Life Insurance Prep
The amount of the distribution is reduced by the amount of a 20% withholding tax.
A 60-year old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. How is the distribution treated?
coercion
A banker is ready to close on a customer's loan. Te bank is prepared to offer the loan but only if the customer purchases an insurance policy from the bank in the amount of the loan. This is an example of _________.
Joint life
A couple receives a set amount of income from their annuity. When the wife dies, the jusband no longer receives annuity payments. What type of annuity did the couple buy?
The insured's premiums will be waived until she is 21 - if the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.
A father owns a life insurance policy on his 15 year old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?
Costs of training a replacement
A key person insurance policy can pay for what?
90
A licensed producer moving to PA may become licensed as a resident if the producer submits a completed application within how many days of establishing residence in PA with proof of licensing from their prior home state?
Insurable interest and consent
A life insurance policy has a legal purpose if both of what two elements exist?
Viator
A policy owner of a life insurance policy who is also the insured is diagnosed with a terminal illness, so he sells the policy to a viatical company in order to pay medical bills. What term best describes the policyowner's role in this transaction?
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, eduational, religious, and other 501c(3) organizations, including all employees in public education).
A tax-sheltered annuity is a special tax-favored retirement plan available to ________
A peril
A tornado that destroys property would be an example of ____________
Predicted needs of the family after the insured's death - the human life value approach to determining the value of an individual's life requires the calculation of probable future earnings of the insured, which involves wages, expenses, inflation, amount of time until retirment, and the time value of money. Predicted needs of the family after the insured's death are used in the needs approach.
Based on Human Life Value Approach, what is NOT used to calculate an individual's life value?
Yes, they can be changed only with the written consent of that beneficiary - Once irrevocable beneficiaries are indicated for the policy, their written consent is required to change the beneficiary
Can irrevocable beneficiaries be changed? How?
5 years
For the purpose of examination by the department, insurers must keep a record of all financial files for at least ____________
Reasonable expectations - If bc of advertising or sales advertisements statements by an agent, an insured could reasonably expect the coverage, the courts have held that the insurer must provide that coverage
If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of what legal concept?
It is approved by the IRS
If a retirement plan or annuity is "qualified" this means __________
An unfair trade practice; - It is an unfair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the Insurance Guaranty Association. Though it is illegal to advertise, the statement is still true and would not be considered a misrepresentation.
If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered
15 days prior to group policy expiration
Insurers are required to give the insured converting to an individual policy notice of their conversion privilege _________ days prior to their group policy expiration
1) Upon conversion, the premium for the permanent policy will be based upon attained age; 2) Evidence of insurability is not required; 3) Most term policies contain a convertibility option
Name 3 true statements regarding the converti`bility option under a term life insurance policy.
1. Distributions before age 59 1/2 incur a 10% penalty on policy gains; 2. Policy loans are taxable distributions; 3. Accumulations are tax deferred.
Name three statements regarding the taxation of Modified Endowment Contracts
1) Value of the account and future earnings will determine the time period for the benefits. 2) This option pays a specific amount until the funds are exhausted. 3),The annuitant may select how big the payments will be.
Name three statements that are true regarding installments for a fixed amount
20 days
Once a viatical settlement contract has been completed, how long does the viatical settlement provider have to notify the insurance company that the life policy has been viaticated?
20 days - After a viatical settlement contract has been completed, it is the viatical settlement provider's responsibility to provide written notice to the insurer that the insurance policy has been viaticated. This notice must be provided within 20 days.
Once a viatical settlement contract has been completed, how long does the viatical settlement provider have to notify the insurance company that the life policy has been viaticated?
perils
The causes of loss insured against in an insurance policy are known as ________
One-year term option
The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the _________
Lower
The premium of a survivorship life policy compared with that of a joint life policy would be _________
Entire contract
The provision which states that both the policy and a copy of the application form the contract between the policy owner and the insurer is called the___________
Convertible term policy
The type of policy that can be changed from one that does not accumulate cash value to one that does is a __________
10 days
To avoid violations of unfair claims settlement regulations, insurers are required to acknowledge the receipt of a claim within how many days?
Owner's income - Traditional IRA contributions are tax deductible, but may be limited if the owner's income exceeds a certain level
Traditional IRA contributions are tax deductible based on what?
The same face amount as in the whole life policy - 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.
Under an extended term nonforfeiture option, the policy cash value is converted to _____
Respond to the consumer's complaint
Under the Fair Credit Reporting Act, if a consumer challenges the accuracy of the information contained in a consumer or investigative report, the reporting agency must ______________
If a consumer does not sign and return the notice of disclosure within 30 days
Under what circumstances can financial institutions share insurance coverage information with third parties, for the purpose of soliciting the purchase of insurance
1) Delivery receipt; 2) Statement of good health; and 3) Payment of premium.
Upon policy delivery, the producer may be required to obtain what 3 things?
suspended or revoked licenses, refusal to renew licenses, and fines of up to $500 for each act.
