Life Insurance and Annuities

The purpose of an annuity is the systematic distribution of an estate. The manner of distribution is selected by the owner. Which of following are true? I. It may or may not involve "life expectancy" calculations II. The annuity period may also be described as the benefit period III. The age and sex of the annuitant cannot influence the benefits, as that would violate laws IV. The settlement option can be changed within 5 years of annuitizing the annuity

I and II Yes, this is right. Here's the problem. One of the annuities, the last one which is called "period certain" has nothing to do with life expectancy. Darn. The rest of the ones mentioned are lifetime annuities.

Which of the statements comparing participating with nonparticipating policies are true? I. Premiums for nonpar policies are usually lower than for participating policies. II. The general provisions for both policies are the same, except for dividend provisions. III. Dividends from participating policies are treated as taxable income, but dividends from nonpar policies are not. A. I and II B. I and III C. II and III D. I, II, and III

I and II Yes, this is right. Par policy premiums are more because of the opportunity of getting dividends back. Non-par policies don't have dividends, period. Thus III. is wrong. and interestingly enough, all but one answer has III. in it. III. is wrong in two ways. Dividends from par policies are not taxable, and non-par policies don't have dividends or dividend provisions anyway.

Which of the following would have an insurable interest? I. employer II. spouse III. neighbor IV. insured A. I and II only B. I, II and III only C. I, II and IV only D. All

I, II and IV only Right. All but the neighbor.

Which of the following is provided by the payor (applicant) waiver of premium rider on a policy with a minor child as the insured? A. If the child is disabled 6 months or longer, premiums are waived. B. If the premium payor dies, premiums are waived until the insured child reaches age 25. C. If the minor child dies, the benefit is doubled. D. If the premium payor is unemployed, benefits are waived.

If the premium payor dies, premiums are waived until the insured child reaches age 25. Yes, this is the definition of the payor rider.

Life insurance that is characterized by comparatively small issue amounts, and frequent premium payments is called: A. Ordinary life B. Temporary life C. Industrial life D. Permanent life

Industrial life Yes, Industrial insurance -- also known as debit insurance. Also known as home-service insurance.

Drug addiction is an example of? A. Moral hazard B. Physical hazard C. Risk avoidance D. Morale hazard

Moral hazard Yes... Drug addiction is a legality issue and that makes it a moral hazard.

Which clause protects proceeds from creditors of the beneficiary? A. Insuring clause B. Incontestable clause C. Spendthrift trust clause D. Suicide clause

Spendthrift trust clause Yes. This clause protects the beneficiary from him/herself. How it works is that if there are proceeds left with the company (doesn't work with a lump sum), this clause doesn't allow any creditor of the beneficiary to come and claim against the money.

What is also known as the American Agency System? A. A system devised as a result of the Armstrong Investigation which occurred in Early America B. The American version of the Lloyds of London plan C. The same as the Independent Agency System D. A system based on Paul vs. Virginia of 1868.

The same as the Independent Agency System Yes, and that information is in the ZoomBook and is also in the ZoomWords list of definitions.

When insuring substandard life insurance risks, provision is usually made for the expected higher death rate by: A. charging an additional premium. B. reducing the death benefit. C. establishing special risk groups. D. reducing the agent's commission.

charging an additional premium. Yep, that's how and why the companies do it.

When an applicant applies for insurance by completing an application and paying the initial premium, this constitutes: A. consideration and an offer to buy. B. an acceptance. C. a conditioned contract. D. a completed contract.

consideration and an offer to buy. Right. That's it. Except don't talk to the experienced people in your office about the number of months of premium. Just go with "initial premium."

A variable annuity separate account will be invested in: A. the legal reserve for liquidity B. equity investments C. bonds D. short term government securities

equity investments Now here's the deal: it says equity investments. That means stocks (or bond funds) which indicates ownership and the chance for appreciation. That's the goal. Equity means ownership.

Self insuring is an example of risk: A. reduction. B. retention. C. avoidance. D. transference.

retention Yes -- self insuring is the same as retaining all the risk yourself.

Insurer can delay payment of a cash surrender for: A. 90 days B. 6 months C. 6 months to 1 year D. Must pay immediately

6 months Yes... This is a different version of an earlier question. Same answer.

What type of insurance is most frequently used in group life plans? A. Annual renewable term B. Whole life C. Level term D. Universal life

Annual renewable term Why? Easy. It is the least expensive type of insurance a company could obtain for its people for that year, and also because companies and other groups often budget on an annual basis, this is the least costly. In addition, groups never know how long an employee or member is going to be "staying" with them, and therefore, they don't want to be purchasing insurance based on a longer time period.

