Life Practice exam questions
An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n)
Inspection report
Who might receive dividends from a mutual insurer?
Policyholders A mutual insurer has no stock, and is owned by the policyholders. Since they may receive a dividend (not guaranteed), such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable.
If the state Insurance Department believes that a producer may be in violation of an insurance law or regulation, what may be issued? a. Writ of noncompliance b. Call to obey c. Cease and desist order d. Arrest warrant
c. Cease and desist order
Which of the following CANNOT be included along with illustrations used to sell life insurance? a. "Vanishing premium" information b. Name of insurer c. Underwriting or rating information d. Initial death benefit
a. "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.
How many years after a policy is issued are restrictions of liability effective in the case of suicide? a. 1 year b. 2 years c. 3 years d. 4 years
a. 1 year In the case of suicide, a policy's liability may be restricted for the first year after it is issued.
Which of the following insurance options would be considered a risk-sharing arrangement? a. Reciprocal b. Stock c. Mutual d. Surplus lines
a. Reciprocal When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal
If an insurer defaults on a premium payment, and the value of the life insurance policy is applied to purchase another policy, for what time period from defaulting on the premium may the insured reinstate the original policy? a. 3 years b. 4 years c. 5 years d. There is no time limit.
a. 3 years In the event an insured defaults on a premium and the value of the policy is applied to purchase other insurance, the insured may choose to reinstate the original policy within 3 years of the initial premium default. The original policy may only be reinstated upon evidence of insurability and payment of past due premiums with interest
When a producer changes address of their residence or office, the Insurance Department must be notified within a. 30 days. b. 60 days. c. 10 days. d. 15 days.
a. 30 days A producer has 30 days to notify the Insurance Department when they have changed their residence or work address
What is the maximum time period for backdating life insurance policies? a. 6 months b. 1 year c. None: backdating is illegal d. 90 days
a. 6 months Policies may be backdated for up to six months if this would help the insured obtain a lower rate
The Guaranty Association must prepare a summary document approved by the Commissioner. How long after its approval is it required to be included with every policy delivered? a. 60 days b. 90 days c. 15 days d. 30 days
a. 60 days The Guaranty Association must prepare a summary document approved by the Commissioner. After 60 days, it must be included in all policies an insurer delivers
All of the following could own group life insurance EXCEPT a. A group needing low-cost life insurance b. A group sponsored by an employer c. An alumni group d. A debtor group
a. A group needing low-cost life insurance
Which of the following persons is required to hold a producer license? a. A person who negotiates insurance contracts b. A person who creates insurance advertisements c. A person who takes messages related to claims d. A person who administers employee benefits
a. A person who negotiates insurance contracts Persons who perform clerical tasks that are not related to soliciting or negotiating insurance contracts are not required to be licensed.
Which of the following would NOT be considered an exception to the National Do Not Call List? a. Calls based from outside of the United States b. Calls for which the consumer has given prior written permission c. Calls which are not commercial or do not include unsolicited advertisements d. Calls by or on behalf of tax-exempt nonprofit organizations
a. Calls based from outside of the United States Calls from outside the United States are not an exception to the National Do Not Call List
An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of a. Concealment b. Waiver c. Fraud d. Breach of warranty
a. Concealment
Misrepresenting an insurance policy as a share of stock is an example of which of the following? a. False advertising b. Coercion c. Rebating d. Twisting
a. False advertising
If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select? a. Fixed period b. Life with period certain c. Fixed amount d. Interest only
a. Fixed period
What provision in an insurance policy extends coverage beyond the premium due date? a. Grace period b. Free look c. Automatic premium loan d. Waiver of premium
a. Grace period
The premium of a survivorship life policy compared with that of a joint life policy would be a. Lower b. Higher c. As high d. Half the amount
a. Lower
Which of the following premium modes would result in the highest annual cost for an insurance policy? a. Monthly b. Quarterly c. Semi-annual d. Annual
a. Monthly
An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident, and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do? a. Pay a reduced death benefit b. Pay the full death benefit c. Pay nothing; there was a misrepresentation on the application d. Pay the full death benefit and refund excess premium
a. Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex and identity.
Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? a. Predicted needs of the family after the insured's death. b. Insured's current and future income. c. Insured's annual expenses. d. Effect of inflation on income over time.
a. 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 retirement, and the time value of money. Predicted needs of the family after the insured's death are used in the needs approach.
