Life Unit

In an insurance transaction, the insurer is represented by the A) public adjuster B) broker C) agent D) state insurance department

C) agent In an insurance transaction, the agent represents the insurer. The actions of the agent bind the company to an insurance contract. Reference: 1.9 in the License Exam Manual

To sell variable contracts, a person must A) be licensed as a managing general agent B) hold a Certified Financial Planner designation C) be licensed for life insurance, maintain both federal and state securities licenses, and, in some states, have a specific variable annuity endorsement D) maintain a bond payable to the state

C) be licensed for life insurance, maintain both federal and state securities licenses, and, in some states, have a specific variable annuity endorsement A person may not sell any variable contracts unless he is a licensed life insurance producer, is also registered with the Financial Industry Regulatory Authority (FINRA) as a principal or a registered representative, and completes state-specific certification, if required. Reference: 9.6.2.4 in the License Exam Manual

Which of the following statements regarding a traditional individual retirement account (IRA) is NOT correct? A) A 10% penalty is assessed on any distribution from an IRA before age 59½. B) IRAs are available to anyone with earned income, but deductible contributions are limited for individuals who are also covered under an employer-sponsored retirement plan. C) Assuming that only tax-deductible contributions were made into the IRA, 100% of distributions from it are treated as taxable income. D) Distributions must begin from an IRA by April 1 of the year following the IRA owner's attainment of age 72.

A) A 10% penalty is assessed on any distribution from an IRA before age 59½. Although distributions before age 59½ are subject to a 10% penalty in most situations, there are exemptions to this rule. For example, annuitized distributions and distributions made upon the death or disability of the IRA owner are exempt from the penalty tax. All distributions are subject to ordinary income taxation, assuming that the IRA was funded only with tax-deductible contributions. Reference: 11.3 in the License Exam Manual

Jessica saw an advertisement in the local newspaper for a new type of health insurance policy offered by Protective Insurers, Inc. She noticed that Protective Insurers was also selling these policies through vending machines. Protective Insurers would be considered what type of insurer? A) A direct response writer B) A surplus lines insurer C) An unauthorized insurer D) A mass response writer

A) A direct response writer Protective Insurers, Inc. sells insurance through the direct-selling method, where policies are sold directly to consumers through vending machines, advertisements, or salaried sales representatives. Insurers that operate using this method are known as direct writers or direct response insurers. Reference: 1.8.2 in the License Exam Manual

What is the purpose of the Fair Credit Reporting Act? A) It requires consumer report agencies to adopt reasonable procedures when exchanging credit information. B) It guarantees that credit reports will remain confidential and not accessible to businesses that do not sell insurance. C) It protects credit companies during the course of their investigations. D) It prohibits insurance companies from obtaining reports on applicants from investigative agencies.

A) It requires consumer report agencies to adopt reasonable procedures when exchanging credit information. The Fair Credit Reporting Act is a federal law that ensures confidential, fair, and accurate reporting of information about consumers, including applicants for insurance. It does not preclude insurance companies from obtaining outside reports; however, it allows consumers to request the disclosure of information contained in these reports. Reference: 2.7.1 in the License Exam Manual

Which of the following is NOT a type of agent authority? A) Obvious B) Implied C) Express D) Apparent

A) Obvious There are 3 types of agent authority: express, implied, and apparent. Reference: 1.9.1 in the License Exam Manual

Which of the following statements pertaining to the Fair Credit Reporting Act is NOT correct? A) The Fair Credit Reporting Act is a state law that helps to ensure accurate reporting of information about consumers. B) The Fair Credit Reporting Act does not apply to insurance companies who use their own staffs to investigate an applicant for insurance. C) Peg's application for life insurance is rejected because of an unfavorable consumer report. She has a right to know what information the reporting agency has and can insist that any errors in the data be corrected. D) A life insurance company obtains a consumer report on Burl, an applicant, without advising him of its intended action. The company has violated the Fair Credit Reporting Act.

A) The Fair Credit Reporting Act is a state law that helps to ensure accurate reporting of information about consumers. The Fair Credit Reporting Act is a federal law, not a state law. Reference: 2.7.1 in the License Exam Manual

Doris and Arnold receive $450 per month under a joint and one-half survivor life insurance option. What would happen if Arnold were to die first after the payments have started? A) The remaining proceeds would be paid to Doris in a lump sum. B) Doris would have to select another settlement option. C) Doris would receive $450 per month as long as she lived. D) Monthly payments of $225 would be made to Doris as long as she lived

A) The remaining proceeds would be paid to Doris in a lump sum. The joint and one-half survivor life income option provides an income for 2 people. In this case, the couple, while both are living, gets the full amount; the survivor gets half the amount, or $225. Reference: 6.4.8 in the License Exam Manual

For which of the following types of policies would premiums be invested in an insurer's separate account? A) Variable annuities B) Whole life policies C) Endowments D) Fixed annuities

A) Variable annuities Life insurers are not allowed to bear the risk of variable annuities or life insurance, so they set up separate accounts where the values are held and the investment risk is borne by the contract owner. The owner makes various investments in subaccounts inside the separate account. Reference: 9.6.2 in the License Exam Manual

If consumer information reports are obtained under false pretenses, the maximum penalty is A) a $5,000 fine, imprisonment for 1 year, or both B) a $7,500 fine, imprisonment for 5 years, or both C) a $7,500 fine, imprisonment for 1 year, or both D) a $5,000 fine, imprisonment for 5 years, or both

A) a $5,000 fine, imprisonment for 1 year, or both The maximum penalty for obtaining consumer information reports under false pretenses is a maximum fine of $5,000, 1 year of imprisonment, or both. Reference: 2.7.1 in the License Exam Manual

With regard to insurance, consideration means A) directly giving something of value B) a screening process all agents undergo prior to licensing C) a side-by-side policy comparison by the applicant D) the insurer's method of evaluating the applicant for coverage

A) directly giving something of value The term consideration refers to an exchange of value. With insurance, the consideration given by the insured is the paid premium and the consideration given by the insurer is the promise to pay for any valid claim. Reference: 1.10.1.3 in the License Exam Manual

Which of the following statements regarding the delivery of a life insurance policy is NOT correct? A) must have the application signed by the policy owner. B) Agents will usually get a signed receipt from the policy owner. C) An agent has an ethical responsibility to explain the policy, including any riders, exclusions, or other details of the policy, to the policyholder. D) During the delivery appointment, the agent should review the policy with the policyholder.