The value of a separate account in an annuity during payout is determined by: A. Annuity units B. Credit units C. Entire stock market D. Value units

Annuity units Yes, annuity units. It's the value of the units that changes as the investment involved experiences market variations.

Insurable interest must exist at what time? A. At time of application B. At time of delivery C. At time of death D. At all times

At time of application Right. In life insurance, ONLY at the time of application. After that, the game can change and it doesn't make any difference to the company or the policy.

Mr. Roberts assigns a $100,000 policy and has a $50,000 mortgage. Mortgagee and assignee receive a check payable jointly. What type of agreement is this? A. Absolute assignment B. Collateral assignment C. Partial assignment D. Divisible assignment

Collateral assignment The collateral assignment is used when a check is to be paid jointly to both parties. The key word here is "jointly."

Which life insurance proceeds option provides equal payments for a specific time to a named beneficiary? A. Fixed amount B. Fixed period C. Life with period certain D. Installment refund

Fixed period The company will come up with a figure which is consistent each month, and make it last for an exact period of time. Take a look at the other answers on this question if you got this answer correct as the first choice.

The primary insurance amount (PIA) is equal to: A. 1/2 worker's retirement at 62 B. 1/2 worker's retirement at 65 C. Full worker's retirement at 62 D. Full worker's retirement at Full-Retirement-Age

Full worker's retirement at Full-Retirement-Age Yes, and you have to wait until Full-Retirement-Age to get the full benefit.

A Roth IRA participant must take distribution by what point in his/her life? A. 59 1/2 B. 65 C. April 1st following the year he/she becomes 70 1/2 D. He/she is not required to take the distribution

He/she is not required to take the distribution Yes. This is correct about the Roth IRA. There is no set time when withdrawal must begin. There's a good reason. It's because there will not be any tax due since it was paid for with after tax dollars originally. No tax due. Thus the IRS doesn't care when or if the funds are withdrawn.

Group credit life programs include which of the following: I. Premium paid by borrower II. Limit on amount of insurance per borrower III. Benefits paid to borrower's beneficiary A. I & II B. I & III C. II & III D. I, II, & III

I & II Yes, it's limited to the amount that has been borrowed and unlike many regular group policies, the premiums are paid solely by the borrower. The benefits are paid to the holder of the loan. Then the item covered becomes part of the estate of the deceased.

Qualified retirement plans must allow enrollment of all employees: I. Age 21 II. Completed 1 year of service III. Work 10 hours a week throughout the year A. I & III B. I & II C. II & III D. I, II, & III

I and II True. 21 AND having completed 1 year of service. They could start earlier, but they can't wait any longer.

All of the following are non-forfeiture options, except: A. cash values B. extended term C. 1 year term D. reduced paid up

1 year term Yes. Because the correct option is "extended term" which lasts a lot longer than 1-year term. The confusion comes in with the 1 year term option on dividend benefits.

Which one of the following is the policy that is paid up early and endows at age 100? A. Modified B. Universal C. 20-pay life D. Endowment at 50

20-pay life Right. The premiums are only paid for 20 years and then it sits... and endows at 100. Attention: you will note the use of the age 100 here and throughout the rest of the test. Don't talk to the people at your office on this one. Just go with 100.

When a variable annuity purchaser reaches retirement, what percent of the total value of all accumulation units credited to her account is converted to annuity units? A. 25% B. 50% C. 100% D. 200%

100% Yes... This is a little bit of a strange question, just to get you thinking. All that happens when an annuity goes from the accumulation period to the annuity period is that 100% of the accumulation units get converted to annuity units.

All of the following are annuity benefit factors except: A. Age of beneficiary B. Age of annuitant C. Amount of proceeds D. Interest rate

Age of beneficiary Right. We don't care how old the beneficiary is because that doesn't work into the calculation.

Which of the following is not party to an insurance contract? A. Agent B. Insurer C. Insured D. Owner

Agent Right. Think about it this way. If you sell a policy to a client in Tampa, and later they move to Chicago (now why would somebody do that?), you as the agent can continue to make contact but you aren't required to. The owner and insured and the company continue a life-long connection. Also in this sense, the agent IS the company while making the original contract -- remember agent responsibilities and authority.

Which exclusion(s) would be found in life insurance policies? A. Suicide B. War C. Hazardous occupation or hobbies D. All of the above

All of the above Yes, it's all three.

