEPT
premiums for this policy will be more than for a $50,000 permanent life insurance policy.
When collecting personal financial or health information, an insurance company is required to do all of the following EXCEPT
provide individuals with copies of documents disclosed to other parties.
Which of the following statements regarding the replacement of a life insurance policy is correct?
replacing a policy will require the insured to go through a new contestability period
What provision lets a policyowner return a policy for a refund of premiums paid for a certain period of time after the policy is issued?
right to examine (free look)
The Fair Credit Reporting Act (FCRA) of 1971 does which of the following?
sets procedures credit reporting agencies must follow to ensure confidentiality, accurate reporting, and proper use of the information
In cases where an existing life insurance policy is going to be replaced by new life insurance policy, the producer must do all the following EXCEPT:
sign a form assuming full responsibility for any consequences that may result from the replacement
Stock insurance companies are owned by ___________
stockholders
Jack bought a life insurance policy that will provide a lump-sum death benefit plus a ten-year stream of income should he die before a specified date. Five years after purchasing the policy, before the specified date, Jack died and the policy began paying a monthly benefit to his family for ten years. What type of policy did Jack buy?
ten-year family maintenance policy
With respect to the field of insurance, who are the two parties bound by the law of agency?
the insurance company and the producer
The basic agreement between the insured and the company, stating the company's promise to pay the policy's face amount (the death benefit) to the named beneficiary, is contained in which part of the life insurance policy?
the insuring clause
Sylvia's insurer guarantees a fixed death benefit for the policy she owns. Based on this, which one of the following benefits is also most likely guaranteed with this policy?
the policy's cash value
A producer must be registered with the Financial Industry Regulatory Authority (FINRA) to sell which one of the following types of life insurance?
variable life insurance
If a lapsed life insurance policy is reinstated, the reinstated policy's premiums will be:
the same as they were under the policy prior to its lapse
Emily, age 48, withdrew $8,000 from her SIMPLE plan to buy a car. How much penalty tax will she owe?
$800
Anne turned 70 this year on March 15. By what date does she have to begin taking distributions from her retirement plan?
April 1 next year
All the following statements regarding annuities are correct EXCEPT:
Deferred annuities are a suitable replacement for life insurance.
Which of the following statements about IRA rollovers is correct?
Funds can be rolled over tax free from one IRA to another.
The purpose for a long-term care rider with a deferred annuity contract is to:
allow withdrawals from the deferred annuity without a surrender charge if the annuitant is confined to a nursing home
Ambiguities in an insurance contract are most often interpreted in favor of the policyowner because insurance contracts are:
contracts of adhesion
What happens to Social Security retirement benefits when a person postpones them past their full retirement age (FRA)?
they increase
Which of the following correctly describes the two basic categories of life insurance settlement options?
those without a life contingency and those with a life contingency
An insurer must keep records of all forms used to solicit insurance for how long?
three years
Which of the following correctly identifies qualified educational expenses that can be covered under a Section 259 prepaid tuition plan?
tuition and mandatory fees only
When comparing her insurance company's policies to those of Zenith Insurance, Melanie makes a misleading statement to convince an insurance prospect to terminate a policy with Zenith and buy one from Melanie's company. What practice has Melanie engaged in?
twisting
The penalty tax that is assessed on any distribution shortfall between an IRA owner's required minimum distribution (RMD) and the actual amount distributed is:
50 percent
Which statement regarding qualified employer plans is correct?
All types of employer plans are subject to IRS contribution limits.
Which of the following best describes an agent's responsibilities?
An agent has to act in the best interests of insureds, applicants, and insurers.
All of the following statements about life insurance policy long-term care riders are correct, EXCEPT:
An insured must first be hospitalized before qualifying for LTC benefit payments.
Ann is beneficiary of an annuity owned by Jim, who is also the annuitant. If Jim annuitizes the contract at retirement and dies shortly afterward, what benefits will Ann receive from the annuity?
Ann's right to any funds will be based on the income payout option Jim selected.
If a Social Security benefit recipient has income from other sources, including wages and investment earnings, what percentage of Social Security benefits exceeding a combined income threshold may be income taxable?
Anywhere from 50 percent to 85 percent of Social Security benefits will be subject to income taxation.
Which statement about profit-sharing plans is correct?
Contribution limits for profit-sharing plans are the same as those that apply to all defined contribution plans
All of the following statements regarding the extended term nonforfeiture option are correct EXCEPT:
Coverage under the extended term insurance option continues for the insured's entire life. -limited and dependent on the size of the cash value
Which statement regarding the conversion of a traditional IRA to a Roth IRA is correct?
