Life Insurance
Sarah, age 40, has just bought a 20-pay whole life policy. Which of the following statements is correct when she turns 60?
Premiums will no longer be required, but her coverage will remain in effect for her entire life.
All of the following statements about key person life insurance are correct, EXCEPT:
Upon the insured employee's death, the employee's surviving family receives the policy's death benefit.
All the following statements about the net premium for a traditional life insurance policy are correct EXCEPT:
The net single premium for a traditional life insurance policy is the amount actually charged to the policyowner who wants to purchase the policy with a single premium payment.
All of the following statements regarding the reduced paid-up life insurance nonforfeiture option are correct EXCEPT:
The paid-up policy will not build any more cash value.
Which statement is correct if a group offers noncontributory group life insurance?
The plan must cover 100 percent of eligible group members.
Dan owns a fixed whole life insurance policy. What type of death benefit is Dan guaranteed?
The policy guarantees a fixed death benefit amount.
What happens when a universal life insurance policy's cash value no longer covers the monthly deductions to cover the policy's insurance and operational costs?
The policy lapses.
All the following statements about survivorship life insurance policies are correct EXCEPT:
The premiums are about the same as for two comparable single-life policies.
Using the "needs approach" to determining lump-sum cash needs at death, a producer should consider all the following expenses EXCEPT:
future food, clothing, and housing expenses
Annuity income payments are most commonly paid on what schedule?
monthly
What type of life insurance company is owned by the policyowners?
mutual company
All of the following can sponsor group life insurance plans EXCEPT:
neighborhoods
The premiums that a company pays for corporate-owned life insurance (COLI) on the lives of its employees are generally:
not tax deductible
Charlie takes out a $10,000 loan at an annual interest rate of 8 percent. He must repay the loan in one year. The lender requires him to buy credit life insurance to protect itself in case he dies during the term of the loan. What is the maximum amount of insurance that the lender may require Charlie to buy?
$10,800
Paul dies with a $50,000 unpaid loan (including interest) against his $150,000 life insurance policy. What death benefit will the insurance company pay his beneficiary?
$100,000
Endowment contracts issued today no longer qualify as life insurance (for tax purposes), but those issued before what date were grandfathered and still retain favorable life insurance taxation?
1986
The suicide exclusion provision of a typical life insurance policy excludes coverage if death is the result of suicide within:
2 years following policy issue
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
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 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.
All the following statements about life insurance policy riders that cover additional insureds are correct EXCEPT:
Each additional insured is issued his or her own separate policy.
Which of the following statements about Section 457 qualified plans is correct?
Earnings accumulate tax deferred.
All the following statements regarding an employer's group life insurance plan are correct EXCEPT:
Employee contributions are not permitted.
Zeta Company in Little Rock failed to pay the annual premium on its group life insurance policy when it came due on January1. To prevent the policy from lapsing, it must pay the premium no later than
February 1
Which unlawful act involves deceit that is practiced in order to secure unfair or illegal gain?
Fraud
Which of the following explains why the human life value approach to determining insurance needs is rarely used today?
It doesn't factor in all that it takes to secure a family's financial future.
When asking themselves questions that concern legal risks, control risks, ethical risks, and culture risk, what are producers doing?
Preventing ethical dilemmas
Which of the following statements about producer loyalty is TRUE?
Producers owe their loyalty to both their insurance companies and insureds.
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.
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.
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.
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.
Why do most insurers require a waiting period of four to six months before the disability income benefit rider begins payments?
They want to control claims by eliminating claims for short-term disabilities.
To prevent ethical dilemmas, a producer should ask all of the following questions EXCEPT:
Will the client be likely to discover that I have acted unlawfully?
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.
Group life insurance policies must include all of the following provisions EXCEPT:
a 10-day grace period
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 death of a fully insured worker may result in all the following Social Security benefits being payable EXCEPT:
a monthly income benefit to the deceased worker's brothers or sisters, if any
At age 49, Caleb took a $15,000 distribution from his deferred annuity. In addition to paying income tax on the $15,000 withdrawal, what else will Caleb probably have to pay?
a penalty tax of $1,500
Which of the following entities would be eligible to set up a Keogh plan?
a three-person law partnership
In accordance with Section 1035 of the Tax Code, a deferred fixed annuity may be exchanged on a tax-free basis for all the following types of products EXCEPT:
a whole life insurance policy
All of the following are fiduciary duties that producers owe to their insurers EXCEPT:
always placing the interests of customers ahead of the insurer's interests
Terry has been licensed as a life and health insurance producer in Arkansas for ten years. To maintain his license, how many hours of continuing education must he complete every two years?