A) must have the application signed by the policy owner. A life insurance policy may be mailed to the policyholder; however, some states require the producer to obtain a signed receipt that acknowledges the date of delivery. If the policy is delivered in person, it is a good opportunity for the producer to review the entire policy with the policyholder and answer any questions that may arise. The application would have been signed prior to submission, not at policy delivery. Reference: 2.6 in the License Exam Manual

With group life insurance policies, standard provisions that apply to employees who join during the open enrollment period typically include all of the following EXCEPT A) providing proof of insurability B) a grace period C) conversion rights D) misstatement of age

A) providing proof of insurability Providing proof of insurability may be required if the employee joins the group plan after the enrollment period, but it is not required when the employee joins the plan during the normal enrollment period. The other answer choices are all standard provisions with group life policies. Reference: 8.7 in the License Exam Manual

Statements made on an application regarding the applicant's medical history or health that require a medical opinion to be confirmed are called A) representations B) interpretations C) declarations D) identifications

A) representations Representations are statements on an insurance application that the applicant represents to be true to the best of her knowledge and belief. By contrast, a warranty is guaranteed to be true. Reference: 1.10.2.8 in the License Exam Manual

The unethical act of using some form of misrepresentation to replace an insurance policy is called: A) twisting. B) replacement. C) conversion. D) rebating.

A) twisting. Twisting is a form of misrepresentation. It is the unfair or incomplete comparison of policies in order to (illegally) induce an insured to lapse his current policy and purchase a new one. Reference: See State Supplement. This content is not in the License Exam Manual

Jessie owns a deferred fixed annuity in which the contractually guaranteed rate is 3%. The contract also has a standard current rate interest provision. If current rates are 5%, what rate of interest will be credited to Jessie's annuity? A) 3% B) 5% C) 8% D) 4%

B) 5% The current rate is the rate actually credited to the annuity. It can be higher than, but never lower than, the contractually guaranteed rate. Reference: 9.6.1.2 in the License Exam Manual

Which of the following causes of death would most likely be covered in a life insurance policy issued today, though for many years it was typically excluded from coverage? A) A skydiving hobbyist dies when his parachute fails to open during a skydive. B) A fare-paying passenger is killed in a commercial airplane crash while flying to visit a relative. C) A soldier is killed while on a night patrol in a war zone. D) A commercial airline pilot is killed when his personal airplane crashes into the ocean.

B) A fare-paying passenger is killed in a commercial airplane crash while flying to visit a relative. The aviation exclusion eliminates coverage for private pilots, test pilots, military pilots, and their crew members. Commercial flight is no longer an exclusion. Military service and hazardous occupations and hobbies are still excluded from most policies. While some companies may provide coverage, lower policy limits and higher premiums are to be expected. Reference: 7.6.2 in the License Exam Manual

Madge took out a $100,000 10-year convertible term policy at age 30. At age 36 she decides to convert the policy to permanent insurance of the same amount on an original-age basis. Which of the following statements is NOT correct? A) A higher premium will be charged for the new policy. B) Conversion will be contingent upon her evidence of insurability. C) The new policy will build cash values at a faster rate than if she converts at her attained age. D) She must make up the difference in premiums for the period between ages 30 and 36.

B) Conversion will be contingent upon her evidence of insurability. Under term life insurance, the option to convert offers the insured the right to change the term policy to permanent insurance without evidence of insurability. Reference: 4.4.2.6 in the License Exam Manual

Norris is the primary beneficiary of a life insurance policy. He dies after receiving $275 per month for 6 years, under a 10-year period certain income option. His son, Neil, is the secondary beneficiary. Which of the following statements pertaining to this situation is CORRECT? A) Neil will receive a lump-sum payment of $13,200. B) Neil will receive income checks in the same amount as his father for 4 years. C) Neil will receive $275 per month for as long as he lives. D) Neil will receive nothing, since Norris did not survive the 10-year period certain.

B) Neil will receive income checks in the same amount as his father for 4 years. Under a period certain income option, installments are payable for the duration of that period, whether or not the primary beneficiary lives. In this case, installments are payable for a period of 10 years. Since the primary beneficiary died after 6 years, the secondary beneficiary will be paid the same installments for 4 more years. Reference: 6.4.5 in the License Exam Manual

Which of the following statements regarding a deferred compensation plan is CORRECT? A) The employer purchases a whole life insurance policy on key employees and receives the death benefits if the employee dies before retirement. B) The employee agrees to forgo part of his current income until a specified future date, typically retirement, and may use life insurance as the funding vehicle for the plan. C) The employer purchases a whole life insurance policy, the cash value of which the employee can access only while working for the employer. D) The employee uses part of his current income to purchase a whole life insurance policy, the cash value of which can be accessed only while he is employed by his current employer.

B) The employee agrees to forgo part of his current income until a specified future date, typically retirement, and may use life insurance as the funding vehicle for the plan. A deferred compensation plan is an arrangement in which an employee (or owner) agrees to forgo some portion of his current income (such as annual raises or bonuses) until a specified future date, typically retirement. Life insurance is a popular funding vehicle for these plans in that the amounts deferred are used to pay premiums on cash value life insurance. At retirement, the cash values are available to the employee to supplement his income. If the employee dies before retirement, his beneficiary receives the policy proceeds. Reference: 3.5.3.4 in the License Exam Manual

Which of the following statements regarding how to fix a mistake in an insurance application is NOT correct? A) If the insurer discovers a mistake, it usually returns the application to the agent who, with the applicant, corrects the application. B) Under no circumstances may an agent correct information on an insurance application once it has been completed by the applicant. C) If the insurer discovers an incorrect application before the policy is issued, the insurer may cancel the contract. D) If the agent fixes the mistake in the application, the applicant must initial the correction.

B) Under no circumstances may an agent correct information on an insurance application once it has been completed by the applicant. In certain circumstances, an agent may correct an insurance application after it has been completed. If an applicant makes a mistake in the information he has given an agent, the applicant can have the agent correct the information on the application, but the applicant must initial the correction. An insurer may cancel a policy if it believes that a mistake on the application was an intentional deception about a fact material to the issuance of the policy. Reference: 2.4.2.1 in the License Exam Manual

Arnold buys a $25,000 participating whole life policy. He has a definite need for more life insurance but believes he cannot afford it. Which of the following dividend options would help to solve this problem automatically? A) Leaving dividends to accumulate at interest B) Using dividends to buy paid-up additions C) Applying dividends against premium payments D) Taking dividends in cash

B) Using dividends to buy paid-up additions Under a participating whole life policy, if an individual needs more life insurance, he can use dividends to buy paid-up additions. Reference: 6.6.1.4 in the License Exam Manual

An insurance producer in a position of financial trust to both the client and the insurer is best described as A) a trustee B) a fiduciary C) a solicitor D) a broker

