Life Quiz - 02

A producer must do all of the following when delivering a new policy to the insured EXCEPT a. Disclose commissions earned from the sale of the policy. b. Explain the policy provisions, riders, and exclusions. c. Collect any premium due. d. Explain the rating procedures if the policy is rated differently than applied for.

a. Disclose commissions earned from the sale of the policy. A producer must explain policy provisions, exclusions, and riders at the time of delivery, as well as the rating procedures, especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement of continued good health.

When an applicant purchased a life insurance policy, the agent dated the application 4 months prior. When asked by the applicant, the agent said he was allowed to backdate policies up to 6 months if it would a. Lower the insured's premium. b. Shorten the contestability period. c. Eliminate pre-existing conditions. d. Help him meet a sales quota for that period.

a. Lower the insured's premium. An agent may backdate an application for up to 6 months to accomplish a lower premium rate for the insured

The insurer discovered that one of the applicants for life insurance missed a couple of questions on the application. What must the insurer do with the application? a. Return to the applicant for completion b. Answer the missed questions for the applicant c. Acknowledge the missed questions with a signature and continue the policy issue process d. Proceed with issuing a policy

a. Return to the applicant for completion Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.

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 The "substandard" rating indicates that an individual represents an under-average insurance risk because of physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium if policy is issued

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. Survivor protection. b. Life planning. c. Survivorship insurance. d. Juvenile protection provision.

a. 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.

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then a. The benefit is received tax free. b. The benefit is subject to the exclusionary rule. c. IRS has no jurisdiction. d. The benefit is received as taxable income.

a. The benefit is received tax free. Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.

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.

For what reason may a life insurance producer backdate a life insurance policy? a. To avoid an increase in premium rate for the insured b. To meet sales quotas established by the insurer 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.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT a. Delivery receipt. b. Signed waiver of premium c. Statement of good health. d. Payment of premium.

b. Signed waiver of premium The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.

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.

b. The plan is funded by permanent insurance only. Key Person coverage may be funded by any type of life insurance.

Which of the following is the best reason to purchase life insurance rather than an annuity? a. To liquidate a sum of money over a lifetime b. To create an estate c. To liquidate a sum of money over a period of years d. To create regular income payments

b. To create an estate With insurance, the death benefit creates an immediate estate should the insured die.

Why should the producer personally deliver the policy when the first premium has already been paid? a. To make sure the policy is not stolen or lost b. To help the insured understand all aspects of the contract c. To ensure the producer gets paid commission d. To find out how the family has been doing since the initial presentation

b. To help the insured understand all aspects of the contract 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

Are insurance company underwriters allowed to discriminate? a. Yes, but only for gender b. Yes, but not unfairly c. No, higher risks pay higher premium d. No, discrimination is an unfair practice

b. 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.

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 first of the month after the policy issue b. As of the policy issue date c. As of the application date d. As of the policy delivery date

c. As of the application date If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.

Which of the following statements concerning buy-sell agreements is true? a. Benefits received are considered income taxable. b. Buy-sell agreements pay in the event of a medical emergency. c. Buy-sell agreements are normally funded with a life insurance policy. d. Premiums paid are deductible as a business expense.

c. Buy-sell agreements are normally funded with a life insurance policy. A buy-sell agreement is simply a contract that establishes what will be done with a business in the event that an owner dies. Buy-sell agreements are normally funded with a life insurance policy.

What does "liquidity" refer to in a life insurance policy? a. The policyowner receives dividend checks each year. b. The insured receives payments each month in retirement. c. Cash values can be borrowed at any time. d. The death benefit replaces the assets that would have accumulated if the insured had not died.

c. Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values.

Which of the following is NOT an example of a valid insurable interest? a. Employer in key employee's life b. Child in parents' lives c. Debtor in the life of the creditor d. Business partners in each other's lives

c. Debtor in the life of the creditor Incorrect! The three recognized areas in which insurable interest exists are as follows: a policyowner insuring their own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to the policyowner. A debtor does not have an insurable interest in the creditor.

The Medical Information Bureau (MIB) was created to protect a. Insureds from unreasonable underwriting requirements by the insurance companies. b. Medical examiners that perform insurance physical examinations. c. Insurance companies from adverse selection by high risk persons. d. Insurance departments from lawsuits by policyowners.

c. Insurance companies from adverse selection by high risk persons. The MI makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Which of the following best describes gross annual premium? a. Basic insurance rate plus commissions b. Expense premium c. Net premium plus expenses d. Annual loading

c. Net premium plus expenses Gross annual premium is net premium plus expenses (loading).

Which of the following individuals must have insurable interest in the insured? a. Underwriter b. Producer c. Policyowner d. Beneficiary

c. Policyowner The policyowner must have an insurable interest in the insured (his/her own life if the policyowner and the insured is the same person), or in the life of a family member or a business partner.

Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a a. Backdated receipt. b. Warranty. c. Premium receipt. d. Statement of good health.

c. Premium receipt. When collecting the initial premium, the agent should issue the applicant a premium receipt.

The insurance company underwriter could find information concerning the personal activities and character of an applicant from which of the following reports? a. Insurance company who provided the prior coverage b. Medical Information Bureau c. Producer's report d. Attending physician

c. Producer's report The agent communicates his/her observations concerning an applicant in the producer's report.

Which of the following is a risk classification used by underwriters for life insurance? a. Normal b. Excellent c. Standard d. Poor

c. Standard The three ratings classifications that denote the risk level of insureds are standard, substandard, and preferred. This classification system helps insurers to decide if an insured should pay a higher premium

Which of the following is an example of liquidity in a life insurance contract? a. The flexible premium b. The money in a savings account c. The cash value available to the policyowner d. The death benefit paid to the beneficiary

c. The cash value available to the policyowner Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT a. Draw a line through the first answer, record the correct answer, and have the applicant initial the change. b. Note on the application the reason for the change. c. Destroy the application and complete a new one. d. Erase the incorrect answer and record the correct answer.

d. Erase the incorrect answer and record the correct answer. An agent should not use white-out, erase or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary.

Who makes up the Medical Information Bureau? a. Hospitals b. Former insured c. Physicians and paramedics d. Insurers

d. Insurers The Medical Information Bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered

Which of the following information about the applicant is NOT included in the General Information section of the application for insurance? a. Gender b. Occupation c. Marital status d. Medical background

d. Medical background Part 1 - General Information of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. The applicant's medical background is addressed in Part 2 Medical Information.

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.

d. 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

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will a. Pay the policy proceeds up to an established limit. b. Not pay the policy proceeds under any circumstances. c. Automatically pay the policy proceeds d. Pay the policy proceeds only if it would have issued the policy.

d. Pay the policy proceeds only if it would have issued the policy. 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.