24
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.
A producer who violates the life insurance replacement rules has committed which of the following?
Class A misdemeanor
With respect to the transfer-for-value rule, which of the following situations would result in the new owner being subject to tax on the policy's gain upon the insured's death?
policy is sold by the insured to a neighbor in exchange for cash
Which of the following is NOT a standard life insurance nonforfeiture option?
policy loans
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
A life insurance policy's long-term care rider requires that an insured diagnosed with a cognitive disorder do which of the following to be eligible for benefit payments?
provide a physician's certification, obtained within the past 12 months, that his or her health or safety is at risk without supervision
Most disability income benefit riders also include which of the following?
provision for a waiver of premium
With interest-sensitive whole life insurance policies, insurers may change premium rates after reviewing their investment experience in a process called:
redetermination
All of the following practices have been adopted by various states to protect seniors EXCEPT:
requiring producers to post a bond and undergo special training in order to sell products to seniors
A person who refuses to engage is risky activities like rock climbing for fear of injury or death is demonstrating which risk management technique?
risk avoidance
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
What is the main purpose of key person insurance?
to compensate the business for the loss of its key employee
Which of the following statements best describes the purpose of the annuity payout period?
to distribute funds in the form of guaranteed periodic payments over a time period selected by the annuity owner
What is the purpose of a life insurance policy's ownership provision?
to establish the conditions under which the policyowner can exercise certain rights of ownership
Premium rates will vary unpredictably depending on the insurer's actual experience in which one of the following types of whole life insurance?
current assumption whole life
Ethical dilemmas involve conflicts between all of the following EXCEPT:
federal and state laws and regulations
Both indexed annuities and market-value adjusted annuities are generally considered a form of:
fixed annuity
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
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
Under a joint life insurance policy, when does the insurer pay the death benefit?
upon the death of the insured who dies first
The requirement that an insurable interest must exist when life insurance is purchased is intended to prevent people from doing which of the following?
using life insurance as a speculative investment on another person's life
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
What is the term for voluntarily giving up a known right?
waiver
With a survivorship life insurance policy, the insurer pays the death benefit:
when the surviving spouse dies
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
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 are automatically deemed to represent an insurable interest EXCEPT:
Frank (the applicant) and his elderly neighbor
A term life insurance policy in which the protection and premium amounts stay the same during the term period is known as:
a level term policy
What do actuaries use to predict the likelihood of an individual dying at any certain age in the premium rate-making process?
mortality
Actuaries calculate net life insurance premiums based on which of the following?
mortality and interest assumptions
Which of these personal relationships does NOT automatically constitute insurable interest?
neighbors in each other
The basic purpose for the re-entry option with a renewable term life insurance policy is to let the policyowner:
renew the policy at lower current rates rather than guaranteed renewal rates
In an insurance transaction, what does the applicant give as consideration?
the initial premium
What does the employer own under a group insurance plan?
the master policy
All of the following are characteristics of a stock insurance company EXCEPT:
They are owned by policyowners.
Under the standard bring-back rule, assets transferred out of a decedent's estate will be valued in the estate if the transfer occurred within how many years before death?
3 years
Eric fails to pay the annual premium on his life insurance policy. The grace period provision allows him to pay the premium within how many days after the due date?
30
A person who wants to convert group life insurance coverage to an individual policy must apply for the policy and pay the first premium within how many days of leaving the group plan?
31
Which of the following types of qualified retirement plan can include life insurance in the plan funding?
412(i) plan.
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.
Connie loses her job at a Texarkana grocery store and is no longer covered by her former employer's group life insurance plan as of March 1. She decides to convert her group coverage to an individual life insurance policy. She must apply for the policy and pay the first premium no later than
April 1
All the following statements about life insurance living benefits riders or provisions are correct EXCEPT:
Accelerated benefits are payable to insureds who require hospitalization for any reason.
Judy states on her life insurance application that she is 39 years old when, in fact, she is 41. One year later, she files a claim for benefits. Which of the following actions is her insurer likely to take?
Adjust the benefit payment to what the premium would have paid for at the correct age
Which step should employers take to help employees avoid, detect, and prevent ethical violations in the workplace?
Adopt and support a professional code of ethics
All the following statements about annuity death benefits are correct EXCEPT:
All annuities provide a death benefit if the owner or annuitant dies after the contract has been annuitized.
Which statement regarding qualified employer plans is correct?
All types of employer plans are subject to IRS contribution limits.
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.