Under a life income annuity option which of the following is true? A. The older the annuitant, the smaller the monthly payment. B. The older the annuitant, the shorter the payment period. C. The younger the annuitant, the shorter the payment period. D. The older the annuitant, the larger the monthly payment.

The older the annuitant, the larger the monthly payment. Yes, because the actuarial table says the annuitant will probably not live as long as a younger person, and therefore, the monthly payment will be larger. The monthly payment is based on the table.

When does a tertiary beneficiary collect? A. When the primary beneficiary dies B. When the secondary beneficiary dies C. When the primary and secondary pre-decease the insured D. None of the above

When the primary and secondary pre-decease the insured Yes, when there is no one living on the two lines above the tertiary. There is no one else for the proceeds to go to ahead of the third line. What if there was a charity on the second line rather than a named beneficiary? Then the proceeds would never make it to the third line because the charity is like a corporation which never dies.

When is a statement of good health required regarding a life insurance policy? A. When the initial premium is paid with the application B. When there is no premium with application C. Always D. Never

When there is no premium with application Yes, when there is no premium sent in with the application, the company wishes to know if anything has changed regarding the health of the insured since the time of application. Then the policy can be delivered as the insured pays the requested premium and accepts the policy.

A divorced spouse and her minor children have what rights under a group policy? I. Employer continues to pay the insurance another 90 days II. Spouse has 31 days to convert III. Minor children can convert policies at age 19 or if they are in school full time, as late as 23

II and III Right. II. and III. are correct.

Which of the following are considered in the needs approach? I. Travel expense fund II. Final expense fund III. Disability income IV. Monthly income A. I, III, and IV B. All C. II and III D. II, III, and IV

II, III, and IV Right... These are three of the choices mentioned. Travel expenses are not mentioned... logical, but not mentioned. Therefore, don't assume that is a good answer from your outside information. Also see answer (a).

Can an agent write business with a company they are not appointed with? A. Only if business was a line not carried by their company B. It is ok if their company approves C. If it is considered excess or rejected business D. It is ok if the new company approves

If it is considered excess or rejected business Yes. Hang on to your hat on this one. What this question means is that if you try to write business (write an application) on someone and your company will not take the business because of an underwriting requirement of some sort (as an example) or won't sell that much insurance coverage, and yet you know of another company who will at a standard rate, you can write the application for another company and sell the policy, and be paid a commission without ever being appointed by the other company. It's called the "excess or rejected business" rule. Also: the "exchange of business" law.

An annuity contract provides? A. Income for life B. Guaranteed death benefit C. Creation of an immediate estate D. None of the above

Income for life Yes. This is the "amazing" thing that makes an annuity different than other investments. All but the last one of the annuities are lifetime annuities. That means those continue until the death of the "annuitant" no matter what their other provisions might be. Don't talk to experienced people in your office about annuities. They will try to be helpful and will tell you about things that aren't on the test and will confuse you when you see the answers at exam time.

If insured purchases a 10-year plan and dies after 6 years, how will a family income plan pay compared to a family maintenance plan? A. Income plan will pay 10-years and maintenance will pay 10-years B. Income plan will pay 6-years and maintenance will pay 10-years C. Income plan will pay 10-years and maintenance, will pay 4-years D. Income plan will pay 4-years and maintenance will pay 10-years

Income plan will pay 4-years and maintenance will pay 10-years Yes. Now let's get into this family maintenance and family income stuff. You need to understand that the family income policy provides cash for family income only until age 50 of the insured. Then the money stops because the quantity of proceeds in a decreasing term policy continues to drop. The family maintenance is intended to provide "maintenance funds" for a 20 year (we'll say) period of time from WHENEVER the insured dies within the window until age 50. Then that option expires. If the insured dies at 49, the money is designed to last for 20 more years from that point. Make sense? Two ways of addressing a somewhat similar problem.

Where would information about a prospective insured's lifestyle be found? A. MIB report B. Inspection report C. Credit report D. Medical report

Inspection report Yes...and not in the credit report either even though that was not one of the answers provided for your choice. Inspection report is correct. Inspection reports are "mode of living, finances, ..." which means salary, assets, liabilities, but not credit.

All of the following are true about the Fair Credit Reporting Act except: A. Insurers must identify the source of information only B. Enacted in 1970 C. It is a federal law D. Insurers must divulge the reason they decline someone

Insurers must divulge the reason they decline someone Right. Here's what happens: when someone is declined because of the Fair Credit Reporting Act, the insurance company is required to let the proposed insured know who gave them the report which caused the company to deny them coverage, but they cannot tell the proposed insured what was in the report.

