Life Insurance EXAM THREE
Circulating deceptive sales material to the public is what type of Unfair Trade Practice? A. Defamation B. Coercion C. Misrepresentation D. False advertising
False advertising This is considered to be false, deceptive or misleading advertising.
Death benefits payable to a beneficiary under a life insurance policy are generally A. Exempt from income taxation if over $7,000. B. Not subject to income taxation by the Federal Government. C. Subject to income taxation by the Federal Government. D. Exempt from income taxation if under $7,000.
Not subject to income taxation by the Federal Government.
In a group life insurance policy, the employer may select all of the following EXCEPT A. The type of insurance B. The amount of insurance C. The premium payor D. The beneficiary
The beneficiary
If an insured receives accelerated death benefits, what is the least amount of the original death benefit that the beneficiary would receive after the insured's death? A. 25% B. 10% C. 0% D. 50%
0% If an insured accepts an accelerated death benefit, the death benefit received by the beneficiary will be reduced by the amount paid by the accelerated death benefit, as well as the amount of earnings lost by the insurance company in interest income. Because it is legal for an insurer to pay 100% of the death benefit before an insured dies, it is possible that the beneficiary of a policy would not receive any benefits after the insured's death.
Which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting? A. Fraternal B. Stock C. Mutual D. Reciprocal
Stock
Which of the following is an example of apparent authority of an agent appointed by an insurer? A. The agent puts up a sign with the insurer's logo without express permission. B. The agent accepts a premium payment after the end of the grace period. C. The agent accepts a premium payment during the grace period. D. The agent has business cards and stationery printed.
The agent accepts a premium payment after the end of the grace period.
All other factors being equal, which of the following terms best describe the coverage provided by term policies, as compared to any other form of protection? A. Least B. Most comprehensive C. Longest D. Greatest
Greatest
Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? A. Corridor option B. Variable option C. Option A D. Option B
Option B
Which of the following products requires a securities license? A. Equity indexed annuity B. Deferred annuity C. Variable annuity D. Fixed annuity
Variable annuity
Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost? A. Stop-loss B. Consideration C. Reasonable expectations D. Indemnity
Indemnity
A couple near retirement is planning for their golden years. They want to make sure that their retirement annuity provides monthly benefits for the rest of their lives. Should one of them die, the other would still like to continue receiving benefits. Which settlement option should they choose? A. Joint and Survivor B. Joint life C. Life with period certain D. Straight life
Joint and Survivor Joint & Survivor option guarantees an income for two or more recipients that none of them can outlive.
Which of the following methods to designate a beneficiary literally means "by the head?" A. Tertiary B. Contingent C. Per capita D. Per stirpes
Per capita
An IRA purchased by a small employer to cover employees is known as a 403(b) plan. Simplified Employee Pension plan. 401(k) plan. Defined contribution plan.
Simplified Employee Pension plan. A Simplified Employee Pension (SEP) is an employer sponsored IRA. Contributions to the plan are not included in the employee's taxable income for the year, to the extent that they do not exceed the maximums allowed. Distributions from a SEP are taxable as ordinary income when received at retirement.
In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment? A. The annuitant will receive the lower of either the guaranteed minimum rate or current rate. B. The annuitant will only receive the guaranteed minimum specified in the contract. C. The annuitant will receive the higher of either the guaranteed minimum rate or current rate. D. The annuitant will always receive the current interest rate.
The annuitant will receive the higher of either the guaranteed minimum rate or current rate. With a fixed annuity, the insurer invests the principal and gives the annuitant a guaranteed interest rate based on a minimum rate specified in the annuity, or current interest rate, whichever is higher.
Which of the following determines the cash value of variable life policy? A. The company's general account B. The policy's guarantees C. The premium mode D. The performance of the policy portfolio
The performance of the policy portfolio
What would be an advantage to naming to contingent (or secondary) beneficiary in a life insurance policy? A. It ensures the policy proceeds will be split between the primary and contingent beneficiaries. B. It requires that someone who is not the primary beneficiary handles the estate. C. It determines who receives policy benefits if the primary beneficiary is deceased. D. It allows creditors to receive payment out of the proceeds.
It determines who receives policy benefits if the primary beneficiary is deceased.