All of the following are considered unfair trade practices in the business of insurance EXCEPT a. Sharing commissions b. Boycott c. Rebating d. Defamation
a. Sharing commissions
Which of the following types of risk will result in the highest premium? a. Substandard risk b. Standard risk c. Preferred risk d. All risks pay equal premiums
a. Substandard risk
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? a. The insured's premiums will be waived until she is 21 b. The premiums will become tax deductible until the insured's 18th birthday c. Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected d. The insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums.
a. The insured's premiums will be waived until she is 21
An underwriter questions whether a proposed policyowner has an insurable interest in a proposed insured. Who must verify the relationship? a. The insurer b. The adjuster c. The proposed insured d. The agent
a. The insurer
The premium on B's individual life policy was due on September 1st. Unfortunately, B died as a result of a car accident on September 30th. He had failed to pay the premium. Which of the following is true? a. The overdue premium with interest will be deducted from the death benefit b. The insurer will retain the premium and half of the death benefit c. The policy has lapsed, so no death benefits will be paid d. The death benefit will be paid in full
a. The overdue premium with interest will be deducted from the death benefit
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.
a. The plan is funded by permanent insurance only Key Person coverage may be funded by any type of life insurance
All of the following are characteristics of a group life insurance plan EXCEPT a. There is no requirement to prove insurability on the part of the participants b. The participants receive a Certificate of Insurance as their proof of insurance c. A minimum number of participants is required in order to underwrite the plan d. The cost of the plan is determined by the average age of the group
a. There is no requirement to prove insurability on the part of the participants
Under what circumstances may a life insurance agent deliver a policy that is dated up to 6 months before the application was taken? a. To avoid an increase in premium rate for the insured b. To extend the policy's free-look period c. To make a policy effective during a period when the agent's appointment was in force d. To shorten the period of contestability
a. To avoid an increase in premium rate for the insured Agents may backdate policies up to 6 months in order to obtain a better premium rate for the insured
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium? a. Universal life b. Variable life c. Decreasing term d. Straight whole life
a. Universal life The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.
In a survivorship life policy, when does the insurer pay the death benefit? a. Upon the last death b. Upon the first death c. Half at the first death, and half at the second death d. If the insured survives to age 100
a. Upon the last death Survivorship life pays on the last death rather than upon the first death
A temporary license in this state (ND) is valid for a. 90 days. b. 180 days. c. 30 days. d. 60 days.
b. 180 days
In a group life insurance policy, within how many months must a settlement of a death claim be made after receipt of proof of death? a. 1 month b. 2 months c. 3 months d. 4 months
b. 2 months After receipt of proof of death, a settlement of death benefit must be made within 2 months.
The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years? a. 1 year b. 2 years c. 5 years d. 7 years
b. 2 years
The North Dakota Life and Health Insurance Guaranty Association maintains 2 accounts. What are those 2 accounts? a. An unallocated annuity account and a health account b. A life insurance and annuities account and a health insurance account c. A life insurance account and an annuity account d. A health insurance account and an annuity account
b. A life insurance and annuities account and a health insurance account
Using names or titles that have tendency to misrepresent the true nature of a policy is an example of a violation of what rule? a. Standard provisions b. Advertising c. Illustrations d. Sales presentations
b. Advertising Using names or titles that have tendency to misrepresent the true nature of a policy is an example of false advertising
Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? a. Illustrations b. Buyer's Guide c. Insurance Index d. Policy Summary
b. Buyer's Guide
Which of the following is NOT an example of a valid insurable interest? a. Child in parents' lives b. Debtor in the life of the creditor c. Business partners in each other's lives d. Employer in key employee's life
b. Debtor in the life of the creditor
What type of premium do both Universal Life and Variable Universal Life policies have? a. Increasing b. Flexible c. Level fixed d. Decreasing
b. Flexible Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, as long as there is enough value in the policy to fund the death benefit.
Who is responsible for the contents of life insurance advertising? a. The Advertising agency that prints advertising material b. The insurer c. The Commissioner d. The contract writer hired by the agent to create advertisements
b. The insurer
An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true? a. He cannot withdraw money from his MEC before age 59 1/2 b. He will have to pay a penalty if he is younger than 59 1/2 c. He will have to pay a penalty regardless of his age d. He will not have to pay a penalty, regardless of his age
b. He will have to pay a penalty if he is younger than 59 1/2
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
b. Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.