B) a fiduciary An insurance producer acts in a fiduciary capacity when holding premiums or money collected from a policyholder that is to be paid to an insurance company. Producers are prohibited from misappropriating or converting such funds to their own use or illegally withholding them. Producers who convert or misappropriate these funds are guilty of theft and can be punished as provided by law. Reference: 1.9.2 in the License Exam Manual

The combination of current tax deduction for the employer plus tax deferral for the employee is possible with all of the following types of plans EXCEPT A) a 401(k) B) a savings account C) a stock bonus D) a money purchase

B) a savings account The combination of current tax deductibility by the employer and tax deferral for the employee is the primary tax benefit of all qualified plans. A savings account does not enjoy either of these tax advantages. Reference: 11.4 in the License Exam Manual

All of the following are distribution systems EXCEPT A) direct response B) claims handling C) independent agencies D) direct writing

B) claims handling Insurance is distributed through many different channels, including direct response, direct writing, independent agencies, and exclusive agencies. Claims handling is a function of the insurance company. Reference: 1.8 in the License Exam Manual

Major risk factors in health insurance underwriting include all of the following EXCEPT A) physical condition B) marital status C) lifestyle D) occupation

B) marital status Marital status is not a risk factor. Reference: 2.5.1.1.2 in the License Exam Manual

False information that will void an insurance contract is known as A) misrepresentations B) material misrepresentations C) indemnifications D) breach of warranty

B) material misrepresentations Information that is not true and that would affect an underwriter's decision to reject a risk is a material misrepresentation. These statements are grounds for voiding an insurance contract. Reference: 1.10.2.8 in the License Exam Manual

In group insurance plans, if the plan is noncontributory, the employer A) must limit plan enrollment to 5 or fewer employees B) pays the entire premium C) is allowed to select the employees who may participate in the plan D) pays none of the premium

B) pays the entire premium Noncontributory plans are so classified because the employer pays the entire premium. Covered employees do not contribute to the cost of the plan, although they may pay an extra premium to cover their dependents under the plan. Conversely, a contributory plan is one in which both the employer and the employee pay a portion of the premium. Reference: 8.6 in the License Exam Manual

Making appropriate product recommendations based on the needs, objectives, and circumstances of a client is referred to as A) commingling B) suitability considerations C) apparent authority D) implied authority

B) suitability considerations One aspect of an agent's fiduciary duties is to provide product recommendations to clients based on how suitable the features and benefits are to meet their goals. Reference: 1.9.2 in the License Exam Manual

In writing group insurance, insurance companies use all of the following underwriting criteria EXCEPT A) the age and sex of the individuals in the group B) the individuals' medical histories C) the type of and premium for coverage D) the size of the group

B) the individuals' medical histories Group insurance is underwritten on the size and composition of the group, as well as the type of plan and amount of premium to be charged. Individual medical histories are not a factor in underwriting group insurance. Reference: 8.7 in the License Exam Manual

A policy's grace period is usually no more than A) 45 days B) 60 days C) 31 days D) 10 days

C) 31 days The time limit between when premium is due and date of policy lapse is known as the grace period and generally is no more than 31 days. Reference: 7.4.9 in the License Exam Manual

In which of the following circumstances would the incontestable clause of an insurance policy apply? A) Impersonation of the applicant by another B) No insurable interest C) Concealment of smoking D) Intent to murder

C) Concealment of smoking After a policy has been in force for the specified term, the insurer cannot contest a death claim or refuse payment of proceeds for a concealment of smoking. A policy issued under any of the other 3 situations may be voided at any time, since it would not be considered a valid, enforceable contract. Reference: 7.4.11 in the License Exam Manual

Life insurance protects people from dying too soon, while annuities protect people from A) excessive taxes B) hospitals C) living too long D) poor health

C) living too long Annuity products were created to protect people from outliving their income. Once a product is annuitized, it will pay an income to the annuitant as long as she lives. Reference: 9.3 in the License Exam Manual

The concepts of agent accuracy and completeness would prohibit all of the following practices EXCEPT A) substantially rewording an applicant's answer to a question to improve the likelihood of approval B) correcting an application error without the applicant's knowledge C) reviewing the completed application with the applicant to ensure accuracy D) allowing an applicant to skip over an application question he considered too personal

C) reviewing the completed application with the applicant to ensure accuracy Applications should always be reviewed with the applicant before submission to ensure accuracy and completeness. Correcting errors without the applicant's knowledge, knowingly skipping questions, and rewording answers are all improper practices. Reference: 2.4.2 in the License Exam Manual

Each application for life insurance requires the signature of all of the following EXCEPT A) the proposed insured B) the agent C) the beneficiary D) the policy owner, if different from the insured

C) the beneficiary Each application for life insurance requires the signature of the insured, the policyowner (if different from the insured), and the agent. Reference: 2.4.5 in the License Exam Manual

The free look, or right to examine provision allows a policyowner the right to review and then return a policy for a full refund within no less than how many days? A) 25 days B) 45 days C) 60 days D) 10 days

D) 10 days The free look provision gives a policyowner generally no less than 10 days to review and return a policy for a full refund for any reason. Reference: 7.4.1 in the License Exam Manual

If an employer group plan is contributory, most states require that at least A) 85% of the eligible employees participate B) 65% of the eligible employees participate C) 50% of the eligible employees participate D) 75% of the eligible employees participate

D) 75% of the eligible employees participate In a contributory group plan, the employer pays part of the premium. Most states require that at least 75% of the eligible employees participate in the contributory plan. Reference: 8.6 in the License Exam Manual

Willa purchases a 5-year $50,000 level term policy with an option to renew. Which of the following statements about the policy's renewability is CORRECT? A) The premium for the renewal period will be lower than the initial period. B) The premium for the renewal period will be the same as the initial period. C) The premium for the renewal period will be the same as the initial period, but a onetime service charge will be assessed upon renewal. D) The premium for the renewal period will be higher than the initial period.