Barb, age 40, buys a ten-pay life policy while Jill, age 40, buys a life paid up at age 65 policy. All other factors being equal, which of the following statements is most correct?
Barb will pay a higher monthly premium over a shorter time than Jill, and their policies will mature at about the same time.
As tax incentives to set up a qualified employer retirement plan, all the following statements are correct EXCEPT:
Benefit distributions are taxed only if withdrawn prior to retirement and are tax free if distributed at retirement.
Joseph failed to pay the annual premium on his permanent life insurance policy. Before he defaulted on the payment, he had maintained the policy for five years. He decides to surrender the policy 30 days after the premium was due and notifies the insurer of his intent. What, if anything, is Joseph entitled to receive from the insurer?
Cash surrender value
Endurance Insurance Company wants to become licensed in Arkansas to sell insurance products. Which of the following must it receive in order to transact insurance?
Certificate of authority
Group life insurance policies issued in Arkansas are NOT required to include which of the following provisions?
Copy of policy to each insured
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.
Which type of group 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
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.
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.
Toby unintentionally became involved in a money laundering scheme while handling premiums he received from policyholders. Which statement about Toby's behavior is CORRECT?
His behavior is unethical and illegal.
When must insurable interest exist for a life insurance policy to be valid?
It is only necessary for insurable interest to exist at the time the applicant applies for a life insurance contract.
All of the following statements about credit life insurance are correct EXCEPT:
It is only offered on a group basis.
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.
Ralph, Jerry, and Paula are primary and equal beneficiaries of the $600,000 insurance policy on the life of their mother, Judy. Ralph dies before his mother. He leaves two children, Tim and Hal. Judy's life insurance policy designates the death benefit per capita. How will the insurer distribute the policy benefits?
Jerry and Paula will each receive $300,000
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.
Which type of insurer is incorporated, owned by its policyholders, but does not have capital stock?
Mutual insurer
Which of the following groups would NOT be eligible for group life insurance?
Neighborhood groups
All the following statements about "other insured" term riders on a life insurance policy are correct EXCEPT:
Only spouses or partners can be covered under this rider.
Which of the following statements regarding the way whole life insurance differs from term life insurance is most correct?
Only whole life insurance offers level premium payments.
Ralph, Jerry, and Paula are primary and equal beneficiaries of the $600,000 insurance policy on the life of their mother, Judy. Ralph dies before his mother. He leaves two children, Tim and Hal. If Judy's life insurance policy designates the death benefit be paid "per stirpes," how will the insurer distribute the policy benefits?
Ralph's $200,000 share will pass equally to his two children when Judy dies. The surviving siblings, Jerry and Paula, will each receive $200,000.
Randy's client asks if he can find a low-priced health insurance policy for the client's daughter. However, Randy has never sold health insurance. Which action should Randy take?
Refer the client to a producer who transacts health insurance
All the following statements about ordinary (or straight) whole life insurance are correct EXCEPT:
The cash value remains level throughout the life of the policy.
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.
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.
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.
Which of the following statements best explains the basic level premium concept of ordinary whole life insurance?
The steady reduction of the policy's net amount at risk offsets the cost of pure insurance that rises with age.
Which statement about deferred annuity surrender charges is correct?
The surrender charge percentage typically decreases over the surrender charge period.
How do actuaries compensate for the cost of running the business when determining the gross premium charged to the policyowner?
They add an expense load, which includes a safety margin factor, to the net premium to produce the gross premium.
Tim had paid only four premiums totaling $1000 on his health insurance policy when he was diagnosed with cancer. The insurance company paid more than $100,000 to cover the medical bills for his treatment during the next year. This situation demonstrates which of the following characteristics of insurance contracts?
They are aleatory.
When do funds in a deferred annuity become the owner's property?
They are nonforfeitable and always belong to the contract owner.
Toby, an insurance agent, learns that another agent is submitting fraudulent claims to various insurers but does not report the fraud. Which statement is correct?
Toby is guilty of a Class A misdemeanor.