Violation of unfair discrimination law may result in all of the following penalties
Notice Regarding Replacement - During policy replacement, the replacing producer must present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer.
What document must be provided to the policyowner or applicant during policy replacement?
Owner's Rights
What explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy?
It is intended to provide coverage on a date prior to the policy issue
What is the purpose of a conditional receipt?
6 months - Most insurers impose a 6 month waiting period from the time of disability until the first premium is waived.
What is the waiting period on a Waiver of Premium rider in life insurance policies?
Conditions for Payment Form
What requires certain qualifying factors be met in order for an insured to receive accelerated death benefits?
Increasing term
What type of insurance would be used for a Return of Premium rider?
Target premium - 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
What would help prevent a universal life policy from lapsing?
The insured's contingent beneficiary
When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Who would receive the death benefit the primary beneficiary's estate or the insured's contingent beneficiary?
Equal to the original policy for as long as the cash values will purchase
When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?
When the insured reaches age 100
When would a 20-pay whole life policy endow?
The expense of a vacation for surviving family members -These costs would take into account the final medical expenses of the insured, funeral expenses, and day to day expenses of maintaining the family including rent or mortgage payments, car payments, utilities, groceries, etc.
Which of the following would NOT fall into the category of costs associated with death?
To help the insured understand all aspects of the contract and get the delivery receipt signed. - It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.
Why should the producer personally deliver the policy when the first premium has already been paid?
30 days - Licensees are required to provide a written response to a Department's inquiry within 30 days.
Within how many days must a producer respond to an inquiry from the Commissioner?
During the accumulation period funds are paid ______ the annuity. During the annuity period, funds are paid _________ to the annuitant
into; out
Because annuities are based on the life expectancy of an annuitant, the annuitant must be a _________ person, regardless of who
natural, owns the policy
Paid-Up Additions
An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called ________
The insured has 15 calendar days from the effective date of the contract to rescind it - the viator has 15 calendar days to rescind a viatical settlement. If the insured dies in the recission period, the settlement contract will be deemed rescinded
An insured has entered into a viatical settlement but decides that he would like to back out ot the contract. In insured has ________ calendar days from the effective date of the contract to rescind it.
Universal Life
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. what type of policy does the insured most likely have?
1) The fee chared by the licensee must be disclosed in advance in writing to the person and must be reasonable in relationship to the services provided; 2) A licensee may charge a fee in addition to a commission to a person for the sale, soliciation or negotiation of a contract of insurance for commercial business. 3) No insurance produce may charge a fee for the completion of an application for a contract of insurance.
Name three statements that are TRUE regarding the payment of fees for the negotiation of a contract of insurance
Extended term - the nonforfeiture option has the same face amount as the original policy but for a shorter period of time.
Which nonforfeiture option has the highest amount of insurance protection?
Reduced Paid-Up
Which nonforfeiture option provides coverage for the longest period of time?
To minimize the insured's level of liability in the event of loss- Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.
Which of the following is NOT a goal of risk retention?
1) It is issued to group insurance participants
Which of the following is NOT true regarding a Certificate of Authority? 1) It is issued to group insurance participants; 2) It may be necessary for transacting business in a specific state; 3)It is equivalent to an insurance license; 4) It is issued by the state department of insurance
Inspection Report - inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act.
A report that covers moral and financial information regarding a potential insured including financial status, hobbies and habits.
Net premium plus expenses
What is the best description for gross annual premium?
Concealment - In insurance, concealment is the withholding of information that will result in an imprecise underwriting decision.
An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of
Common Disaster - Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.
An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?
It will increase because the insure 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 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?
Chronically ill -
What term best describes the condition of a person who is unable to perform at least 2 activities of daily living or requires substantial supervision to protect the individual from threats to their own health and safety?
Require evidence of insurability.- In group underwriting the evidence of insurability is usually not required of each participant unless he or she is enrolling for coverage outside of the normal enrollment period.
If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may
The annuitant will receive the higher of either the guaranteed minimum 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
In a fixed annuity, what is true regarding the guaranteed interest rate on the investment?
Executive is the owner, and the executive pays the premium
In the Executive Bonus plan, who is the owner of the policy and who pays the premium?
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.
The paid-up addition option uses the dividend
Interest only option - with this the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.
The policy owner 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 policy owner choose?
Reciprocal - when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.
What insurance option would be considered a risk-sharing arrangement?
The payments will stop when the annuitant dies - installments for a fixed amount option has no life contingencies. A specific amount of benefits will be paid until funds are exhausted whether or not the annuitant is living.
What is NOT true regarding installments for a fixed amount?
The cost of coverage is based on the ratio of men and women in the group
What is a statement about group life that is correct?
The SEC; The Insurance Department; and the Federal government - Variable life insurance is regulated by both the state and federal government, as well as the Insurance Dept and the SEC.
Which entities regulate variable life policies?
Reciprocal - When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.
Which insurance option would be considered a risk-sharing arrangement?
Life income with period certain
Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?