D) The premium for the renewal period will be higher than the initial period. Premiums for the renewal period will be higher because of the insured's advanced age and increased risk. Reference: 4.4.2.5 in the License Exam Manual

Which of the following individuals is NOT eligible to contribute up to the maximum allowable limit to a traditional individual retirement account? A) Shirley, age 21, who is single, earns below the allowable modified adjusted gross income limit, and is not covered under an employer-sponsored retirement plan B) Craig, age 51, who is married, is covered under an employer-sponsored 401(k) plan, and earns below the allowable modified adjusted gross income limit C) Karen, age 61, who is single, earns below the allowable modified adjusted gross income limit, and is covered under an employer-sponsored profit-sharing plan D) Joe, age 71, who is married, has unearned income, and is not covered under an employer-sponsored retirement plan

D) Joe, age 71, who is married, has unearned income, and is not covered under an employer-sponsored retirement plan Anyone who has earned income may open a traditional IRA and contribute each year an amount up to the maximum allowable contribution limit or 100% of earned compensation, whichever is the lesser amount. The amount of the deductible contribution, however, may be restricted for those who are also covered (or who have a spouse who is covered) under an employer-sponsored plan, or for those with a modified adjusted gross income above a specified limit. Based on the individual's modified adjusted gross income, he may be entitled to only a partial (reduced) deduction or no deduction at all. The actual annual limit on maximum contributions that an individual can make is indexed and, therefore, may change any given year. Reference: 11.3 in the License Exam Manual

Who designates the beneficiary of a life insurance policy? A) The underwriter B) The insured C) The fiduciary D) The policyowner

D) The policyowner One of the rights of owning a life insurance policy is the right to designate and change the beneficiary of the policy proceeds. Reference: 7.4.3 in the License Exam Manual

Which of the following is an accurate statement for a producer to make regarding underwriting? A) The applicant must provide a list of the sources and give permission to contact them. B) The Medical Information Bureau (MIB) will contact the applicant for additional information. C) A consumer report must be requested. D) The primary source of information used in underwriting will be the application.

D) The primary source of information used in underwriting will be the application. The signed application is the primary source of underwriting information. A consumer report, while another source of information, is not routinely requested, nor is a list of potential sources to contact. The MIB is a clearinghouse for information and does not contact applicants for any information. Reference: 2.5.1 in the License Exam Manual

At a certain point in time, an employee will have a nonforfeitable right to the money contributed to a pension plan by the employer. This right is known as A) a possessive interest B) a contributory interest C) a proprietary interest D) a vested interest

D) a vested interest After a specified number of years, an employee becomes 100% vested. That is, the employee acquires a nonforfeitable ownership interest of 100% of the contributions the employer has made on the employee's behalf. Reference: 11.4.3 in the License Exam Manual

All of the following are requirements for an insurance agent's license EXCEPT: A) be a resident of Ohio. B) satisfy a prelicensing education requirement. C) be honest and trustworthy. D) be a United States citizen.

D) be a United States citizen. The director will issue a resident insurance agent license to an applicant whose home state is Ohio, if the applicant is at least 18 years of age; the applicant has not committed any act that is a ground for the denial, suspension, or revocation of a license; if required, the applicant has completed a prelicensing program of insurance education; if required, the applicant has passed a licensing examination; the applicant is of good reputation and character, is honest and trustworthy, and is suitable to be licensed. There is no requirement that an applicant be a U.S. citizen. Reference: See State Supplement. This content is not in the License Exam Manual

All of the following are types of insurers EXCEPT A) mutual B) stock C) fraternal D) communal

D) communal The various types of insurers include stock and mutual insurers, fraternal benefit societies, reciprocal insurers, and risk retention groups. Reference: 1.6 in the License Exam Manual

In contrast to traditional whole life insurance policies, with variable life insurance products A) the insurer assumes the investment risk B) investments match the insurer's contractual guarantees and liabilities C) Premiums are invested in an insurer's general account D) contract cash values are not guaranteed

D) contract cash values are not guaranteed Variable insurance products do not guarantee contract cash values. This is because policyowners can direct the investment of the funds backing their variable contracts through separate account options. Instead of a fixed return, the investment account will earn a variable return depending on the account's investment performance. Reference: 4.7.1 in the License Exam Manual

Among its duties, the Ohio Department of Insurance is responsible for all of the following EXCEPT: A) licensing agents, brokers, and insurance companies. B) examining insurers' books and records. C) controlling the kinds of contracts sold. D) prosecuting violators of insurance laws in the courts.

D) prosecuting violators of insurance laws in the courts. Examining insurers' books, controlling kinds of contracts sold, and licensing are all responsibilities of the Department of Insurance. Insurance law prosecution is the responsibility of the court system. Reference: See State Supplement. This content is not in the License Exam Manual

ERISA requires that certain benefit and insurance plan information be made available to all of the following EXCEPT A) the Department of Labor B) the Internal Revenue Service C) participants D) the state legislature

D) the state legislature Plan information, including important information about plan features and funding, must be provided to participants, their beneficiaries, the Department of Labor, and the IRS. Since ERISA is a federal law, the information does not need to be made available to the state legislatures. Reference: 2.11.1 in the License Exam Manual

A contract agreement between a ceding insurer and reinsurer to underwrite certain classes of risks is known as A) facultative reinsurance B) assuming reinsurance C) retroceding insurance D) treaty reinsurance

D) treaty reinsurance The agreement in which a reinsurer agrees to underwrite a certain class of business submitted by the ceding insurer is known as treaty reinsurance. Underwriting is done for a class or classes of risks, as opposed to on an individual basis. Reference: 1.5.4 in the License Exam Manual

What settlement option is designed to pay out a specified amount of income at regular intervals over an unspecified period of time? A) Fixed-amount option B) Fixed-period option C) Life income option D) Interest-only option

A) Fixed-amount option The fixed-amount settlement option provides for the payment of a policy's death benefit in specified amounts at regular intervals. The duration of the payments is not specified; payments are made until the proceeds—or principal—and interest are exhausted. Reference: 6.4.3 in the License Exam Manual

Which of the following statements regarding mass marketing insurance is CORRECT? A) It is marketed through various forms of print, visual, and aural media. B) It takes advantage of small group situations. C) It is considered unethical and is illegal in some states. D) It involves one-on-one meetings between prospects and agents.

A) It is marketed through various forms of print, visual, and aural media. Mass marketing insurance takes advantage of large group situations, selling through direct mail, newspapers, radio, and television. It is an acceptable means of marketing insurance, though there is usually little client contact with an agent or a broker. Reference: 1.8.2 in the License Exam Manual

Which of the following statements regarding consumer rights is NOT correct? A) Reporting agencies may not delete information in reports when proved incorrect. B) Insurers may use consumer reports as additional underwriting information. C) Reporting agencies may reinvestigate disputed information. D) Consumers may dispute information in their reports.

A) Reporting agencies may not delete information in reports when proved incorrect. When a consumer feels there is inaccurate information in her report, she may ask the reporting agency to reinvestigate and correct or delete the information. Reference: 2.7.1 in the License Exam Manual

Which of the following statements about the group conversion option is NOT true? A) The option guarantees the member that coverage will continue for 60 days. B) Group life policies must include a conversion privilege. C) The member can convert to any type of insurance except term insurance. D) If the member dies during the conversion period, the insurer will pay the death benefit in full.