What kind of policy allows withdrawals or partial surrenders? A. Term policy B. Variable whole life C. Universal life D. 20-pay life
Universal life Universal Life products allow the partial withdrawal, or surrender, of the policy cash value.
Which of the following is the closest term to an authorized insurer? A. Legal B. Admitted C. Certified D. Licensed
Admitted Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.
Which documentation grants express authority to an agent? A. Agent's contract with the principal B. Agent's insurance license C. Fiduciary contract D. State provisions
Agent's contract with the principal
Which of the following is NOT allowed in credit life insurance? A. Creditor having a collateral assignment on the policy B. Creditor requiring that a debtor has a life insurance C. Creditor becoming a policy beneficiary. D. Creditor requiring that a debtor buys insurance from a certain insurer
Creditor requiring that a debtor buys insurance from a certain insurer In credit life insurance, creditor may require that the debtor has a life insurance, but they cannot tell you who to buy the insurance from.
Which of the following are NOT fundable by annuities? A. Death benefits B. Cash accumulation for any reason C. A person's retirement D. Estate liquidation
Death benefits
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? A. It is increased when extra premium are paid. B. It decreases over the term of the policy. C. It remains the same as the original policy, regardless of any difference in value. D. It is reduced to the amount of what the cash value would buy as a single premium.
It is reduced to the amount of what the cash value would buy as a single premium.
After issuing a policy, an insurance company discovers that the policyholder concealed information on the application. The insurance company wants to cancel the policy and give back the money the policyholder has paid. This is an example of A. Rescission. B. Refund. C. Contestability. D. Renewal.
Rescission Rescission is when a company wants to cancel a policy and returns funds paid.
All of the following are true of key person insurance EXCEPT A. The plan is funded by permanent insurance only. B. There is no limitation on the number of key employee plans in force at any one time. C. The employer is the owner, payor and beneficiary of the policy. D. The key employee is the insured.
The plan is funded by permanent insurance only. Key Person coverage may be funded by any type of life insurance.
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? A. The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. B. One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. C. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. D. The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time.
The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.
Under a SIMPLE plan, which of the following is TRUE regarding taxation on both contributions and earnings? A. Employer's matching contribution can be 50% of employee's salary. B. 75% of employee's contributions are taxed. C. They are tax deferred until withdrawn. D. Taxes must be paid in full.
They are tax deferred until withdrawn. Taxation is deferred on both contributions and earnings until funds are withdrawn.
The paid-up addition option uses the dividend A. To reduce the next year's premium. B. To accumulate additional savings for retirement. C. To purchase a smaller amount of the same type of insurance as the original policy. D. To purchase a one-year term insurance in the amount of the cash value.
To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.
For which of the following reasons can a temporary license be issued? A. To provide temporary help to a licensed producer. B. To service the existing business C. To solicit new business D. To negotiate new insurance contracts
To service the existing business
Under which of the following annuity options does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be? A. Installment refund B. Cash refund C. Installments for a fixed period D. Installments for a fixed amount
Installments for a fixed period
Which of the following entities protects policyowners, insureds, and beneficiaries under insurance contracts when insurers fail to perform contractual obligations due to financial impairment? A. Consumer Protection Agency B. Insurance Guaranty Association C. Insurance Consumer Protectorate D. Insurance Solvency Association
Insurance Guaranty Association
A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that? A. Joint Life Policy B. Survivorship Life Policy C. Second-to-Die D. Family Income Policy
Joint Life Policy
Which of the following would help prevent a universal life policy from lapsing? A. Face amount B. Adjustable premium C. Corridor of insurance D. Target premium
Target premium The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
An insured stop making payments on a loan taken from his cash value policy. What will most likely happen? A. The insurer will not permit the policyowner to take out any more loans. B. The policy will be reduced to an extended term option. C. The policy will terminate when the loan amount with interest equals or exceeds the cash value. D. The insurer will increase the interest rate on the loan and charge a penalty.
The policy will terminate when the loan amount with interest equals or exceeds the cash value.
All of the following could own group life insurance EXCEPT A. A debtor group. B. A group needing low-cost life insurance. C. A group sponsored by an employer. D. An alumni group.
A group needing low-cost life insurance. Groups purchasing group life insurance must be formed for a reason other than purchasing insurance.