Which of the following doubles or triples the benefits if the insured dies as the direct result of an accident?
accidental death benefit (ADB) riders
The terms "double indemnity rider" and "triple indemnity rider" are common names for which type of life insurance policy rider?
accidental death benefit rider
The tendency of a person diagnosed with a serious illness to try to buy life or health insurance is known as:
adverse selection
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
A producer owes a fiduciary duty to:
both the insurer and the customer
Jerry asks his insurance company to pay him the cash value of his permanent life insurance and cancel the policy. Jerry is using which of the following nonforfeiture options?
cash surrender option
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
What do covered employees receive to show they have coverage under a group life insurance policy?
certificate of insurance
Jim plans to withdraw $3,000 from his Section 529 education savings plan this year to pay for some of his college expenses. He can withdraw the money tax free to pay for all of the following, EXCEPT:
clothes
Which one of the following would a state NOT permit as a life insurance policy exclusion?
death resulting from a plane crash in which the insured was a fare-paying passenger
Which type of life insurance policy would most likely be used to insure the declining balance of a home mortgage?
decreasing term
Robert is purchasing a life insurance policy in which he is the insured. If he wants to keep the policy proceeds out of his estate for tax purposes, all of the following arrangements would help him meet that goal EXCEPT:
designate an irrevocable life insurance trust to be the owner and Robert's estate to be the policy beneficiary
Jenny is considered fully insured under Social Security, which qualifies her for which of the following benefits?
disability benefits, survivor benefits, and retirement benefits
Pamela is meeting with Todd, an insurance customer, to discuss whether he should buy life insurance. As a producer, Pamela has an ethical duty to take all of the following actions EXCEPT:
disclose that she can give Todd part of her commission to help pay the premium if he buys a policy
Which of the following is the main appeal of joint life insurance compared to separate policies covering two lives?
lower cost
Jessica, age 25, buys a $100,000 life insurance policy. The initial premium is lower than straight whole life rates and increases each year for the first ten years of the policy period. After that, the premium levels off and stays at that amount for the life of the policy. What type of policy does Jessica own?
graded premium whole life
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
Producers can help prevent insurance fraud by taking all of the following actions EXCEPT:
have proposed insureds sign blank insurance applications
If a market-value adjusted annuity (MVA) is surrendered before the end of the contract term at a time when current market interest rates are lower than they were when the annuity was issued, the insurer will:
increase the interest rate on the withdrawn funds and charge the normal surrender charge
From a regulatory perspective, all variable life insurance policies are considered:
investment securities
Settlement options that effectively work like an annuity by providing income payments the payee cannot outlive are called which of the following?
life income options
As beneficiary of her husband's life insurance, Beth chooses to receive payments for life. However, she is guaranteed that the payments will be made for ten years. Beth has chosen which of the following?
life income with period certain
In what form does the MIB present its information to insurers?
numeric codes, indicating risks identified in previous applications, that are communicated electronically
What is the standard life insurance policy suicide exclusion period?
one to two years
Regarding policy dividend options, the so-called "fifth dividend option" involves the purchase of:
one-year term life insurance equal to the base policy's cash value or the amount that the dividend can purchase
Which of the following parties makes an enforceable promise in an insurance contract?
only the insurance company
What type of life insurance policy distributes its divisible surplus to policyowners in the form of policy dividends?
participating 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
Actuaries base traditional life insurance premiums on all of the following factors, EXCEPT:
sales projections
In addition to the fiduciary responsibility they have with all customer premiums and assets, producers are expected to do all the following EXCEPT:
seek opportunities to replace existing policies with newer products
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
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
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
All the following are parties to an annuity contract EXCEPT:
the agent
Ben owns a $100,000 policy on his life, which sells to his younger brother, Bart, for $50,000. Bart names himself beneficiary and pays the policy's annual $1,500 premium. Four years after the sale, Ben dies, and Bart receives the policy's $100,000 death benefit. Under the transfer-for-value rule, what is Bart's taxable "gain" on the policy?
$44,000
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
Failure to begin taking required minimum distributions (RMDs) from a qualified retirement plan when required can result is a penalty tax equal to:
50 percent of the difference between the amount that was taken and the RMD amount that should have been taken
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
After Amanda receives premium funds from clients, she deposits them into her personal savings account. She then remits the funds to the insurer. Which statement about Amanda's acts is correct?
Amanda has engaged in commingling, which is unethical and illegal.
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.
Which ethical behavior is at the core of all legal and ethical principles and standards?
Honesty
Zenith Insurance Company issues a credit life insurance policy to Charlene, who took out a loan that is due to mature on December 1. The term of coverage generally cannot extend beyond what date?
Individual insureds are typically not required to undergo a medical exam or provide evidence of insurability.
A society, community, or business industry determines the collective standards of acceptable ethical conduct. An individual, however, approaches ethical decisions from a personal perspective of life experiences along with other factors. Which of the following is NOT one of the factors from which an individual makes an ethical decision?
State insurance regulations
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.
All the following statements about standard policy exclusions are correct EXCEPT:
The war and commission of a felony exclusions are required by law.