A) The option guarantees the member that coverage will continue for 60 days. The option guarantees the member that coverage will continue for 31 days. Reference: 8.11 in the License Exam Manual

Diane would like to purchase a life insurance policy in which the face amount remains level and the cash value grows each year until she dies (or reaches age 100). Which type of policy should she purchase? A) Whole life policy B) Limited-pay life policy C) Endowment policy D) Term policy

A) Whole life policy The cash values of a whole life policy grow steadily, and if Diane lives and premiums are paid to age 100, she will be entitled to the face amount. Reference: 4.5.1 in the License Exam Manual

Assured Insurance Company deals directly with insureds and does not have any agents. Assured is A) a direct writer B) a mass marketer C) an independent insurer D) a reciprocal insurer

A) a direct writer A direct writer deals directly with policy owners through salaried employees instead of commissioned agents. Reference: 1.8.2 in the License Exam Manual

Murt Enterprises wants to build 3 new casinos in Illinois. It is possible the necessary insurance coverages will be placed through A) a surplus lines company B) an admitted carrier C) a domestic insurer D) a federal insurer

A) a surplus lines company Surplus lines companies write insurance that standard insurance companies have declined because a risk has atypical underwriting conditions, needs more coverage than an admitted insurer will assume, or requires forms or rates that are not filed in that state. Reference: 1.7.4 in the License Exam Manual

Jane, age 35, has just purchased a 20-pay whole life policy. When she turns 55, she will A) cease paying premiums B) no longer be covered by the policy C) have a fully matured policy D) receive the policy's face amount benefit

A) cease paying premiums Limited-pay whole life policies have level premiums that are limited to a certain period (less than life). This period can be of any duration. For example, a 20-pay whole life policy is one in which premiums are payable for 20 years from the policy's inception, after which no more premiums are owed. Reference: 4.5.2.2 in the License Exam Manual

Statements made by an applicant in completing a life insurance application are considered to be A) representations B) guarantees C) oaths D) warranties

A) representations Statements made by an applicant for insurance that he represents as being substantially true to the best of his knowledge and belief are representations. Even an untrue representation, unless it is material or fraudulent, will not prevent the policyholder from recovering for losses under the policy. Reference: 1.10.2.8 in the License Exam Manual

Ralph owns a $50,000 nonparticipating whole life policy. Its cash value has accumulated to $15,000, and he has paid a total of $9,500 in premiums. If he surrenders the policy for its cash value, how will it be taxed? A) Ralph will receive the $15,000 tax-free. B) Ralph will receive $9,500 tax-free; the $5,500 balance is taxable as income. C) Ralph will receive the $15,000 as taxable income. D) Ralph will receive $5,500 tax-free; the $9,500 balance is taxable as income.

B) Ralph will receive $9,500 tax-free; the $5,500 balance is taxable as income. A policyowner is allowed to receive tax-free an amount equal to what he paid into the policy over the years in the form of premiums. Any gains are taxable. Reference: 10.3.1.3 in the License Exam Manual

Wendy has a $100,000 whole life participating policy. She recently married and is planning to have a family. She wants to increase her life insurance coverage but at minimal additional cost. Which of the following dividend options would be most suitable for her needs? A) Use dividends to buy 1-year term insurance B) Use dividends to buy paid-up additions C) Apply dividends against premium payments D) Allow dividends to accumulate at interest

B) Use dividends to buy paid-up additions By using dividends to buy paid-up additions, Wendy can increase her life insurance coverage without significantly adding to the cost. The dividends buy paid-up additions of life insurance, of the same kind as the original or base policy. The premium rate is based on her attained age at the time the paid-up addition is purchased. Although she can also use dividends to buy 1-year term insurance, her need for increased coverage in the coming years will remain unsatisfied. Applying dividends against premium payments will lower the cost of her insurance, but it will not increase her coverage as desired. And while allowing dividends to accumulate at interest gives her a source of funds for withdrawal at any time, it too fails to meet her need for increased coverage. Reference: 6.6.1.4 in the License Exam Manual

Group life insurance plans in which employees contribute to the overall premium are called A) noncontributory B) contributory C) group underwritten D) participatory

B) contributory When employees contribute to the premium payable for a group life insurance contract, the plan is called contributory. Reference: 8.6 in the License Exam Manual

Variable universal life policies provide all of the following EXCEPT A) cash values B) fixed premiums C) a flexible premium capability D) a death benefit

B) fixed premiums Variable universal life insurance combines many characteristics of variable life (such as a death benefit and an equities-based cash value) with universal life (such as flexible premium payments and adjustable death benefits). Reference: 4.7.2.2 in the License Exam Manual

If an agent fails to perform an act required by a policy, the insurer A) has 60 days to notify the policyholder of the omission B) is still required to fulfill its obligation C) is exempt from fulfilling its obligation to the policyholder D) may release the agent and write a new contract with the policyholder

B) is still required to fulfill its obligation The insurer is liable for its agent's acts if the agent is licensed and has a contract with the insurer. Reference: 1.9 in the License Exam Manual

In the life insurance business, a word that is synonymous with expenses is A) controlling B) loading C) actuary D) underwriting

B) loading Each premium an insurer charges must carry its small proportion of normal operating expenses. The expense factor is computed and included in the premium rates for life insurance. The expense factor is also called the loading charge. Reference: 3.7.1 in the License Exam Manual

All of the following employed persons who have no employer retirement plan would be eligible to set up a traditional IRA EXCEPT A) Jack, age 60, a plumber B) Brent, age 40, a medical technician C) Edna, age 62, a retired nurse D) Miriam, age 26, a chemical engineer

C) Edna, age 62, a retired nurse Individuals must have earned income to be eligible for a traditional IRA. Reference: 11.3 in the License Exam Manual

What is the default nonforfeiture option? A) Reduced paid-up B) Surrender value C) Extended term D) Interest only

C) Extended term If a permanent life policy lapses for nonpayment and the policy owner has not chosen a nonforfeiture option, the insurance company by default will choose extended term insurance. The company will purchase a 1-year term policy on the insured's behalf at his attained age with the same size death benefit as the policy that lapsed for nonpayment. Reference: 6.7 in the License Exam Manual

All of the following are sources of insurability information about life insurance applicants EXCEPT A) Medical Information Bureau reports B) Inspection reports C) Social Security reports D) The application

C) Social Security reports Social Security reports are not sources of insurability information. Inspection (consumer) reports, the application, the Medical Information Bureau report, attending physicians' statements, medical exam and lab reports, and special questionnaires are important sources of insurability information. Reference: 2.5 in the License Exam Manual