Which is found on the front page of all insurance policies? A. Consideration clause B. Suicide clause C. Insuring clause D. Incontestable clause

Insuring clause Yes, this is the clause where the company states what they are going to do and the particulars, when there is a claim.... information like the amount of proceeds and how the proceeds are going to be handled. Now here is a bit more information: in the Life portion of the book, the answer is - it's found on the cover of the policy. In the health portion of the book, the answer is - it's found on the first page. Same thing.

The agent's report is found where in the application? A. Part I B. Part II C. Part III D. Part IV

Part III Yes, it's part III. This is where the agent makes comments about the client, situation, or anything he/she wishes to be noted.

A dually licensed agent, who knows an existing insurance policy will lapse, and based on his recommendation, will be invested in a security, must notify who in 15-days? A. Insured B. Beneficiary C. The insurance company D. Policyowner

Policyowner Yes. There is some explaining which needs to be done here. First, there is a difference between duly and dually. Duly means properly licensed. Dually means two licenses. Watch the spelling. This is talking about dually, and a notice must be given to the policyowner 15 days prior to doing something to carry out the proposal.

Which would be higher for a participating life insurance policy than for a comparable nonparticipating life policy? A. Premium B. Surrender value C. Lump sum settlement D. Interest rate on policy loan

Premium Yes... only the premium. All else is the same, except, dividends are available to those with PAR policies. PARticipating with the company on their expenses.

The MIB's main purpose is: A. Provide detailed medical information B. Prevent overinsurance C. Prevent misrepresentation and fraud D. Assist doctors

Prevent misrepresentation and fraud Yes, this is right. Prevent misrepresentation and fraud. And the big reason is to keep the costs down for the legitimate policy owners! Minimizing policy costs for the client is actually the bottom line answer. If there is no fraud, that keeps the rest of the clients paying the right amount of premium for their coverage.

An old man stops payment on his policy, but wants coverage for the remainder of his life. Which would provide this? A. Extended term B. Reduced paid up C. Term D. Endowment

Reduced paid up Yes.. this is it. Reduced, paid-up means it covers for the remainder of a lifetime, but at a reduced face value, and without any further payments of premium.

Changing one's lifestyle to minimize a known risk is an example of? A. Risk avoidance B. Risk transference C. Risk reduction D. Risk retention

Risk reduction Minimizing risk is reducing exposure to that risk. Changing lifestyle/habits can definitely reduce a known risk.

Who regulates the separate account in a Variable Annuity? A. Insurance Dept. B. FINRA C. SEC D. Fred & Wilma

SEC Yep. It's the S.E.C. (Securities and Exchange Commission). You know what though? They don't care whether the investments in the separate account do well or not. All they are watching (and it's significant) is that the people who are doing the investing with the money in the separate account are doing exactly what they said they were going to do with it as described in the PROSPECTUS.

In addition to the state, the organization that regulates variable contracts is: A. FTC B. SEC C. FCC D. NAIC

SEC Yes, the Securities Exchange Commission regulates all variable life and variable annuity products.

Which of the following policies provides the greatest amount of death protection for an insured's periodic premium dollar as well as some cash accumulation? A. Term B. Annuity C. Limited-Pay Life D. Straight Whole Life

Straight Whole Life Yes. This is a good question to have to think through.

Which one of the following is most commonly included in the exclusion clause in a life policy? A. Felonious acts B. Suicide C. Commercial airline flights D. Private air flights

Suicide Yes. Always. At least for the answer on the state exam.

What is the type of insurance that would not make a good retirement vehicle? A. Whole life B. Endowment C. Limited pay life D. Term

Term Yep. It's term because term is used to cover an insurance need for a fixed period of time and then not be needed anymore... and it doesn't have any cash value at any time.

When retiring at age 62 and taking the Social Security retirement benefit, an individual could lose: A. $1 for every $3 earned B. $1 for every $2 earned C. $1 for every $5 earned D. Nothing

$1 for every $2 earned Yes, a retiree who takes the Social Security benefit earlier than 65 is subject to this problem. For every two dollars they earn above the annual limit, they can lose $1 of retirement benefits. Then it gets a little more complicated when the person is in the same year as their full retirement. This is a new change and is now correctly stated in the current edition. If the person retires at full retirement age and then takes the benefit, there is no longer a penalty.