Premiums that are paid into a variable annuity acquire:
accumulation units
What is the main appeal of joint life insurance?
lower cost than two separate policies
What is the maximum amount of time most states allow insurers to delay paying cash surrender values?
six months
If Harry, age 58, withdraws funds from his annuity, the taxable portion of the withdrawal may also be assessed which of the following?
10 percent penalty
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
If a group life insurance plan sponsor pays 100 percent of the premiums, what percentage of the group's eligible members must participate in the plan?
100 percent of the group
Jenny has purchased a variable annuity. She directs $2,500 of her $5,000 premium deposit into the contract's blue-chip stock sub-account when its net asset value is $10. How many accumulation units has Jenny bought?
250 accumulation units of the sub-account
Alice's deferred annuity imposes a declining surrender charge that begins at 7 percent during the first year of the contract and declines 1 percentage point each year. What would the surrender charge rate be for a full withdrawal in the third year of the same contract?
5 percent
Insurers are required to maintain copies of all marketing materials used to advertise their life insurance policies for how many years after such materials are last used?
5 years
All the following are standard life insurance policy exclusions EXCEPT:
6-month legal action limit provision
Maureen owned a life insurance policy on her husband. After he died, she submitted proof of his death to the insurance company on June 1. Although she complied with all the requirements for filing the claim, the company failed to pay the death benefit until Aug. 31. The company is therefore obligated to pay Maureen interest on the proceeds at the rate of
8% per year
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.
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.
Which statement about Roth IRAs is correct?
Contributions to a Roth IRA cannot be deducted.
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.
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.
Angela, an Arkansas agent, is meeting with a potential client who is interested in a life insurance policy she sells for Summit Insurance. The prospective customer owns a similar policy from Valley Insurance but may replace it with a Summit policy. Angela prepares a memo for the prospect that compares the policies' terms and benefits. She must do all of the following with respect to this memo EXCEPT:
File a copy of the memo with the Department of Insurance
The senior vice president of Salem Computers is covered by a salary continuation plan, which stipulates that he cannot work for a competitor. What will happen if he decides to leave his position and work for another computer company?
He will forfeit his benefits under the plan since he failed to meet the conditions in the agreement.
The motivation of stakeholders in an ethical dilemma involve all of the following EXCEPT:
Honesty versus propriety
When faced with an ethical dilemma at work, all of the following would run through the mind of an ethical producer EXCEPT:
If no one is hurt, it's okay
When a client asks for an explanation of an insurance policy provision, the producer says, "That provision isn't really important. I'll explain it if you want me to, but understanding all the details isn't necessary." Which of the following characterizes the producer's behavior?
Improper and dishonest
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.
Which statement about group life insurance is correct?
Individual insureds are typically not required to undergo a medical exam or provide evidence of insurability.
If insurers do not allow minors to be beneficiaries of life insurance, what happens if no adults are available to receive death benefits?
Insurers require the court to appoint a legal guardian before paying benefits to a minor child.
Which statement about the conversion provision in group life insurance policies is correct?
It allows terminating plan participants to convert their coverage to an individual policy of the same face amount without the need to provide evidence of insurability.
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.
In the insurance workplace, ethical dilemmas occur because differences of opinion and perception exist between clients and producers (and among insurance professionals) with respect to which of the following
Matters of significant value
Which of the following is considered dishonest and unethical behavior on the part of a producer?
Misrepresentation
Endowment contracts are NOT considered life insurance (for tax purposes) because:
They endow before age 120.
When looking at how much income his family would need if he were to die prematurely, Tom discovered that the Social Security survivors' benefit would not give them enough ongoing income. If securing his family's financial future is his top priority, which of the following statements describes Tom's best response?
Tom can buy additional life insurance to cover the amount needed to provide an adequate stream of income upon his death.
When comparing her insurance company's policies to those of XYZ Insurance, Melanie intentionally misrepresents XYZ's policies to convince an insurance prospect to terminate a policy with XYZ and buy one from Melanie's company. Which unlawful act has Melanie committed?
Twisting
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.
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.
Sandy and Charlene are healthy, 45 years old, and have similar life expectancies. However, Charlene was a victim of domestic abuse and is now divorced. Though they are insured by the same company, Sandy's life insurance premiums are considerably lower Charlene's. What might the difference in premiums indicate?
Unfair discrimination
Each of the following is a step used to identify an ethical dilemma EXCEPT:
What will happen if the ethical code is not followed?
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.
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.