For which of the following reasons would a domestic insurer set up separate accounts? A) To justify the volatility of investment returns B) To simplify its bookkeeping system and allow for variables C) To provide for annuities to be payable in fixed or variable amounts or for variable life insurance D) To pay claims to individual claimants for different classes of insurance

C) To provide for annuities to be payable in fixed or variable amounts or for variable life insurance The varying market values in a separate account provide income for variable life insurance products. Reference: 4.7.1.1 in the License Exam Manual

Express authority requires an agent to A) submit all applications promptly B) renew her license at the appropriate time C) act in accordance with the agency agreement D) collect premiums on a regular basis

C) act in accordance with the agency agreement The agency agreement is the agent's contract with the insurance company. It defines the conditions under which the agent agrees to represent the company and governs the agent's activities on behalf of the company. Reference: 1.9.1 in the License Exam Manual

Which of the following is NOT a business use of life insurance? A) Buy-sell funding B) Key-person coverage C) Deferred compensation D) Estate conservation

D) Estate conservation Estate conservation is one of the uses for personal life insurance, not business insurance. Reference: 3.5.3 in the License Exam Manual

An insurer must give an applicant for a variable life insurance policy all of the following information EXCEPT: A) examples of benefits payable under the policy. B) a summary of the method used to value assets in the separate account. C) a summary of the federal tax ramifications to the insured, the policyowner and beneficiary. D) a summary of the state tax ramifications to the insured, the policyowner and beneficiary.

D) a summary of the state tax ramifications to the insured, the policy owner, and beneficiary. Although an insurer must give the applicant a summary of the federal tax ramifications to the insured, the policy owner, and the beneficiary under a variable life policy, it need not summarize the state tax consequences. Reference: See State Supplement. This content is not in the License Exam Manual

Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will A) decrease gradually B) remain the same as in the old policy C) decrease by 50% immediately D) continue to increase

D) continue to increase When Leland surrenders his whole life policy for a reduced paid-up policy, the face value is reduced but the cash value continues to increase. Reference: 6.7 in the License Exam Manual

All of the following factors are usually considered cash needs when determining the life insurance needs of a family EXCEPT A) outstanding debts B) children's education costs C) last illness and funeral costs D) funds to support spousal retirement

D) funds to support spousal retirement The family cash needs are the amount of cash required at death to pay for a deceased breadwinner's last illness and funeral costs, outstanding debts and taxes, children's education costs, and an emergency fund. Spousal retirement is a family income need. Reference: 3.5.2.1 in the License Exam Manual

A principal function of annuities is to A) reduce income taxes B) provide for surviving dependents C) create an estate D) liquidate an estate

D) liquidate an estate The principal function of life insurance is to create an estate. The principal function of annuities is to liquidate an estate. Reference: 9.3.3 in the License Exam Manual

Premium payment amounts can be all of the following EXCEPT A) graded B) flexible C) level D) static

D) static Premium payment amounts can be level, graded, flexible, or single payment. Reference: 7.4.8 in the License Exam Manual

An individual life insurance policy must become incontestable no later than how long after its effective date? A) 3 years B) 2 years C) 1 year D) 6 months

B) 2 years Individual life insurance policies must include an incontestability provision stating that the policy will become incontestable no later than 2 years after its effective date (except for nonpayment of premiums). Reference: 7.4.11 in the License Exam Manual

Which of the following is LEAST likely to appear on a group insurance application? A) beneficiary designation B) Social Security number C) medical questions D) address

C) medical questions Information such as name, address, Social Security number and beneficiary designations are on applications for group health insurance. Since underwriting is focused on the group rather than the individual, medical questions are the least likely to appear on the form. Reference: 8.7 in the License Exam Manual

All of the following are considered suspicious activities EXCEPT A) reluctance to provide identification B) greater interest in termination rather than performance features of a product C) receipt of cash payments in excess of $5,000 D) requests to have surrender proceeds paid to a party not clearly related to the purchaser

C) receipt of cash payments in excess of $5,000 One of the suspicious activities an insurer must report is the receipt of cash payments in excess of $10,000, not $5,000. Reference: 2.10 in the License Exam Manual

The time period between the date when premium is due and when coverage lapses is called A) the consideration period B) the incontestability period C) the grace period D) the benefit period

C) the grace period The grace period is the time between the due date of the premium and the date upon which coverage will lapse. Reference: 7.4.9 in the License Exam Manual

Which of the following types of annuity payout options guarantees, as a minimum, the payout of the entire annuity principal amount? A) Pure life B) Joint and full survivor option C) Period certain D) Cash refund

D) Cash refund Of these options, only the cash refund payout guarantees that the entire annuity principal will be paid out to the annuitant or beneficiary. A pure life option and a period certain option guarantee payments for a certain period of time, during which the principal may or may not be fully liquidated. Reference: 9.5.1.2 in the License Exam Manual

Which of the following is NOT a characteristic of an insurable risk? A) Accidental B) Measurable C) Calculable D) Expensive

D) Expensive The 6 characteristics of an insurable risk are that the risk must be calculable, affordable, noncatastrophic, homogeneous, accidental, and measurable. Reference: 1.5.2 in the License Exam Manual

Which of the following types of agent authority is specifically set forth in writing in the agent's contract? A) Apparent B) Express C) Personal D) Implied

B) Express Express authority is the authority a principal gives to its agent. Express authority is granted by means of the agent's contract, which is the principal's appointment of the agent to act on its behalf. Reference: 1.9.1 in the License Exam Manual

Last year Wendell, age 57, withdrew $1,500 from his IRA, which consists entirely of pretax contributions. In addition to including that amount in his taxable income, he has to pay a penalty of A) $300 B) $150 C) $100 D) $50

B) $150 When prematurely withdrawing pretax dollars from an IRA (before reaching age 59½), the individual must include the amount withdrawn in his taxable income as well as pay a penalty equal to 10% of the taxable amount withdrawn. There are exceptions that allow an individual to withdraw funds before age 59½ without paying a penalty: withdrawing funds for a life annuity, to buy a first home, for education costs, due to a disability, or upon the owner's death. After age 59½, any IRA distribution is taxed as ordinary income with no penalty. Reference: 11.3.3 in the License Exam Manual

Tom has a $50,000 whole life policy. If he continues to pay the required premiums and lives to age 100, he will receive A) double the face amount, or $100,000 B) $50,000 as an endowment C) nothing, because he outlived the term of the contract D) the cash surrender value, a sum less than $50,000

B) $50,000 as an endowment By design, a whole life policy endows for its face amount at age 100. That means that when the policyowner is 100 years old, the cash value of the policy equals the face amount of the policy. At that point, the insurance is canceled, and the insured receives the face amount as an endowment. Reference: 4.5.1.8 in the License Exam Manual