Your client plans to retire at age 50. He would like to purchase an annuity that would provide income from the time he retires to the age when social security and other pension funds become available. What settlement option should he consider? A. Refund Life B. Variable annuity C. Annuity certain D. Fixed annuity
Annuity certain Annuity Certain option allows the annuitant to select the time period or the amount for the benefits. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date.
What is the purpose of establishing the target premium for a universal life policy? A. To cover all policy expenses B. To keep the policy in force C. To accumulate cash value faster D. To pay up the policy faster
To keep the policy in force The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
Which of the following CANNOT be included along with illustrations used to sell life insurance? A. Original death benefit B. Vanishing premium information C. Name of the insurer D. Rating information
Vanishing premium information Illustrations used to sell life insurance cannot use the term "vanishing premium" - or any similar term - that implies the policy becomes paid up.
If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually? A. $7,000 B. $3,000 C. $13,000 D. $10,000
$3,000 If $100,000 of life insurance proceeds were used in a settlement option paying $13,000 per year for 10 years, $10,000 per year would be income tax free (as principal) and $3,000 per year would be income taxable (as interest).
Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits? A. $50,000 B. $62,500 C. $75,000 D. Nothing
$50,000 The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitant's death. Straight life annuity payments stop at death of the annuitant regardless of the principal left in the account.
An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his A. Experience Rating B. Group rate C. Insurer's scheduled rate D. Attained age
Attained age
Which of the following is NOT a type of whole life insurance? A. Single premium B. Straight life C. Limited payment D. Increasing term
Increasing term
The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose? A. Fixed amount option B. Interest only option C. Life income with period certain D. Joint and survivor
Interest only option
Which of the following can surrender a deferred annuity contract? A. The beneficiary after the owner's death B. Deferred annuity cannot be surrendered. C. Only the annuity owner D. Only the insurance company for nonpayment of premiums
Only the annuity owner If the need arises, a deferred annuity contract may be surrendered only by the annuity owner. At surrender the owner receives the value of the annuity minus a surrender charge.
An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called? A. Tax-sheltered account plan B. HR 10 plan C. Profit sharing plan D. 401(k) plan
Profit sharing plan
A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as A. Juvenile protection provision B. Survivor protection C. Life planning D. Survivorship insurance
Survivor protection Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection.
What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military? A. Limited B. Aviation C. Hazardous occupation D. Military service or war
Military service or war There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war.
An employee is joining a group insurance plan. In order to avoid having to prove insurability, what must the employee do? A. Join during the open enrollment period B. Provide medical records to the insurer C. Sign a statement of continued good health D. Nothing proof of insurability is never required in group policies
Join during the open enrollment period
Which of the following types of insurance policies would perform the function of cash accumulation? A. Credit life B. Increasing term C. Whole life D. Term life
Whole life
ABC insurance company receives an incomplete application and issues the policy anyway. Six months later ABC realizes the missing information. What term is used that prevents ABC from forcing the policyowner to answer further questions? Estoppel Adhesion Unilateral Consideration
Estoppel ABC had waived its right to receive answers to the missing information once the policy was issued; therefore, they are estopped from enforcing those waived rights.
Items stipulated in the contract that the insurer will not provide coverage for are found in the A. Consideration clause. B. Exclusions clause. C. Insuring clause. D. Benefit Payment clause.
Exclusions clause. Exclusions are restrictions of coverage as stated in the policy.
Two individuals are in the same risk and age class; yet, they are charged different rates for their insurance policies due to an insignificant factor. What is this called? A. Adverse selection B. Discrimination C. Law of large numbers D. Misrepresentation
Discrimination Permitting individuals of the same class to be charged a different rate for the same insurance is the unfair trade practice of discrimination.
Which of the following terms is used to name the nontaxed return of unused premiums? A. Dividend B. Premium return C. Interest D. Surrender
Dividend The return of unused premiums is called a dividend. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums.
The requirement that agents not commingle insurance monies with their own funds is known as A. Express authority. B. Accepted accounting principal. C. Fiduciary responsibility. D. Premium accountability.
Fiduciary responsibility. Money collected with respect to an insurance transaction must be held in a position of trust by the agent or broker.
Life insurance death proceeds are A. Taxable to the extent that they exceed 7.5% of the beneficiaries adjusted gross income. B. Taxed as a capital gain. C. Taxed as ordinary income. D. Generally not taxed as income.