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
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
All the following organizations are eligible to set up a 403(b) tax-sheltered annuity plan for their employees EXCEPT:
a hardware store
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
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
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
An endowment policy matures (endows) when its cash value equals its face amount, which may be:
at almost any age
John would like to buy life insurance to provide for his family in case he dies prematurely. Using the needs approach to answer this question, his producer will gather all the following pieces of information, EXCEPT:
economic value
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
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
Many payees worry about choosing the straight life income option because they know that if they die after receiving only a single income payment, the insurer makes no further payment. To address this concern, the insurance industry created which of the following?
life income settlement options guaranteeing that a certain minimum number of payments will be made or a specified minimum amount will be paid
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
Which of the following settlement options does NOT include a life contingency?
period certain-only option
For annuities sold by life insurers, payment options can be separated into what two categories?
those with a life contingency and those without one
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
All the following reasons that a business might buy life insurance represent a valid insurable interest, EXCEPT:
to provide insurance coverage for large-volume customers
Life insurance is commonly used for all the following needs, EXCEPT:
to save for a new car in several years.
Where are the policy premiums for a traditional fixed interest universal life policy credited?
to the policy's cash value
Which one of the following statements about variable life insurance is correct?
Variable life insurance policyowners can transfer funds between investment subaccounts and the insurer's general account, with a variable life insurance policy, the policyowner assumes most of the investment risk, & the cash value is not guaranteed with variable life.
The Royale Insurance Company, domiciled in Toronto, Canada, transacts business legally in New York. In New York, Royale is classified as a(n):
alien insurance company
When first meeting prospective insurance applicants, a producer must give them a document that explains the general features, benefits, and conditions of the type of insurance being considered, which is called a
buyer's guide
Deliberately withholding material facts when applying for insurance is called:
concealment
Ambiguities in an insurance contract are most often interpreted in favor of the policyowner because insurance contracts are:
contracts of adhesion
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
The Excalibur Insurance Company, domiciled in Iowa, transacts business legally in Nebraska. In Nebraska, Excalibur is a(n):
foreign insurance company
During the underwriting process, a life insurance company may request a medical exam based on any of the following criteria, EXCEPT:
the applicant's race
In order to be grounds for the insurer to void a contract, an applicant's statements on an insurance application must involve:
the deliberate withholding of material facts
In a third-party life insurance contract, the parties to the contract are the:
the owner, the insured, and the insurance company
From an insurance perspective, underwriting is best defined as:
the process of determining if an applicant is an insurable risk
Bill recently purchased an indeterminate premium whole life insurance policy. Which one of the following statements about his policy is correct?
Bill's policy was issued with a low introductory premium that may periodically increase over time, but which will never be higher than a guaranteed maximum rate.
The Arkansas Insurance Commissioner can examine the business transactions, accounts, and records of domestic insurers as often as necessary, but must do so at least once every how many years?
Five years
Maya, an insurance agent, uses part of her clients' premiums to take a vacation but plans to forward the entire funds to the insurer within the next few months. Which statement about her actions is correct?
Maya is guilty of theft.
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. Which unlawful act has Melanie committed?
Twisting
If a policyowner partially surrenders an adjustable life insurance policy, which of the following happens to the policy's premium?
It goes down.
All the following statements regarding term life riders covering additional insureds are correct EXCEPT:
It is not necessary for the policyowner to have an insurable interest on the insured who is covered under the additional insured rider.
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.
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.
Elena is a life and health agent, and her client Ned asks her about a homeowners policy. Elena states that although she is not licensed to transact that type of insurance, she recommends a certain level of coverage that she thinks Ned should buy. Which of the following characterizes Elena's behavior?
Legal and unethical
A policyowner owns a variable universal life insurance policy that offers a wide array of variable subaccounts. With respect to this policy, all of the following statements are correct EXCEPT:
The insurance company bears the investment risk for funds allocated to variable subaccounts.
All the following statements about key employee life insurance coverage are correct EXCEPT:
The key employee's family receives the death benefits.
What happens to Social Security retirement benefits when a person postpones them past their full retirement age (FRA)?
They increase.
Which statement about variable annuities (VAs) is correct?
With a variable annuity, annuity income payments may increase or decrease based on the investment performance of the sub-accounts supporting them.
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.