The settlement option that will pay the largest amount to the beneficiary regardless how long he lives is A) the life with period certain option B) the life only or straight life option C) the life with refund option D) the interest only option

B) the life only or straight life option The life only or straight life option provides a series of level payments to the beneficiary based on his life expectancy and are guaranteed for life. Payments cease upon the death of the beneficiary. Reference: 6.4.5 in the License Exam Manual

Jia is applying for individual medical insurance coverage. All of the following factors will adversely affect her ability to obtain coverage at a reasonable premium EXCEPT A) a family history of heart disease B) working at a desk every day C) being an avid scuba diver D) being 55 years old

B) working at a desk every day Working in a sedentary job should not negatively affect an applicant's insurability. Family health history, age, and high-risk hobbies can affect an applicant's insurability and premium in a negative way. Reference: 2.5.2.3 in the License Exam Manual

After comparing policies for the last 3 months, Carol has finally found a health insurance policy that she would like to purchase. When Carol submits the application with the initial premium, A) the insurance company can make an offer by issuing the policy B) the insurance company cannot make a counteroffer C) Carol has made an offer that the insurance company can accept or reject D) Carol cannot rescind the offer once made

C) Carol has made an offer that the insurance company can accept or reject When Carol submits an application along with the initial premium, she is making an offer to the insurance company. The insurer can accept the offer by issuing the policy as applied for, or it may counteroffer by issuing another policy at different premium rates or with different terms. Until the insurer accepts the offer, Carol has the right to rescind it. Reference: 1.10.1.2 in the License Exam Manual

Which of the following factors is the most pronounced difference between group and individual insurance plans? A) Renewability B) Premium rates C) Underwriting process D) Customization of coverage for individuals

C) Underwriting process The most pronounced difference between group and individual insurance lies in the underwriting process. In the case of group plans, once the group is approved, all members are eventually included. In the case of an individual policy, a key factor is the insured's ability to qualify for coverage and obtain it at an affordable rate. Reference: 8.7 in the License Exam Manual

Which of the following statements regarding conversion is TRUE? A) Conversion must be within 45 days from the date coverage is lost. B) The converted policy may be any amount the insured chooses. C) The converted policy must be term insurance. D) Premiums are based on the attained age at conversion.

D) Premiums are based on the attained age at conversion. When a group policy is converted, the premium will be based on the insured's attained age. Conversion must be within 31 days from the date coverage is lost, must be the same coverage amount, and must be a permanent, not term, policy. Lastly, no proof of insurability is required. Reference: 8.11 in the License Exam Manual

Which of the following statements pertaining to reinstating a life insurance policy is NOT correct? A) The insured may need to provide evidence of insurability. B) Any outstanding policy loan must be repaid. C) All back premiums must be paid. D) The cash surrender value must be forfeited to the insurer.

D) The cash surrender value must be forfeited to the insurer. Paying back premiums and any policy loans, and possibly having to prove insurability, are required before a lapsed policy will be reinstated. Reinstatement is only available to the policyowner if the policy was canceled for nonpayment. Reference: 7.4.10 in the License Exam Manual

Which of the following is NOT found in Part I of the application? A) The insured's occupation and business address B) The name and address of the insured C) The name of the beneficiary D) The name and address of the insured's current physician

D) The name and address of the insured's current physician Part I of the application contains general information. The name and address of the insured's current physician would be in located in Part II, which contains health information. Reference: 2.5.1.1.1 in the License Exam Manual

Which of the following statements regarding a disability income rider is NOT correct? A) Most disability income riders do not cover disabilities that develop after age 60 or 65. B) A disability income rider does not provide benefits for partial or temporary disability. C) A disability income rider is a form of health insurance. D) The only way to provide disability benefits in a life insurance policy is through a disability income rider.

D) The only way to provide disability benefits in a life insurance policy is through a disability income rider. A waiver of premium rider (a type of disability coverage) is generally included with guaranteed renewable and noncancelable individual disability income policies. It is a valuable provision because it exempts the policy owner from paying premiums during periods of total disability. Reference: 5.4.1 in the License Exam Manual

The death benefit proceeds of a life insurance policy are protected from the beneficiary's creditors unless A) they are paid to a contingent beneficiary B) they are held in trust by the insurer C) they are paid out in installments D) they are paid out in a lump sum

D) they are paid out in a lump sum The spendthrift clause is designed to protect the proceeds of a life insurance policy from the beneficiary's spending habits and creditors. When this clause is included in the policy, the creditors cannot attach the death benefit proceeds before they are made to the beneficiary. Once the beneficiary has received the proceeds, however, the creditors can take steps to attach those proceeds. Since a lump-sum settlement would immediately place all of the proceeds in the beneficiary's possession, the proceeds would not be protected from the beneficiary's creditors. Reference: 7.5.9 in the License Exam Manual

Which of the following would be considered a moral hazard in underwriting a health insurance risk? A) A family history of diabetes B) A serious heart ailment C) Excessive dieting D) A hazardous occupation

C) Excessive dieting Moral hazards are habits or lifestyles of applicants that could pose additional risk for the insurer. These hazards are evaluated carefully when underwriting health insurance policies. Reference: 1.3 in the License Exam Manual

All of the following are likely to appear on a group participant's certificate of insurance EXCEPT A) an individual's certificate number B) a summary of benefits C) a physician's address D) a beneficiary designation

C) a physician's address Group policies are underwritten as a whole, rather than on each individual member. Evidence of coverage under a master policy is given to employees in the form of a certificate of insurance. The information on the certificate includes a summary of the plan benefits, the group or certificate number, and the designated beneficiary's name. Reference: 8.5 in the License Exam Manual

An insurer of an insurer is known as A) a service organization B) a mixed group C) a reciprocal D) a reinsurer

D) a reinsurer A reinsurer insures part of the life insurance underwritten by another life insurance company to reduce the potentially large loss of the other company. Reference: 1.5.4 in the License Exam Manual

Which of the following groups is least likely to be eligible for coverage through a group health plan? A) A group of neighbors who wish to insure themselves and their families B) An automobile manufacturer that will offer coverage to its customers C) A professional association that wishes to provide coverage for members nationally D) A college alumni association that offers coverage for member alumni

A) A group of neighbors who wish to insure themselves and their families To qualify, the members must be a natural group formed for a purpose other than to obtain insurance. As a result, families in a neighborhood will likely not qualify. Reference: 8.4 in the License Exam Manual

Which of the following statements regarding insurance company organization is CORRECT? A) A policyholder in a mutual company may receive a dividend. B) Mutual companies do not declare dividends. C) Stock companies are owned by the policyholders. D) A stock company pays dividends to its policyholders.