An annuity is purchased for $10,000, the expected return is $20,000 what amount is taxable if it pays $300 month? A. Zero B. $100 C. $150 D. $300

$150 Yes, and it is done by the exclusion ratio which states: divide the after tax money going in by the expected return. That gives the fraction of each payment which excludes taxes. In this case, the number is 1/2 of each payment that is taxable so you don't get to see what would happen if perhaps the expected return was $40,000. Then we would be excluding 1/4 of each payment. Try the math.

An annuitant receives $1200 a month, the value of each annuity unit is $6, How many annuity units did he receive? A. 20 B. 200 C. 2,000 D. 7,200

200 Yep. That's right. 1200 divided by 6 = 200. You can also check your math by doing the problem backwards (which may be easier to understand). 200 units at $6 apiece makes a total of $1200 dollars.

Which of the following retirement plans involves a "matching element"? A. I.R.A. B. 403(b) C. Keogh D. 401(k)

401(k) That's it. It's a sharing of profits in a way. The 401(k) is usually the only one of the choices with a "matching element". There is another possibility; it's a SIMPLE plan, but that probably won't be one of the choices on your exam

At what age can Traditional IRA owners begin to receive payments and not incur negative tax consequences? A. 50 1/2 B. 59 1/2 C. 65 D. Anytime

59 1/2 Yep, this is it. 59 and 1/2 is correct. No more penalty. Yes, there are some other considerations. Just remember 59 and 1/2 and let it go at that.

How soon must the cash surrender values become available to the insured? A. Immediately B. 1-year C. 3-years D. 6 months

6 months 6 months is right.... we're talking about cash "surrender" values ... the policy is being cashed in! Companies have six months in which to come up with the money! Also true when a claim is turned in! 6 months. I left this vague because, unfortunately, you will have some like this on the state test and you really have to examine the question to make it to the right answer. Now go look at answer c.

How are interest rates for a whole life policy's cash values determined? A. A formula determined by the company B. Current market interest rate C. Moody's corporate bond index D. Set by insurance commissioner

A formula determined by the company This is right. The company makes the determination. Often the board of directors. They decide based on all factors.

An agent who writes controlled business must write how much business to the public? A. An equal amount B. More C. Less D. None

An equal amount Equal or half or 50% is correct. That's the rule. It means if you as an agent are selling in a "controlled" environment (you know somebody), at least half of your business has to be from other sources.

The following statements about insurable interest are true except: A. Brothers and sisters have an insurable interest in each other. B. A creditor can have an insurable interest in a debtor limited to the amount of indebtedness. C. An insurable interest must exist between the policyowner and the insured at the time of the claim. D. People are considered to have an insurable interest in themselves.

An insurable interest must exist between the policyowner and the insured at the time of the claim. Not true. Right answer. Insurable interest ONLY has to exist at the time of the application and policy issuance. The words are "at the inception of the policy."

At what age must owners of Traditional IRAs begin to receive payments from their retirement funds? A. 59 1/2 B. 70 1/2 C. April 1 of the year following the year they become 70 1/2 D. None of above

April 1 of the year following the year they become 70 1/2 Yes. Funny, but right. Here is the question which has appeared on the state test: When does the owner of a traditional IRA have to start the pay-out cycle? a). 59 1/2 b). 62 c). 65 d). 70 1/2 What are you going to do? The right answer isn't there (and this has been reported as the way it is on the state exam). I would frown and choose "d" because the right answer isn't one of the choices, and hope there were not any more questions like that. Now here is a little more of an explanation. If you wait until April 1st of the following year to actually start the payout of your IRA, by the end of that same year, you also have to take the distributions from January, February, and March of that same year and the other months in the previous year since you turned 70 1/2. In other words, by the end of the year, you have to take enough from the IRA to make it the same as if you really started at 70 1/2. They let you delay, but you then have to catch up. Mathematically, it might as well be 70 1/2.

If a medical report is required, it is completed by: A. Insurer medical officer B. Insurer underwriter C. Physician only D. Paramedic or Physician

Paramedic or Physician Yes, and usually the medical reports are done by a paramedic, or on larger amounts of insurance or older client age, in a physician's office or clinic.

What does the conversion clause provide a terminated employee under a group plan? A. Coverage for 30 days B. Coverage for 31 days C. Coverage for 6 months D. No coverage after termination

Coverage for 31 days Yes, the number is 31 days, NOT 30 or any other number.

If each partner purchases policies on the other partners, it is what type of plan? A. Entity plan B. Cross purchase plan C. Partnership plan D. Stock redemption plan

Cross purchase plan This is the definition of cross-purchase.