Generally not taxed as income. Life insurance death benefits are generally not taxed as income.
Which of the following statements is TRUE concerning the Accidental Death Rider? A. This rider is only available to insureds over the age of 65. B. It is only available in group insurance. C. It will pay double or triple the face amount. D. It is also known as a triple indemnity rider.
It will pay double or triple the face amount. The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.
What is it called when an agent offers compensation to an application in exchange for business? A. Fraud B. Waiver of premium C. Twisting D. Rebating
Rebating
Which settlement option provides a single beneficiary with income for the rest of his/her life? A. Lump Sum B. Retained Assets C. Single Life D. Fixed Amount
Single Life The Single Life Option provides a single beneficiary with income for the rest of his/her life.
An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called A. Graded premium whole life. B. Single premium whole life. C. Modified Endowment Contract(MEC). D. Level term life.
Single premium whole life.
A spouse was granted a temporary license for her deceased husband's agency on March 1. On May 1 she processed an application for life insurance on a new applicant. Which of the following is true? A. The spouse's license had expired. B. The application is valid as submitted. C. The application was processed without a valid license. D. The application is not valid as submitted.
The application was processed without a valid license. A temporary license may only be used to service existing business, not to solicit, negotiate or procure new business.
All of the following are true of key person insurance EXCEPT A. The key employee is the insured. B. The plan is funded by permanent insurance only. C. There is no limitation on the number of key employee plans in force at any one time. D. The employer is the owner, payor and beneficiary of the policy.
The plan is funded by permanent insurance only.
Which of the following best defines target premium in a universal life policy? A. The corridor of insurance B. The recommended amount to keep the policy in force throughout its lifetime C. The maximum amount the policyowner may pay on a policy D. The minimum amount to make sure the policy is annually renewable
The recommended amount to keep the policy in force throughout its lifetime
The Waiver of Cost of Insurance rider is found in what type of insurance? A. Joint and Survivor B. Juvenile Life C. Universal Life D. Whole Life
Universal Life The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.
Who is included in the definition of an agent? A. A producer who owns his own field office. B. A salaried employee of the insurer who does not solicit insurance or receive a commission C. An agent who devotes only 25% of his time to the solicitation of insurance contracts and does not receive commission D. Agents of title insurance companies.
A producer who owns his own field office. All of the above are not included under the definition of an agent except for a producer who owns his own field office. Ownership of an insurance field office does not exclude a producer from the definition of an agent.
What is the benefit of choosing extended term as a nonforfeiture option? A. It allows for coverage to continue beyond maturity date. B. It can be converted to a fixed annuity. C. It has the highest amount of insurance protection. D. It matures at age 100.
It has the highest amount of insurance protection. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid A. Until the policyowner's age 65. B. For 20 years. C. Until the policyowner's age 100, when the policy matures. D. For 20 years or until death, whichever occurs first.
Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.
How are contributions to a tax-sheltered annuity treated with regards to taxation? A. They are taxed as income for the employee, but are tax free upon withdrawal. B. They are not included as income for the employee, but are taxable upon distribution. C. They are never taxed. D. They are taxed as income for the employee.
They are not included as income for the employee, but are taxable upon distribution. Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal.
According to the Insurance Frauds Prevention Act, will the person who suspects a fraudulent transaction be penalized for reporting it to the Superintendent? Each person who reports to the Superintendent will receive a monetary reward. No; in no case may the person be penalized. Yes No, as long as the act is reported in good faith
No, as long as the act is reported in good faith As long as the suspected fraudulent transaction was reported in good faith, no civil liability will be placed against the person who reported it.
The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called A. Guaranteed insurability. B. Waiver of cost of insurance. C. Payor benefit. D. Waiver of premium.
Waiver of premium. Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.
An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium? It will decrease for the new 5-year term since the insured is now a lesser risk to the company. It will increase each year during the next 5 years as the face amount increases each year. It will increase because the insured will be 5 years older than when the policy was originally purchased. It will remain the same for the new 5-year term.
It will increase because the insured will be 5 years older than when the policy was originally purchased. The premium will remain level during the entire level premium term policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal.