What is the main purpose of the Seven-pay Test? a. It guarantees the minimum interest. b. It determines if the insurance policy is a MEC. c. It requires level premium payments for 7 years. d. It ensures that the policy benefits are paid out in 7 years.
b. It determines if the insurance policy is a MEC The Seven-pay Test determines whether an insurance policy is "over-funded" or if it's a Modified Endowment Contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.
The premium of a survivorship life policy compared with that of a joint life policy would be a. Half the amount b. Lower c. Higher d. As high
b. Lower survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life
Which of the following information about the applicant is NOT included in the General Information section of the application for insurance? a. Martial status b. Medical background c. Gender d. Occupation
b. Medical background
If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an a. Nonqualified annuity. b. Modified endowment contract. c. Accelerated benefit policy. d. Endowment.
b. Modified endowment contract Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? a. Joint and survivor b. Pure life c. Life with guaranteed minimum d. Installment refund
b. Pure life
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
b. Survivor protection
Which of the following entities established the Do-Not-Call Registry? a. The Consumer Protection Agency b. The Federal Trade Commission c. The Better Business Bureau d. The NAIC
b. The Federal Trade Commission The FTC established the do-not-call list in order to protect consumers against unwanted solicitations
Which of the following is NOT the consideration in a policy? a. The promise to pay covered losses b. The application given to a prospective insured c. Something of value exchanged between parties d. The premium amount paid at the time of application
b. The application given to a prospective insured Consideration is something of value that is transferred between the two parties to form a legal contract.
Which of the following is an example of liquidity in a life insurance contract? a. The money in a savings account b. The cash value available to the policyowner c. The death benefit paid to the beneficiary d. The flexible premium
b. The cash value available to the policyowner
Which of the following is NOT a characteristic of an insurable risk? a. The loss exposure must be large. b. The loss must be catastrophic. c. The loss must be due to chance. d. The loss must be measurable.
b. The loss must be catastrophic In order to be characterized as pure risk, the loss must be due to chance, definite, measurable, and predictable, but not catastrophic.
What is the advantage of reinstating a policy instead of applying for a new one? a. The cash values have gained interest while the policy was lapsed b. The original age is used for premium determination c. Proof of insurability is not required d. The face amount can be increased
b. The original age is used for premium determination
If an insured continually uses the automatic premium loan option to pay the policy premium, a. The insurer will increase the premium amount. b. The policy will terminate when the cash value is reduced to nothing. c. The face amount of the policy will be reduced by the automatic premium loan amount. d. The cash value will continue to increase.
b. The policy will terminate when the cash value is reduced to nothing This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid form the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.
If an annuity contract purchaser returns the annuity to the insurer within 20 days of receipt, the purchaser will receive a. The premium, plus any prorated bonus interest. b. The premium. c. Interest on the premium from the contract date. d. The full annuity benefit.
b. The premium Annuity purchasers receive a full premium refund of they return the annuity contract to the insurer within 20 days
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
b. The recommended amount to keep the policy in force throughout its lifetime
A temporary license is valid for how many days? a. 60 b. 90 c. 180 d. 365
c. 180 A temporary license is valid for 180 days
After a group life policy has been issued, the insurer cannot legally contest its validity if the policy has been in force for at least a. 6 months. b. 1 year. c. 2 years. d. 3 years.
c. 2 years The validity of group life insurance policies cannot be contested after policies have been in force for 2 years
The Commissioner may suspend a producer's license if the producer fails to respond to a written request for information within a. 3 business days. b. 10 days. c. 30 days. d. 90 days.
c. 30 days The producer has 20 days to respond to a Commissioner's inquiry before his or her license is in danger of being suspended, placed on probation or discontinued.
All of the following must be present on a Guaranty Association disclaimer EXCEPT a. Complaint filing procedures. b. The name and address of the Life and Health Guaranty Association. c. A statement guaranteeing policy coverage. d. The name and address of the Insurance Department.
c. A statement guaranteeing policy coverage Once approved by the Commissioner, insurers must include a Guaranty Association disclaimer during the delivery of a policy. The disclaimer must include the name and address of the Guaranty Association and Department of Insurance, a warning that coverage is not guaranteed and may be subject to limitations and exclusions, a statement that the insurer is prohibited from using the existence of the Association to sell or solicit insurance, the types of policies for which guaranty funds may be provided, rights and procedures for filing a complaint, and any other information required by the Commissioner.
If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered a. A required disclosure. b. A legal representation of the Association. c. An unfair trade practice. d. A misrepresentation.
c. 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.