Who regulates retirement plans? A. Insurance director B. State Department of Corrections C. SEC D. ERISA

ERISA Yes, it's a federal act. 1974.

Which one is not payable under business overhead expense insurance? A. Mortgage B. Employee salary C. Employer salary D. Leased equipment

Employer salary Right -- you cannot include the salary of the employer. All other salaries are OK and can be included.

A waiver of premium rider cannot be added to a term policy. A. True B. False

False Yes, it can. So the statement is false.

Churning is defined as the practice by which policy values from an existing life insurance policy are used to purchase another policy from a different company where the change is not beneficial for the policy holder. A. True B. False

False Yes, it's false because the words describe twisting. If the new policy is from the same company, it's described as churning.

Which retirement plans are deemed qualified? I. Defined contribution plans II. Defined benefit plans III. Defined Premium plans IV. Defined payment plans A. I and III B. II and IV C. I, II, and III D. I and II

I and II Yes -- this is right.

Which can be written as group insurance? I. Employees of an employer II. Fraternal benefit society III. Family members IV. Labor unions A. I and II B. II, III and IV C. I, II and IV D. All

I, II and IV Right. All but family groups.

How are pension plans benefits payable? I. Expressed as fixed dollar amount II. Based on a percentage of compensation before retirement III. Based on years of service IV. Based on age A. I, II and III B. I and III C. III and IV D. All

I, II, and III Yes, the first three are correct. Age is not because that's discriminatory, in this case.

Which are the most important aspects of qualified retirement plans to employers? I. Attracting & retaining key employees II. Increased productivity III. Retiring employees humanely IV. Forced savings A. I and II B. I, II, III C. I, II and IV D. All

I, II, and III Yes. All three. Forcing someone to save is not included.

What is the function of a ceding company? A. An agricultural seed distribution company. B. It is an insurance company that is taking part of the risk of another insurance company. C. It is an insurance company that is assigning a portion of their risk to a reinsurance company. D. none of the above

It is an insurance company that is assigning a portion of their risk to a reinsurance company. Yes. Correct. The ceding company assigns a portion of their risk to the reinsurer. The reinsurance company is taking part of their risk for a share in the premium.

After a group life master policy has been issued, what action may the insurer take on future policy anniversaries? A. It may cancel the insurance of any group members who have become seriously ill or impaired. B. It may adjust the premium to bring it in line with current mortality and operating expenses. C. It cannot make any changes in the contract or in the enrollees. D. It may refuse to insure covered members with excessive claims.

It may adjust the premium to bring it in line with current mortality and operating expenses. The company may adjust the premium, and they often do, at anniversary time on a group policy.

Jose works for a large city as a firefighter and Mable, his wife, is a secretary for a small new car dealer. Which one is likely not to be covered under social security? A. Mable B. Jose C. Both would be covered D. Neither would be covered

Jose It's Jose. Many cities, governmental agencies, etc., have their own retirement system and don't connect with social security. Not true of small businesses, which are going to be required to be in the social security system.

A currently insured worker covered under social security is entitled to what? A. Disability benefits B. Retirement benefits C. Limited death benefits D. All of the above

Limited death benefits Yes, this is an available benefit when currently (not fully) insured.

In what respect do limited pay life policies differ from straight whole life policies? A. Limited pay life policies do not give insurance protection to age 100. B. Limited pay life policies endow before age 100. C. Limited pay life policies have a shorter premium-paying period. D. Limited pay life policies can provide protection for a limited time, typically to age 65.

Limited pay life policies have a shorter premium-paying period. Yes... What was that about when babies are young? (Earlier answer)... This is what Limited Pay means. Pay more, for a shorter period of time. All else in the policy works as per normal.

The following statement about the M.I.B. (Medical Information Bureau) is true: A. Medical information is received from insurance applications. B. The applicant can call the M.I.B. for a personal report. C. Agents are responsible for getting the report to the applicant. D. The M.I.B. is operated as part of the American Medical Association.

Medical information is received from insurance applications. Yes, this is where they get at lot of their data. Some also comes from health insurance claims.

Both life and health insurance use the same factors determining premiums except: A. Interest factor B. Expense factor C. Morbidity D. Age

Morbidity Morbidity is the word for health insurance like the word mortality in life insurance. Remember this: The big three (mentioned in this question) are MIX. Mortality (or morbidity), interest, and eXpenses. Other factors are present, but remember MIX and you will be in good shape for the test.