An agent accepts the premium payment 35 days after it is due, telling the insured that there will not be a problem keeping the policy in force. This is an example of what type of agent authority? A. Express B. Implied C. Assumed D. Apparent
Apparent An agent who accepts a premium after the end of the grace period appears to the client to have the authority to prevent the policy from lapsing. In fact, the agent has no such power.
Which of the following is TRUE regarding the annuity period? A. It may last for the lifetime of the annuitant. B. During this period of time the annuity payments grow interest tax deferred. C. It is also referred to as the accumulation period. D. It is the period of time during which the annuitant makes premium payments into the annuity.
It may last for the lifetime of the annuitant. The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.
Which of the following best describes a pure life annuity settlement option? A. Benefits are paid for a fixed period of time, specified when the policy begins to pay. B. Pure life provides payments for as long as both the annuitant and the spouse are living. C. Pure life provides payments for as long as the annuitant is alive. D. Pure life guarantees that all the proceeds will be paid out.
Pure life provides payments for as long as the annuitant is alive. Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; however, if he/she dies after receiving the first payment, no more payments would be made to any other person. For this reason, pure life has the potential to pay larger monthly benefits than other options.
In order to be a licensed life settlement broker, a person must complete which of the following requirements? A. Post a surety bond B. Submit to a drug test C. Submit fingerprints D. Have been a licensed life producer for at least 6 months
Submit fingerprints Fingerprinting is required and will be used for a criminal history record check so the Superintendent may assess the character and trustworthiness of the applicant prior to licensing.
An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant is killed in an automobile accident the next day, A. The premium would be returned to the insured's estate because the policy was not issued. B. The company could reject the death claim because the underwriting process was never completed. C. The company could reject the application on the basis that the insured's death was not caused by an ongoing medical problem. D. The beneficiary would receive $25,000 if it was determined that the insured qualified for the policy applied for.
The beneficiary would receive $25,000 if it was determined that the insured qualified for the policy applied for. The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical examination, if one is required.
Which of the following best describes what the annuity period is? A. The period of time during which accumulated money is converted into income payments B. The period of time from the accumulation period to the annutization period C. The period of time during which money is accumulated in an annuity D. The period of time from the effective date of the contract to the date of its termination
The period of time during which accumulated money is converted into income payments
All of the following are personal uses of life insurance EXCEPT A. Estate creation. B. Cash accumulation. C. Buy-sell agreement. D. Survivor protection.
Buy-sell agreement. Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. A buy-sell agreement is for business uses of life insurance.
All of the following apply to defined benefit plans EXCEPT A. They are qualified plans and cannot discriminate. B. Contributions are tied to the company profits. C. Benefits are based on a specified formula that incorporates years of service, salary and age of retirement. D. The employer is responsible for providing promised retirement benefits.
Contributions are tied to the company profits. Defined benefit plans are not tied to the employing company's profit; however, the employer is obligated to provide a certain, specified retirement benefit to an employee. The benefit is based upon a percent of salary multiplied by the number of years of service.
Which of the following is NOT allowed in credit life insurance? A. Creditor requiring that a debtor buys insurance from a certain insurer B. Creditor having a collateral assignment on the policy C. Creditor requiring that a debtor has a life insurance D. Creditor becoming a policy beneficiary.
Creditor requiring that a debtor buys insurance from a certain insurer In credit life insurance, creditor may require that the debtor has a life insurance, but they cannot tell you who to buy the insurance from.
What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary? A. Capital gains tax on distributions plus 10% penalty. B. Income tax on distributions and no penalty. C. Income tax on distributions plus 10% penalty. D. Capital gains tax on distributions and no penalty.
Income tax on distributions and no penalty. If the beneficiary chooses to leave the money in the tax-deferred account until the calendar year in which the owner would have attained age 70½, the distributions would be subject to income taxation at the rate at the time of withdrawal.
An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n) A. Attending Physician Statement. B. Inspection report. C. Medical Information Bureau report. D. Medical examination.
Inspection report. An inspection report may be ordered about an applicant from an independent investigating firm or credit agency. It is a general report of the applicant's finances, character, work, hobbies, and habits.
Children's riders attached to whole life policies are usually issued as what type of insurance? A. Adjustable life B. Whole life C. Term D. Variable life
Term Children's term riders provide term insurance with coverage expiring when the minor reaches a certain age.