Income taxes must be paid on the traditional IRA when the account is converted.
Which statement regarding defined benefit employer retirement plans is correct?
Individual accounts are typically NOT set up for individual employees in a defined benefit plan.
A deferred annuity would be a suitable recommendation for all the following needs EXCEPT:
Joe, age 23, wants to save money for a European vacation in five years.
As a general rule, insurers do not pay death benefits to designated beneficiaries who are minors because:
Minors do not have the legal capacity to sign a binding receipt for the funds.
John, age 66, has started receiving Social Security retirement benefits. He has one child, Sara, age 15, who is permanently disabled. Which statement correctly describes any Social Security benefits she may be eligible to receive?
Sara will be eligible to receive a monthly Social Security child's benefit indefinitely.
Social Security benefits are funded through payroll taxes split between the employee and employer. Which of the following best explains the amount of tax paid by self-employed individuals?
Self-employed individuals pay a tax rate equal to the combined employer and employee rate.
Which of the following best typifies the use of a structured settlement annuity?
Shirley was paralyzed in a car accident, and a jury awarded her $2 million, which must be paid to her over a 20-year period.
The Smiths set up a Section 529 prepaid tuition plan for their daughter, Jenna. They invested a total of $15,000, which covers the current cost of two semesters of college at their in-state public university. However, by the time Jenna goes to college, it will cost $30,000 for two semesters. What will happen in this case?
The Smiths' prepaid tuition plan will cover two semesters of college.
What is the main difference between a traditional deferred compensation plan and a salary continuation plan?
The covered employee does not defer compensation with a salary continuation plan.
Policyowners can withdraw the interest earnings on their dividends or allow the interest to continue to accumulate. In either case, how is the interest treated for income tax purposes?
The dividend itself is generally tax free but the interest earned on the dividend is reported as taxable income in the year credited.
To be eligible to participate in an employer's Simplified Employee Pension (SEP) plan, an employee must meet all the following requirements EXCEPT:
The employee may not be a key employee or executive.
The facility of payment clause of a life insurance policy, allowing an insurance company to determine who should receive a death benefit payment if a valid beneficiary is not available, could be applied in all the following situations EXCEPT:
The insurer learns, when paying the claim, that the sole designated beneficiary had no insurable interest in the insured at the time of death.
If a life insurance policy's death benefit is paid to the insured's estate, which of the following statements is correct?
The proceeds can be used to pay for estate taxes or other costs that an estate may face.
Which of the following statements regarding life insurance policy cost comparison methods is correct?
There are two types, the traditional net cost method and the interest-adjusted net cost method, and the interest-adjusted net cost method is most commonly used today.
Which statement regarding the licensing of fraternal benefit society agents is TRUE?
They must comply with the same licensing requirements that apply to resident and nonresident agents.
Sally owns a $750,000 life insurance policy that names her son as beneficiary. Which statement correctly describes how the policy death benefit will be treated in Sally's estate when she dies?
They will be included in Sally's estate but whether or not they are subject to estate taxation depends on the value of her estate.
All the following statements regarding the interest factor in life insurance premium calculations are correct EXCEPT:
To maximize the interest factor, insurers invest all traditional life insurance policy premiums in investment subaccounts.
Which of the following most correctly describes the difference between decreasing term insurance and level term insurance?
Under decreasing term insurance, the death benefit decreases over the policy period while a level term policy maintains a level death benefit over the policy period.
All the following statements regarding the automatic premium loan (APL) are correct, EXCEPT:
Under the APL, a policy loan is created to pay a premium on its due date.
In accordance with Section 1035 of the Tax Code, which of the following exchanges is permitted on a tax-free basis?
a deferred market-value adjusted annuity for an immediate variable annuity
Jones is the policyowner and insured of a life insurance policy that contains a standard suicide provision. He commits suicide 18 months after the policy was issued, Jones's beneficiary will get which of the following from the insurer?
a return of premiums paid, plus interest
The entire contract provision states that changes can be made to policy provisions by:
an executive officer of the company only
When can a waiver of premium rider be added to a life insurance policy?
any time after the policy is issued, subject to a maximum age stipulated in the policy
The policy value that builds within a whole life insurance policy and is accessible by the policyowner while the insured is alive is called the:
cash value
Which remedy does the Commissioner have if a person has violated the Insurance Information and Privacy Protection Act?
cease and desist order
Which of the following types of insurance is typically used for credit life insurance?
decreasing term
Which of the following types of life insurance is the least expensive way to provide mortgage loan protection?
decreasing term insurance
A long-term care rider on a life insurance policy will pay benefits if the insured is diagnosed as chronically ill due to which of the following?