Taking all the funds available to a family and planning for their financial obligations is an example of: A. Human life value approach B. Needs approach C. Dollar valuation D. Multiple earnings

Needs approach The needs approach takes many factors into consideration when planning for the family's financial outcome. Interim goals can be considered as well as retirement. The needs approach can consider all aspects of a family's future.

Under a payor provision, what happens if the child covered under the policy becomes disabled? A. Face amount payable B. Nothing C. Premiums waived until age 25 D. Premiums waived permanently

Nothing They do nothing. The payor provision is for the protection of the payor - the adult paying for the policy, not the child. It's for if/when the payor is disabled or dies.

When could a war clause exclusion be enforced in a policy? A. Never in policies B. Only during wartime C. Always in policies D. At the insurer's discretion

Only during wartime Right. That's like "when are babies young?" When they are babies. Also look at answer (c.) this time for some more information.

Which of the following statements is correct? A. Only speculative risks are insurable. B. Only pure risks are insurable. C. Only quantified risks are insurable. D. Both speculative risks and pure risks are insurable.

Only pure risks are insurable. Yes, pure risks are only covering for losses. We do not have gain with pure risk, or insurance, either.

Which employees would likely NOT be excluded from group term life insurance? A. Those with less than 3 months service B. Those who work fewer than 20 hours per week C. Those who work fewer than 4 months per year D. Those who have worked many years full time

Those who have worked many years full time Someone who has worked many years full time (and must still be working now or we wouldn't be talking about them) would be covered. To answer this correctly, you need to make some assumptions that the employer and the insurer have some latitude as in terms of setting the guidelines. The factors mentioned in choices a. b. and c. are commonly used to set the requirements.

How is a policyowner's cost basis determined for accumulated cash values in a life insurance policy? A. Total premiums paid B. Total premiums paid less cash received C. Total premiums paid less-dividends, and loans received, less premiums paid for supplementary benefits D. Total premiums paid less dividends received

Total premiums paid less-dividends, and loans received, less premiums paid for supplementary benefits Right. Here's the story: you as the policy owner get to count ALL premiums paid even though it should be obvious to most everyone that at least some of the premiums are going toward life insurance... but you have to subtract off any dividends you have received since dividends are really a return of premium... and you have to subtract off any loans and loan interest owed, and any monies that went for extra supplementary benefits like waivers. Other than that, you get to count it all.

If the insurer cancels a life policy, all unearned premiums will be returned. A. True B. False C. The insurer cannot cancel a life policy

True Yes -- this is the right answer. "Wow... I thought the company couldn't cancel a policy once it was in effect." No -- they can if there was something wrong with the policy. Two ways. The first is what makes the policy VOID. There are factors when the policy was issued like incompetent parties, insurable interest, illegal intent, impersonation, etc. that caused the policy to never have been correctly issued and by legal terms, IT NEVER HAPPENED. Therefore all premiums will be returned and everyone will pretend that it never occurred. The second way is if they find out fraud or material misrepresentation happened within the contestable period. Then they will return all premiums...there are no earned premiums.

The code of ethics of the NAIC is incorporated into state law. A. True B. False

True Yes it is.

What type of permanent plan has a "corridor?" A. Whole life B. Term life C. Variable life D. Universal life option I

Universal life option I Yes. Don't talk to the experienced people in your office about this. Just remember universal life type I. It has to do with the M.E.C. but that won't be asked.

Mass marketing of insurance is best described as: A. Uses vending machines B. Does not need a licensed agent C. Largest insurance producers D. Uses print, TV and radio

Uses print, TV and radio Yes. Lots of print. Unlike this Internet review which doesn't use trees to convey the message.

A Universal Life Insurance policy has all the following features except: A. It is considered a form of Permanent Life Insurance. B. Without its adjustable features it resembles an Endowment policy. C. Contributions (premiums) may be increased or decreased by the policy payor. D. The face amount may be increased (subject to evidence of insurability), or decreased (subject to the I.R.S. corridor).

Without its adjustable features it resembles an Endowment policy. No it doesn't resemble an endowment policy...without stretching a lot. I mean they're both financial contracts, so what. Did you see the word "except?" On the state exam, that word might be capitalized, but maybe not.

