Life Insurance SIM Q's

How are buy-sell agreements normally funded?

With a life insurance policy

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant...

With the policy

Which of the following is the basis for a claim against an insurance policy?

Loss

An applicant wants to buy a policy that has a cash value element. Which type should she buy?

Permanent Unlike term insurance, permanent insurance provides lifetime death protection and a savings or cash value option

What is the waiting period on a Waiver of Premium rider in life insurance policies?

6 months

A producer who fails to segregate premium monies from his own personal funds is guilty of...

Commingling. It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a...

Settlement option. A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.

Which is generally true regarding insureds who have been classified as preferred risks?

Their premiums are lower.

Which of the following statements concerning a Simplified Employee Pension plan (SEP) is incorrect? a) SEPs have a higher tax deductible contribution limit than an IRA b) Employer contributions are not included in the employee's gross income c) SEPs are suitable for large companies d) SEPs allow the employer to make annual tax deductible contributions up to 25% of an employee's earned income.

incorrect answer is: c) SEPs are suitable for large companies An SEP is a benefit plan that is designed to be provided by a smaller employer for the benefit of the employees

In a life settlement transaction, how many days does the owner have to terminate the contract after the date it is executed?

15 days

For how long must producers maintain complete records of all complaints?

2 years

A hearing may NOT occur sooner than how many days after the notice of hearing is served?

21 days

What license or licenses are required to sell variable annuities?

Both a life insurance and a securities license

Willie, a private investigator, was hired by an insurer to obtain a character report on Joan, an applicant. Willie pretends to be a reporter working on a story about working women in Joan's town. During the conversation, Joan is asked a variety of questions for which the answers will be used to determine the final underwriting decision. This is an example of...

Pretext interviewing

When a producer was reviewing a potential customer's coverage written by another company, the producer made several remarks that were maliciously critical of that other insurer. The producer could be found guilty of...

Defamation

In life insurance policies, cash value increases...

Grow tax deferred. Generally, life insurance cash values are only income taxed if the policy is surrendered (totally or partially) and the cash value exceeds the premiums paid.

A 60-year-old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true?

The amount of the distribution is reduced by the amount of a 20% withholding tax

What does "liquidity" refer to in a life insurance policy?

Cash values can be borrowed at any time.

When does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be?

Installments for a fixed period

What kind of insurance is annually renewable term insurance?

LEVEL term insurance.

Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance?

Replacement rule Anytime a new policy is issued that replaces or modifies existing insurance, a replacement form must be submitted to the ceding company.

After three years of making payments into a flexible premium deferred annuity, the owner decides to surrender the annuity. The insurer returns all the premium payments to the owner, except for a predetermined percentage. What is this percentage called?

Surrender charge

How are contributions to a tax-sheltered annuity treated with regards to taxation?

They are not included as income for the employee, but are taxable upon distribution

Reason to purchase life insurance rather than annuities...

To create an estate

Which of the following riders would NOT cause the death benefit to increase? a) Accidental Death Rider b) Payor Benefit Rider c) Guaranteed Insurability Rider d) Cost of Living Rider

b) Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disable or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events (marriage, birth of a child) Cost of living rider increases DB to keep pace with inflation In an Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount

Which of the following entities is responsible for paying the producer's appointment renewal fee? a) Commissioner b) The Guarantee Association c) Producer d) Appointing insurer

d) Appointing insurer An insurer must pay any applicable appointment and appointment renewal fees.

What limits the amount that a policyowner may borrow from a whole life insurance policy?

Cash value

If an annuitant dies before annuitization occurs, what will the beneficiary receive?

Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount.

What is the penalty for IRA distributions that are below the required minimum for the year?

50% If there are no distributions at the required age, or if the distributions are not large enough, the penalty is 50% of the shortfall from the required annual amount.

Another name for a substandard risk classification is...

Rated Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.

The paid-up addition option uses the dividend ...

To purchase a smaller amount of the same type of insurance as the original policy.

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 insured most likely have?

Universal Life