A "jumping juvenile" whole life insurance policy typically increases its face amount when the insured reaches:
age 21
To be eligible for payments under a life insurance policy's long-term care rider, the insured must be certified as unable to perform which of the following?
at least two activities of daily living for at least 90 days
A policyowner can access the cash value of many life insurance policies through withdrawals, loans, or policy surrender. Which of the following terms describes the ability to easily convert life insurance into cash?
liquidity
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
A policyowner who lapses his whole life policy and applies its cash value to buy paid-up whole life coverage has chosen which of the following?
reduced paid-up option
Under which nonforfeiture option does permanent life insurance continue in force with no further need for premiums?
reduced paid-up option
Under standard exclusions, most insurers would deny coverage of which of the following?
someone serving as an aircraft crew member
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
In which one of the following ways are Section 529 prepaid tuition plans and education savings plans similar?
tax treatment of distributions
What is the only part of a nonqualified annuity's death benefit that is taxable?
the amount that exceeds the amount the owner paid into the contract
In general, all settlement options with a life contingency base payments on which of the following?
the beneficiary's life expectancy
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 whole life insurance policy matures, or endows, when:
the policy's cash value equals its face amount
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 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
After a viatical settlement agreement is signed, which party owns the life insurance policy?
the viatical settlement provider
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.
All the following uses for life insurance in a business represent a valid insurable interest, EXCEPT:
Life insurance purchased on an important customer to make up for the financial losses that might occur when that customer dies.
To boost his sales at the end of the year, Mark started offering potential clients a $500 gift card in exchange for purchasing a life insurance policy. Mark has engaged in which prohibited sales practice?
Rebating
Donna is a life insurance agent in Arkansas and wants to sell the new policies that Acme Insurers is offering. However, Donna is not sure if Acme is licensed to transact insurance in Arkansas. What should Donna do?
She should not sell Acme's policies until she determines that the insurer is licensed in Arkansas.
All the following statements regarding perils and hazards are correct EXCEPT:
Smoking cigarettes is an example of a peril.
Term life insurance is well suited for all the following needs EXCEPT:
a source of emergency cash for any financial need
The fact that ownership of a health insurance contract cannot be transferred to another party makes it what type of contract?
personal
In which of the following areas may a life insurance underwriter discriminate in determining policy eligibility and coverage limits?
personal health history
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
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
A life insurance application's main purpose is to provide underwriters with information regarding:
the applicant's personal risk data and health
All of the following must sign life insurance applications, EXCEPT:
the beneficiary
Who normally owns life insurance that is used to meet business insurance needs?
the business
Who normally pays for medical exams or lab tests that insurance companies request during the life insurance underwriting process?
the insurance company
With respect to third-party ownership of life insurance in the personal insurance market, all the following statements are true EXCEPT:
The insured has the right to name the beneficiary.
Bob bought a universal life insurance policy with a $100,000 stipulated amount and chose an Option 2 (increasing) death benefit. At his death ten years later, the policy's cash value had increased to $50,000. What will his beneficiary receive?
$150,000
Emily, age 48, withdrew $8,000 from her SIMPLE plan to buy a car. How much penalty tax will she owe?
$800
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
Which of the following correctly describes the disability income benefit rider available with life insurance policies?
It pays a monthly income determined by a formula specified in the policy if the insured becomes disabled, without impacting the policy's cash value or face amount.
Derek buys an individual life insurance policy after he loses his job and is no longer covered by his former employer's group plan. However, he dies during the conversion period and before the policy takes effect. Which of the following statements about the death benefit is true?
It will be paid under the group plan.
If Rick withdraws funds from his universal life insurance policy, what will be the immediate effect on the policy's death benefit?
It will be reduced by the amount of the withdrawal.
Nicole, age ten, is the insured in a traditional "jumping juvenile" policy with a $5,000 face amount. When she reaches age 21, what will most likely happen to the policy's face amount?
It will increase to $25,000.
Melissa asks to continue her lapsed universal life insurance policy under the extended term option. How will the insurance company respond?
It will tell Melissa that her policy does not have the extended term option and she may only take any remaining cash value in cash or let the policy continue without premiums until the cash value can no longer cover monthly deductions.
Paul, who owns a Roth IRA worth $100,000, turned age 72 last year. Which statement correctly describes his distribution options?
Paul is not required to take any distributions from his Roth IRA.
The Arkansas insurance code and regulations govern the replacement of which of the following types of life insurance policies?
Permanent life insurance
Which of the following explains why a traditional waiver of premium rider does not work with a universal life insurance policy?
Premium amounts for a universal life policy are flexible, whereas they are fixed for traditional life insurance policies.
Which of the following sections of the Tax Code deals with the exchange of life insurance policies and annuities?
Section 1035
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.
All of the following statements about the funding of Social Security benefits are correct, EXCEPT:
Self-employed workers pay a lower FICA tax than employees.
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.
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.
Which statement about credit life insurance is most correct?
State laws typically set a maximum coverage limit that creditors can offer to borrowers.
Carl is owner and insured of a life insurance policy. If he were to die without having selected a settlement option, which of the following option(s) is available to the beneficiary?