All of the following statements about life insurance and the risk it covers are true except: A. life insurance is a mechanism for pooling and sharing risks. B. as the number of separate risks of the same type increases, the amount of loss within a given period becomes more certain. C. the probability of an individual insured's death increases each year until it becomes a certainty. D. a certain sum of money must be set aside by the companies each year and held by the state insurance commission to meet the contractual obligations of the insurers.

a certain sum of money must be set aside by the companies each year and held by the state insurance commission to meet the contractual obligations of the insurers. This is not true and therefore, it is the right answer. Money is set aside (on paper), but it is not held by the insurance commission. The companies keep the money to be managed like the rest of their investment funds. This is a reserve system to take care of the problem of future claims. The money in reserves is treated like a future liability because the companies know they are going to have to pay it out since the actuarial table tells them how many people are going to die next year. Companies keep track of all of this and then report it at the end of each year to the state insurance commissions. To clarify this, you might want to reread the part on the reserve system.

If company has their home office in Omaha, Nebraska, according to the Alaska Department of Insurance, in Alaska, the company would be considered: A. alien. B. domestic. C. foreign. D. domiciled.

foreign Yes, foreign. Good job. The state exam will have descriptions like this where you have to mentally put yourself in another state to answer the question.

Legal reserves show on the balance sheet as: A. assets. B. current liabilities. C. future liabilities. D. none of the above.

future liabilities. Yes, this is right. It's because the companies know they are going to have the claims to pay in the future, and they even have a very good idea of how much they will need to pay in claims. They take a look at the actuarial tables and know how many of their policyholders will die next year, etc. Therefore, the reserves are to cover "known" future expenses which are a liability to the company.

Vesting for the employee from the employee's contribution will occur: A. in 5 years. B. in 7 years. C. immediately. D. when they terminate employment.

immediately Right. Here's the story that you wouldn't get if you only had sheets of questions and the right answers: Everyone who pays into a company retirement plan is immediately "vested" with their own money. Really, the term vesting should not be used with the employee's investment, but it is likely to be on the state exam... just like this question. Vesting only applies to the amount of money the company puts in!

When someone other than the insured is the owner of a life insurance policy, the owner may do all of the following without the insured's consent except: A. surrender the policy for its cash value. B. increase the amount of insurance. C. make a policy loan. D. change the beneficiary.

increase the amount of insurance. No they can't. That makes this the right answer.

The moral hazard is characterized by: A. physical condition. B. health. C. laws and rules. D. occupation.

laws and rules Yes, following the laws and rules of our society are moral things. In fact, it's a major portion of the moral category. I say laws and rules: the laws are obvious, the rules are more murky. In the book, drug addiction is mentioned... it has to do with laws. Alcoholism is also mentioned... it's more of a rule of our society.

Most business assignments of life insurance policies are made in order to protect the: A. insured's insurability. B. lender's financial interest in the insured. C. beneficiary from the claims of creditors. D. insurance company from fraudulent claims

lender's financial interest in the insured. Yes. It's the lender (the lending company) who is concerned about getting repaid if the borrower dies before the loan is paid off.

All of the following activities could result in the suspension of an agent's license EXCEPT: A. misrepresenting the financial condition of an insurance company. B. selling any replacement policy that causes an insured to lapse an existing policy. C. obtaining a license for the sole purpose of handling controlled business. D. demonstrating incompetency to transact business as an insurance agent.

selling any replacement policy that causes an insured to lapse an existing policy. Yes, this is the correct answer. This also has to do with the replacement rule which is a requirement when replacing a policy. However, this procedure is perfectly legal.

The Fair Credit Reporting Act provides: A. that the applicant for insurance be informed that a consumer report may be requested. B. protection to debtors against harassment by lending institutions in the event of default. C. for the availability of credit life insurance on a fair and impartial basis. D. the funding for a national clearinghouse of credit information for life insurance company underwriting operations.

that the applicant for insurance be informed that a consumer report may be requested. True. That's how it works.

The benefit paying period of an annuity is called: A. the accumulation period. B. the retroactive period. C. the circumvention period. D. the annuity period.

the annuity period. Right. It's the annuity period... when the annuitant receives periodic payments for the rest of his/her life.

A Standard Risk applicant is considered covered when: A. the agent completes the application, and the applicant signs it. B. the insurance company mails the policy (which had at least one months premium submitted with the application) for delivery. C. the proposed insured completes the application and submits to a physical with the intent to pay the premium if she is approved. D. the agency manager deposits the initial premium in the bank.

the insurance company mails the policy (which had at least one months premium submitted with the application) for delivery. Yes. Then the client is covered. Before this, the applicant could be conditionally covered with a conditional receipt, but that is only if the applicant checks out completely and the company establishes that the applicant is standard. In this question, we don't know that yet so the coverage is at the time of policy issue when it is mailed. It is the best of the four answers.