either a medical or cognitive (mental health) reason
In a front-end loaded universal life contract, when does the insurer deduct a charge to cover the costs of administering the policy?
from the premium payment before it is credited to the policy's cash value
The Acme Company sets up a plan that provides annuities to its employees when they retire. The individuals those annuities cover hold "certificates of participation." Which type of plan is that?
group annuity
A deferred annuity rider that lets the annuity owner commit only part of the annuity's funds to providing guaranteed lifetime income, leaving the remainder available for withdrawal at the owner's discretion, is called a:
guaranteed income rider
Medical expense insurance policies are what type of contract?
indemnity contract -means that the benefit cannot exceed the contract owner's actual loss
Which one of the following best describes a policy that has a relatively low face amount and has premiums that are paid to an insurance agent who generally calls on the policyowner at home to collect them?
industrial life insurance
Under which settlement option is an income paid until the second of two annuitants dies, at which point no further payments are made to anyone?
joint and survivor option
Using a deferred annuity for short-term accumulation goals may result in all the following consequences EXCEPT:
loss of accrued interest earnings upon distribution
Under which of the following settlement options are the insurer's responsibilities under the contract fulfilled upon the death of the insured?
lump-sum cash payment
Which of the following do variable life insurance premiums generally include to cover the cost of managing the investment element of the contract?
maintenance fee
Loading reflects the costs that the insurance company can expect to pay for its operations. These costs include all of the following, EXCEPT:
mortality costs
The life insurance Buyer's Guide helps prospective buyers determine all of the following EXCEPT:
most qualified insurer
What type of life insurance company is owned by the policyowners?
mutual company
When he applied for his life insurance policy four years ago, Terry omitted any information in the application related to treatment he had received several years earlier for a serious chronic illness. Which of the following actions can the insurance company take when it learns of the omission?
nothing -after 2 years, a policy becomes incontestable
Statewide Insurers wants to obtain an investigative consumer report about an applicant because of questions it has regarding the individual's credit history. What must Statewide do before it can obtain a report?
notify the applicant that he has the right to be interviewed in connection with the report
The FICA tax is split between an employee and employer, with the employee paying how much?
one-half (50 percent) of the total tax
Cal bought a $100,000 universal life policy ten years ago. He has paid $8,000 in premiums into the policy. He now decides to surrender the policy for its full $15,000 cash value and must pay taxes on $7,000 of that cash value. Which one of the following most correctly describes the type of tax that is applicable in this case?
ordinary income tax
Which of the following is NOT a standard life insurance nonforfeiture option?
policy loans
Frank intends to use his life insurance to make the down payment on a vacation home. In so doing, Frank is using which of the following?
policy's cash value
Which of the following is a type of Section 529 plan that lets parents "prepay" a child's tuition at participating in-state public colleges and universities?
prepaid tuition plan
The automatic premium loan (APL) provision does which of the following?
prevents a life insurance policy from lapsing if the policyowner fails to pay a premium
Annuities offer all the following benefits EXCEPT
tax-free distributions upon the annuity owner's death or retirement
What is the name of the period during which premium funds are paid into an annuity contract?
the accumulation period
Whether a variable annuity's monthly income rises, falls, or stays level depends largely on which of the following?
the assumed interest rate (AIR) selected by the contract owner
Which one of the following best describes the meaning of "life insurance death benefits avoid probate"?
the death benefit is paid to the beneficiary without regard for what the insured's will may say.
Sue, an annuity owner, names her 15-year-old son and 10-year-old daughter as joint annuitants of her contract. Upon whose life (or lives) are income payments determined?
the joint life expectancy of Sue's son and daughter
After a viatical settlement agreement is signed, which party owns the life insurance policy?
the viatical settlement provider
Which of the following unfair trade practices involves using misrepresentations to induce a policyholder to let an existing life insurance policy lapse and purchase a new policy instead?
twisting
All the following are standard types of term life insurance EXCEPT:
variable term insurance
If a person buys a new life insurance policy to replace an existing one, the agent must give the applicant the Notice Regarding Replacement form no later than when?
when the application is taken
Cindy and Rich each bought a $100,000 universal life insurance policy from the same insurer, each with a ten-year back-end surrender charge schedule. In year two, Cindy withdrew $5,000 from her policy. Rich withdrew $5,000 from his policy in year five. Which of the following statements is most correct regarding surrender charges they may face?
Rich will have a lower surrender charge than Cindy.
Which one of the following statements most correctly describes how interest-sensitive whole life and current assumption whole life insurance differ?