The beneficiary may choose from all settlement options that would have been available to Carl.
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.
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.
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.
Insurance producers must comply with all of the following rules when selling life insurance policies in Arkansas EXCEPT:
they cannot use life insurance policy illustrations during a sales presentation
Fred is terminally ill. He sells his $100,000 life insurance policy to a viatical settlement provider for $60,000. Six months later, Fred dies. Which of the following statements is correct?
The viatical settlement provider will receive the entire $100,000.
Which of the following most accurately describes the standard life insurance policy war clause?
The war exclusion excludes paying the death benefit only if the death is the direct result of war action.
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 about universal life insurance partial surrenders are correct EXCEPT:
They incur interest charges.
Why do endowment contracts not enjoy the same favorable tax treatment as life insurance?
They mature before age 120.
Which action must producers take when requesting and processing nonpublic personal information from clients?
They must comply with federal privacy laws.
Tiger Motors Company has 25 employees and would like to start a group life insurance plan. However, one of its employees has had two heart attacks during the past five years and his health is questionable. What will happen in this case?
Tiger Motors cannot exclude the employee from the plan based on his risk potential.
Lottery winners who want to receive their winnings in installment payments over a 20-year period will most likely be set up with:
a structured settlement, using an immediate fixed annuity, that guarantees the distribution of payments over the specified period
Under a family term rider to a life insurance policy, children who are covered under the rider can typically convert their coverage to permanent coverage as early as:
age 21, without having to provide evidence of insurability
Under the integrated long-term care option, the beneficiary receives the remainder of the face amount as the death benefit at the insured's death. In this way, the long-term care integrated option is similar to which of the following?
an accelerated benefits rider
Under which of the following annuity settlement options are payments made for a specified number of years and then end, whether the annuitant is alive or not?
fixed period option
Under which of the following settlement options does the insurer distribute all the proceeds upon the death of the insured or surrender of the policy, with none held by the insurer?
lump-sum cash payment
For any given life policy death benefit amount, which of the following settlement options generally provides the largest monthly income to the payee?
straight life income settlement option
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
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
George purchased an annuity that will provide his wife, Anna, with monthly income payments for as long as she lives. In this scenario, what is Anna called?
the annuitant
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
The death benefit of a fixed deferred annuity equals:
the contract's accumulated value when death occurs
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
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
What part of employer-funded group life insurance coverage-if any-is tax exempt for employees?
the value of the first $50,000 of coverage
Under a survivorship life insurance policy, when does the insurer pay the death benefit?
upon the death of the insured who dies second
A rider that waives all monthly deductions from a UL policy's cash value but credits nothing to the cash value if the insured becomes totally disabled is called a:
waiver of monthly deductions rider
Which of the following disciplinary measures is not within the powers of the Insurance Commissioner?
Imprisonment
Which of the following most accurately describes "insurable interest" in a life insurance policy?
Insurable interest is the financial relationship at the time of application between the person applying for life insurance and the person whose life is to be insured.
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.
What typically happens to the face amount of an indexed whole life insurance policy over time?
It increases annually to reflect increases in the consumer price index.
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.
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.
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.
Which of the following best describes insurable interest?
It refers to the financial relationship between the policyowner and the insured person or property.
Donna, age 40, buys a $200,000 straight whole life policy. On the same date, Kara, age 40, buys a $200,000 20-pay life policy. Which of the following statements is correct?
Kara's policy will build cash value quicker than Donna's policy while she is paying premiums, but once premiums stop, cash value growth will slow down.
In a current assumption whole life policy, what happens to premium rates if an insurer earns more on its investments than was factored into the premium calculation?
Premiums decrease to a new rate supported by the actual investment experience.
In the actuary's calculation of life insurance premium rates, what affect will a higher interest rate assumption have on the premium rate?
Premiums will be lower.
All the following statements regarding stranger-owned life insurance (STOLI) are correct EXCEPT:
The insured retains the right to designate the policy's beneficiary.
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.
When may an insurer cancel either whole life or term life insurance?
The insurer may cancel both types of policies if the policyowner does not pay the premiums.
All of the following are characteristics of a mutual insurance company EXCEPT:
They are owned by stockholders.
Who completes an attending physician's statement (APS)?
the proposed insured's doctor, who is familiar with how the medical condition is being treated
Acme Insurance and Apogee Insurance agree to offer different premium rates for persons of equal risk within a particular class. They also agree to limit benefits paid to insureds within this class if the insureds live in certain counties of Arkansas. Acme and Apogee are engaging in
unfair and prohibited business practices