When an annuity is written, whose life expectancy is taken into account? a. Life expectancy is not a factor when writing an annuity b. Owner c. Annuitant d. Beneficiary
c. Annuitant
Which of the following types of agent authority is also called "perceived authority"? a. Implied b. Fiduciary c. Apparent d. Express
c. Apparent
Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? a. Reinstatement b. Reduced paid-up option c. Automatic premium loan d. Extended term
c. Automatic premium loan
The accelerated benefits provision will provide for an early payment of the death benefit when the insured a. Has earned enough credits b. Becomes disabled c. Becomes terminally ill d. Needs to borrow money
c. Becomes terminally ill
What license or licenses are required to sell variable annuities? a. Only a securities license b. No license is required c. Both a life insurance license and a securities license d. Only a life insurance license
c. Both a life insurance license and a securities license
When an insurance agency published an advertising brochure, it emphasized the company's financial stability and sound business practices. In reality, its financial health is terrible, and the company will soon have to file for bankruptcy. Which of the following terms best describes the advertisement? a. Twisting b. Rebating c. False financial statement d. Defamation
c. False financial statement
Upon the submission of a death claim under a life insurance policy, when should the insurer pay the policy benefit? a. After the estate of the insured has been settled b. Within 2 years of the date of loss c. Immediately after receiving written proof of loss d. On the next anniversary of the policy
c. Immediately after receiving written proof of loss Death proceeds under a life insurance policy are due as soon as the insurer receives written proof of loss.
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
c. Installments for a fixed period
The North Dakota Life and Health Guaranty Association is designed to provide protection to all of the following EXCEPT a. Beneficiaries b. Insureds c. Insurers d. Policyholders
c. Insurers
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? a. It decreases over the term of the policy. b. It remains the same as the original policy, regardless of any differences in value. c. It is reduced to the amount of what the cash value would buy as a single premium. d. It is increased when extra premiums are paid.
c. It is reduced to the amount of what the cash value would buy as a single premium In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.
Which of the following is true of a children's rider added to an insured's permanent life insurance policy? a. The policy covers only the natural children of the insured b. Each child covered must show evidence of insurability c. It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age d. It is permanent insurance
c. It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age
Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? a. Life annuity with period certain b. Increasing term c. Limited pay whole life d. Interest-sensitive whole life
c. Limited pay whole life
Which of the following best describes the unfair trade practice of defamation? a. Issuing false advertising material b. Refusing to deal with other insurers c. Making derogatory oral statements about another insurer's financial condition d. Assuming the name and identity of another person
c. Making derogatory oral statements about another insurer's financial condition
Which of the following is stated by the Payment of Premium provision in individual life policies? a. Policy premiums must be paid to an agent at the time of policy delivery. b. Policy premiums must be included for contract to be issued. c. Policy premiums are payable in advance to either the home office or to an agent. d. Policy premiums are noncancellable and nontransferable.
c. Policy premiums are payable in advance to either the home office or to an agent Payment of Premium provision states that all policy premiums must be payable in advance either at the insurer's home office or to an agent upon policy delivery.
Annuities can be used to fund which of the following? a. Group life insurance b. Estate creation c. Retirement plans d. Variable life insurance
c. Retirement plans
To sell variable life insurance policies, an agent must receive all of the following EXCEPT a. A securities license b. A life insurance license c. SEC registration d. FINRA registration
c. SEC registration
An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would the interest accumulated in the annuity NOT be taxable? a. Dependents b. Annuitant c. Spouse d. Charitable organization
c. Spouse If an annuities contract holder dies before the effective starting date, the contract's interest continues to be taxable, unless the beneficiary is a spouse. In that case, this tax can be deferred
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? a. The Guaranty Association b. Consumer Privacy Act c. The Fair Credit Reporting Act d. Unfair Trade Practices Law
c. The Fair Credit Reporting Act The purpose of the Fair Credit Reporting Act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers
Which of the following statements about group life is correct? a. The group sponsor receives a Certificate of Insurance. b. The policy can be converted to an individual term insurance policy. c. The cost of coverage is based on the ratio of men and women in the group. d. The premiums are higher than in an individual policy because there is no medical exam.
c. The cost of coverage is based on the ratio of men and women in the group Group life insurance can be converted to an individual whole life, not a term, policy; the group life insurance premiums are usually lower than those of an individual policy; the group sponsor receives a master contract, while the participants receive certificates of insurance. The cost of the coverage is based on the average age of the group and the ratio of men to women.