Current assumption policies guarantee minimum cash values while interest-sensitive policies do not guarantee a minimum cash value.
In life insurance, for how long must insurable interest exist?
Insurable interest must exist only at the time the applicant enters into a life insurance contract.
During the application process, ABC Insurers receives personal and confidential information about Tom, who is applying for a life insurance policy. In which of the following circumstances must ABC Insurers obtain Tom's written authorization before disclosing this information?
before disclosing information to third parties for telemarketing and sales purposes
Which of the following statements generally guides insurance companies in determining "loading"?
Total loading from all policies should cover total operating costs, provide a safety margin, and contribute to profits or surplus.
How does a family income policy differ from a family maintenance policy?
A family income policy combines whole life insurance with decreasing term insurance, while a family maintenance policy combines whole life and level term insurance.
To meet the federal definition of life insurance and thus qualify for life insurance's favorable tax treatment, all permanent life insurance policies must have:
a corridor of pure insurance protection between the cash value and death benefit, the amount of which depends on the insured's age
Ben, a single working father, dies at age 50. How much will his only dependent child, Tom (age 15), receive from Social Security in a lump-sum death benefit?
$255
All the following statements regarding life insurance cost-of-living (COL) riders are correct EXCEPT:
As the consumer price index (CPI) increases, so does the policyowner's coverage, providing the insured can prove insurability.
All of the following statements about annuities are correct, EXCEPT:
The primary purpose of an annuity is to guarantee the accumulation of money over time.
Which of the following statements about Section 457 qualified plans is correct?
Earnings accumulate tax deferred.
Which statement best describes the restrictions an insurer must operate under when using information from the MIB?
Insurers cannot rate or decline a life insurance applicant based solely on MIB information.
Which of the following will happen if a traditional IRA owner dies before all of the funds in his or her account have been paid out?
The balance will be paid to the beneficiary and taxed as ordinary income
Which of the following statements regarding the taxation of death benefits paid from a group life insurance plan is correct?
The death benefit is income tax free, but interest earned on funds left with the insurer under a settlement option is taxable in the year earned.
If an insured qualifies for and takes an accelerated benefit from a life insurance policy, which of the following accurately describes the impact this will have on the death benefit?
The death benefit is reduced by the amount of the accelerated benefit payment and may be further reduced to cover lost interest.
Which statement correctly describes the transfer-for-value rule in life insurance taxation?
When life insurance policies are sold to another party, the beneficiary may be subject to income tax on the death benefits, but only to the extent of the policy's gain
Life insurance underwriters are most likely to request a consumer (inspection) report on which of the following?
applicants who are seeking very high amounts of life insurance
The period after the youngest child turns age 16, during which no Social Security benefits are payable to a surviving spouse until he or she reaches age 60, is called the:
blackout period
Which type of life insurance is issued in connection with a specific loan or credit transaction in case the debtor dies or becomes unable to pay the remaining debt?
credit life insurance
Under the needs approach to determining life insurance needs, lump-sum cash needs to pay for final expenses that need to be paid immediately include all the following EXCEPT:
food, clothing, and housing expenses -these are addressed in needs analysis
What are policies that do NOT meet the IRS's definition of life insurance generally called?
modified endowment contracts (MECs)
The premiums that a company pays for corporate-owned life insurance (COLI) on the lives of its employees are generally:
not tax deductible
Under a market-value adjusted annuity (MVA), an interest rate adjustment may reduce the annuity's effective rate of interest as low as:
the contract's minimum guaranteed rate of interest
Under the integrated long-term care option, what percentage of the base policy's face amount can be used for long-term care expenses?
up to 75 percent, depending on the insurer
Which of the following most correctly describes the option(s) available with a universal life insurance policy the owner no longer wishes to maintain?
surrender the policy for its cash value or let the policy continue without premiums until the cash value can no longer cover monthly deductions
Any after-tax contributions Tom makes toward the cost of his group life insurance coverage are treated in which of the following ways?
They are subtracted from the imputed income of the employer's contributions on a dollar-for-dollar basis.
What is a typical life insurance policy's grace period?
31 days
Becky works as an agent for Delta Insurance Company, which is located in North Carolina. What must Becky do in order to sell life insurance on behalf of Delta to U.S. military personnel who are stationed in Germany?
She must obtain a restricted license.
What does the life insurance company do upon an insured's death if there is a collateral assignment attached to the insured's policy?
The insurer pays the collateral assignee the balance of the loan still owed out of the death benefit, and the rest of the death benefit goes to the beneficiary.
Any permanent life insurance that fails the Tax Code's definition of life insurance due to excessive funding is called a(n)
modified endowment contract