In a survivorship life policy, when does the insurer pay the death benefit? A. If the insured survives to age 100 B. Upon the last death C. Upon the first death D. Half at the first death, and half at the second death
Upon the last death
An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin? A. When the agent submits the application to the company and the company issues a conditional receipt B. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health C. On the designated effective date D. On the application date
When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. In this case, the applicant will most likely need to fill out a Statement of Good Health.
All of the following are factors that an underwriter could use to select and classify risk EXCEPT A. Morals. B. Occupation. C. Avocation. D. National origin.
National origin. The company will discriminate in favor of good risks and not of poor risks; however, it cannot discriminate unfairly by using factors such as race or national origin in their underwriting.
Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount? A. Key person agreement B. Split dollar agreement C. Buy-sell agreement D. Profit and loss agreement
Buy-sell agreement
A tax-sheltered annuity is a special tax-favored retirement plan available to A. Anyone. B. Certain age groups only. C. Certain groups depending on factors such as race, gender, and age. D. Certain groups of employees only.
Certain groups of employees only. A tax-sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education).
Which of the following would be the best option that would help the surviving spouse of the insured to put her child through daycare after the insured's death? A. Viatical settlement B. Estate conservation C. Life insurance proceeds D. State Education Waiver
Life insurance proceeds
Which is TRUE about the cash surrender nonforfeiture option? A. The policy remains active for some time after the policyholder opts for cash surrender. B. The policyholder receives the original cash value of the policy. C. Funds exceeding the premium paid are taxable as ordinary income. D. After the cash surrender, the insured is covered for a grace period of 1 month.
Funds exceeding the premium paid are taxable as ordinary income. The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.
Another name for a substandard risk classification is A. Elevated B. Rated C. Controlled D. Declined
Rated
A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called A. Qualified distribution B. Premature distribution C. Rollover D. 1035 exchange
1035 exchange
What documentation grants express authority to an agent? A. Agent's insurance license B. Fiduciary contract C. State provisions D. Agent's contract with the principal
Agent's contract with the principal The principal grants authority to an agent through the agent's contract.
Which of the following would be deducted from the death benefit paid to a beneficiary, if a partial accelerated death benefit had been paid while the insured was still alive? A. 10% federal death benefit income tax, plus the amount of the accelerated benefit. B. Amount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated benefit. C. There are no deductions taken from death benefit. D. Penalty imposed for early withdrawal of the death benefit, plus the amount of earnings lost by the insurance company in interest income.
Amount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated benefit.
When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will A. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. B. Return the premium to Y's estate, since it has no obligation to pay the death claim. C. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued. D. Issue the policy anyway and pay the face value to the beneficiary.
Issue the policy anyway and pay the face value to the beneficiary. The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? A. Whole Life B. Ordinary Life C. Joint Life D. Decreasing Term
Joint Life A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.
Using a class designation for beneficiaries means A. Naming beneficiaries as a group. B. Not naming beneficiaries. C. Naming an estate as the beneficiary. D. Naming each beneficiary by his or her name.
Naming beneficiaries as a group. Class designations are used when an insured chooses to distribute benefits among the living beneficiaries and/or their heirs without naming each individual person, such as "all my children."
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the A. Juvenile rider B. Payor rider C. Other-insured rider D. Change of insured rider
Other-insured rider
The causes of loss insured against in an insurance policy are known as A. Losses B. Risks C. Hazards D. Perils
Perils Perils are the causes of loss insured against in an insurance policy.
If someone wants to buy a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should that person buy? A. An annuity B. A Modified Endowment Contact C. Term D. Permanent
Permanent
Which statement is NOT true regarding a Straight Life policy? A. It has the lowest annual premium of the three types of Whole Life policies. B. Its premium steadily decreases over time, in response to its growing cash value. C. The face value of the policy is paid to the insured at age 100. D. It usually develops cash value by the end of the third policy year.
The face value of the policy is paid to the insured at age 100.
A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why? A. The group has not been established for long enough. B. The purpose of the group was to purchase life insurance. C. Their profession poses too high of a risk for the insurer. D. There are not enough people in the group to qualify for group life insurance.
The purpose of the group was to purchase life insurance. In order to qualify for small group life insurance, a group must be formed for a purpose other than attaining life insurance.