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. Which of the following would receive the death benefit? a. The insured's estate b. The primary beneficiary's estate c. The insured's contingent beneficiary d. The insurance compnay
c. The insured's contingent beneficiary Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated.
Which of the following is true regarding a market value adjusted annuity? a. There are no penalties for a premature surrender of the annuity. b. It provides a level benefit payment. c. The owner is guaranteed a fixed interest rate for a specific period of time. d. The insurer bears all the market risk of changing interest rates.
c. The owner is guaranteed a fixed interest rate for a specific period of time Under a market value adjusted (modified guaranteed) annuity, the insurer guarantees a competitive interest rate for a specific period (the longer the period, the better the guaranteed rate). At the end of the period, the owner has the option of taking the accumulated value or reinvesting the values at a new interest rate
All of the following are true regarding a decreasing term policy EXCEPT a. The contract pays only in the event of death during the term and there is no cash value b. The face amount steadily declines throughout the duration of the contract c. The payable premium amount steadily declines throughout the duration of the contract d. The death benefit is $0 at the end of the policy term
c. The payable premium amount steadily declines throughout the duration of the contract
All of the following statements are true regarding installments for a fixed amount EXCEPT a. This option pays a specific amount until the funds are exhausted b. The annuitant may select how big the payments will be c. The payments will stop when the annuitant dies d. Value of the account and future earnings will determine the time period for the benefits
c. 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 the purpose of life insurance disclosure regulation? a. To help agents evaluate the costs of similar plans and make appropriate recommendations to purchases of life policies b. To protect consumers against circulation of inaccurate and obsolete information c. To help purchasers of life insurance make informed decisions and select the most appropriate products for their needs d. To protect insurers against lawsuits from purchasers of life insurance
c. To help purchasers of life insurance make informed decisions and select the most appropriate products for their needs The purpose of this regulation is to deliver information to purchasers of life insurance to help them make educated decisions about products
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
c. 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 insurer charges a fee. What type of policy does the insured most likely have? a. Term life b. Limited pay c. Universal life d. Adjustable life
c. Universal life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.
Which of the following types of life insurance policies would allow the policyowner to take out a loan? a. Increasing term b. Credit life c. Whole life d. Term life
c. Whole life Life insurance policy loans can only be made from policies that carry cash values. Whole life policies are the only ones that have cash value
Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE? a. Policy loans are taxable distributions. b. Accumulations are tax deferred. c. Withdrawals are not taxable. d. Distributions before age 59 1/2 incur a 10% penalty on policy gains.
c. Withdrawals are not taxable Any distributions from MECs are taxable, including withdrawals and policy loans. All of the other statements are true.
If an insurer uses a particular advertisement in 2022, the insurer must maintain records of the advertisement until at least a. 2023. b. 2024. c. 2025. d. 2026.
d. 2026 Records of advertisements must be kept for inspection by the Commissioner for 4 years or until the next examination
After a policy is no longer is effect, insurers must maintain copies of all related illustrations for a certain period of time. How much time? a. 6 years b. 6 months c. 3 months d. 3 years
d. 3 years In this situation, copies of all relevant illustrations must be maintained for at least 3 years.
When determining minimum nonforfeiture amounts, what is the maximum annual percentage rate that may be applied? a. 5% b. 7% c. 1% d. 3%
d. 3% The maximum interest rate that may be used to determine minimum nonforfeiture amounts is 3% annually
North Dakota group life insurance policies have a grace period of a. 60 days. b. 90 days. c. 10 days. d. 31 days.
d. 31 days All group life insurance policies must have a grace period of at least 31 days.
The Commissioner may examine an insurer as often as he/she deems necessary, but domestic insurers must be examined at least once every a. Year. b. 2 years. c. 3 years. d. 5 years.
d. 5 years Domestic insurers must be examined at least once every 5 years
The nonforfeiture provision in individual life insurance policies allows the insured to make a request to use a paid-up benefit as payment for premium. This request must be made within a. 30 days after the premium is due. b. The grace period. c. 30 days of policy anniversary. d. 60 days after the premium is due.
d. 60 days after the premium is due In the event of a default in any premium payment, an insured may make a request to use a paid-up nonforfeiture benefit as payment. This request must be made 60 days after the premium's due date
The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective? a. As of the policy delivery date b. As of the first of the month after the policy issue c. As of the policy issue date d. As of the application date
d. As of the application date
All of the following are requirements to obtain an insurance producer license in this state EXCEPT a. Complete a criminal history record check b. Be at least 18 years of age c. Be of good moral character d. Attend an approved prelicensing course
d. Attend an approved prelicensing course
If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to a. Require a yearly medical examination b. Lower its insurability standards c. Refuse to issue the policy d. Charge a higher premium
d. Charge a higher premium
A producer who fails to separate premium monies from his own personal funds is guilty of a. Larceny. b. Embezzlement. c. Theft. d. Commingling.
d. Commingling It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds
A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? a. Value Adjustment Rider b. Return of Premium Rider c. Inflation Rider d. Cost of Living Rider
d. Cost of Living Rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time
Who assumes control over an insurance company's funds and management if they become insolvent? a. The policyholders or stock owners of the company b. State attorney general c. National Association of Insurance Commissioners d. Department of Insurance
d. Department of Insurance
Which of the following best describes an insurance company that has been formed under the laws of this state? a. Sovereign b. Alien c. Foreign d. Domestic
d. Domestic
Which nonforfeiture option has the highest amount of insurance protection? a. Conversion b. Decreasing Term c. Reduced Paid-up d. Extended Term
d. Extended Term
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 reaches age 65 b. For at least 20 years c. Until the policyowner's age 100, when the policy matures d. For 20 years or until death, whichever occurs first
d. For 20 years or until death, whichever occurs first
A Universal Life insurance policy has two types of interest rates that are called a. Option A and Option B b. Fixed and Variable c. Minimum and Target d. Guaranteed and Current
d. Guaranteed and Current the insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest
An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit? a. When the insured dies, the primary and contingent beneficiaries share death benefits equally b. With the primary beneficiary's written consent c. If the insured died from accidental means d. If the primary beneficiary predeceased the insured
d. If the primary beneficiary predeceased the insured
The type of term insurance that provides increasing death benefits as the insured ages is called a. Flexible term. b. Interest-sensitive term. c. Age-sensitive term. d. Increasing term.
d. Increasing term Increasing term insurance provides an increase in the death benefit each year. The coverage is usually structured to provide a death benefit equal to the amount of premium paid on a permanent life insurance policy, or to provide a death benefit equal to the cash value accumulation in a permanent policy; however, it can be written as a stand-alone policy for the individual that has a need for increasing amounts of insurance
Which of the following is true about the premium on the children's rider in a life insurance policy? a. It decreases when the oldest child reaches the age of 21 b. It increases when a newborn baby is added to the policy c. It decreases when an adopted child is added to the policy d. It remains the same no matter how many children are added to the policy
d. It remains the same no matter how many children are added to the policy
Which of the following is an example of a limited-pay life policy? a. Rewnewable Term to Age 70 b. Level Term life c. Straight life d. Life Paid-up at Age 65
d. Life Paid-up at Age 65
After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive? a. Percentage of medical costs paid by the insurer b. Payments for life c. Yearly premium waiver and income d. Monthly premium waiver and monthly income
d. Monthly premium waiver and monthly income
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? a. One-year term b. Reduction of premium c. Accumulation at interest d. Paid-up option
d. Paid-up option
Equity indexed annuities a. Are more risky than variable annuities b. Are security instruments c. Invest conservatively d. Seek higher returns
d. Seek higher returns Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.
Which of the following is called a "second-to-die" policy? a. Family income b. Juvenile life c. Joint life d. Survivorship life
d. Survivorship life Survivorship life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age
The annuity owner dies during the accumulation period without naming a beneficiary. Annuity's cash value exceeds premiums paid. Which of the following is TRUE? a. The premium value will be paid to the annuitant's estate b. All benefits will be forfeited c. The cash value will be paid to the state government d. The cash value will be paid to the annuitant's estate
d. The cash value will be paid to the annuitant's estate
All of the following are true of key person insurance EXCEPT a. There is no limitation on the number of key employee plans in force at any one time b. The employer is the owner, payor, and beneficiary of the policy c. The key employee is the insured d. The plan is funded by permanent insurance only
d. The plan is funded by permanent insurance only
Which of the following products requires a securities license? a. Fixed annuity b. Equity Indexed annuity c. Deferred annuity d. Variable annuity
d. Variable annuity A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities
Are insurance company underwriters allowed to discriminate? a. No, higher risks pay higher premium b. No, discrimination is an unfair practice c. Yes, but only for gender d. Yes, but not unfairly
d. Yes, but not unfairly 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.