A) A policyholder in a mutual company may receive a dividend. A stock insurance company is owned by investors, who are called stockholders. If a dividend is declared, it is given to the stockholders. A mutual insurance company has no stockholders but is owned by its policyholders. If any dividends are distributed, they are given to the policyholders, not to any outside investors. Reference: 1.6.2 in the License Exam Manual

Angela, a recent applicant for a $50,000 life insurance policy, failed to state on her application that she suffered a heart attack a year earlier, fearing it would affect her insurability. Which of the following terms describes Angela's action? A) Concealment B) Conversion C) Warranty D) Indemnification

A) Concealment Angela's action is a concealment because she knowingly failed to disclose pertinent, material information on the application. The test of materiality of a concealed fact is whether the insurer, had it known the fact, would have been influenced in accepting or rejecting the risk. Reference: 1.10.2.9 in the License Exam Manual

Which of the following scenarios regarding individual retirement accounts (IRAs) is NOT correct? A) Peter is currently employed, but his spouse, Karina, is not. Since Karina has no earned income that she can contribute to a traditional IRA, Peter can set up a joint IRA account for the two of them. B) Ben, age 72, has a traditional IR If he does not take at least the minimum required distribution for the current year, a 50% excise tax will be assessed on the amount that should have been withdrawn. C) Walter is 60. He may take a distribution from his traditional IRA without having to worry about an early withdrawal penalty. D) June has accumulated $30,000 in her traditional IR At age 55, she withdraws $2,500 to take a vacation. She will have to include the $2,500 in her taxable income for the year and pay a $250 penalty.

A) Peter is currently employed, but his spouse, Karina, is not. Since Karina has no earned income that she can contribute to a traditional IRA, Peter can set up a joint IRA account for the two of them. For married couples, an individual IRA account must be set up for each person, even if only 1 spouse is working. Separate IRA accounts could be set up for Peter and Karina, but not a joint account. All of the other answer choices involve correct scenarios. Reference: 11.3 in the License Exam Manual

Which of the following statements about participating and nonparticipating life insurance policies is NOT correct? A) Policy dividends are considered taxable income. B) Participating policy premiums are normally slightly higher than nonparticipating policy premiums. C) Policy dividend payments cannot be guaranteed. D) An extra charge to cover unexpected contingencies is built into the premiums of participating policies.

A) Policy dividends are considered taxable income. The payment of policy dividends will vary from year to year and, therefore, cannot be guaranteed. Unlike corporate dividends, life insurance policy dividends are considered a return of part of the premiums paid and are not taxable income. A slightly higher premium is typically charged for participating policies than for nonparticipating policies because an extra charge to cover unexpected contingencies is built into premiums for participating policies. Reference: 6.6.1 in the License Exam Manual

Which of the following is NOT required in order to reinstate a lapsed permanent life policy? A) Submit an application for reinstatement within 4 years of the lapse B) Provide satisfactory evidence of insurability C) Pay all past-due premiums with interest D) Pay the premium for the reinstated policy

A) Submit an application for reinstatement within 4 years of the lapse While not a requirement, the insurer may ask the insured to submit an application for reinstatement within 3 years of the lapse. Reference: 7.4.10 in the License Exam Manual

Which of the following statements pertaining to executive bonus plans is CORRECT? A) The employee has access to the policy's living benefits. B) Premiums are paid by the employee. C) Death benefits are paid to the business. D) The business owns the life insurance policy.

A) The employee has access to the policy's living benefits. With an executive bonus plan, the business pays the premiums on the life insurance policy, in place of giving a yearly cash bonus. The employee owns the policy and has full access to its living benefits. The death benefit proceeds are paid to the employee's beneficiary. Reference: 3.5.3.3 in the License Exam Manual

Which of the following statements regarding key-person coverage is NOT correct? A) The key person designates the beneficiary. B) Premiums are paid by the business. C) The business owns the policy. D) The business is the beneficiary.

A) The key person designates the beneficiary. Key-person coverage exists to protect a company in the event that a key individual in the company dies. The business is the beneficiary on the policy and may use the insurance proceeds to offset financial losses, pay for attracting and training a replacement, or both. Reference: 3.5.3.2 in the License Exam Manual

Which of the following has the greatest impact in making one individual's life insurance premium different from that of another individual, assuming both own the same type of policy? A) The policy's mortality factor B) The policy's interest factor C) The policy's issue date D) The policy's expense factor

A) The policy's mortality factor Of the 3 basic premium factors, the mortality charge has by far the greatest impact in distinguishing one person's rate from another. Reference: 3.7.1 in the License Exam Manual

Which of the following statements regarding policy dividends is CORRECT? A) They are the difference between the gross premium charged and the actual experience of the insurer. B) They are not available to insureds after a specified age, such as 60. C) They are issued on nonparticipating policies. D) Though they may vary from year to year, they are guaranteed to be paid each year.

A) They are the difference between the gross premium charged and the actual experience of the insurer. Policy dividends issued on participating policies (policies in which the insureds may participate in the operating and investment results of the insurer) are a reflection of favorable operations, investment, or mortality results. They are never guaranteed. In fact, most states require life insurance proposals that contain dividend illustrations to state that future dividends are not guaranteed. Reference: 6.6.1 in the License Exam Manual

With respect to the regulation of variable contracts and those who sell them, which of the following statements is most accurate? A) Variable contracts and their distribution are regulated separately but in a fairly coordinated fashion between the Department of Insurance, the SEC, and FINRA. B) Variable contracts and their distribution are regulated exclusively by the Department of Insurance because state regulation supersedes federal regulation. C) Variable contracts and their distribution are regulated separately (often with conflicting regulatory demands) by the Department of Insurance, the SEC, and FINRA. D) Variable contracts and their distribution are regulated exclusively by the Securities Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) because federal regulation supersedes state regulation.

A) Variable contracts and their distribution are regulated separately but in a fairly coordinated fashion between the Department of Insurance, the SEC, and FINRA. Insurers that set up separate accounts to manage variable contracts must be licensed by the Commissioner and registered with FINRA. The Department of Insurance, the SEC, and FINRA regulate the sale of variable contracts separately, but in a fairly coordinated manner. . Reference: 4.7.1.4 in the License Exam Manual

An applicant determined by underwriting to be declined would be A) provided a counteroffer at a higher premium B) instructed to submit a new application for reconsideration C) uninsurable at any price D) offered reduced coverage by the insurer

C) uninsurable at any price A declined applicant is uninsurable at any price. This is a risk the insurer is unwilling to insure. Reference: 2.5.2.4 in the License Exam Manual

Paul is a single father with 2 young daughters. He has decided to give up his 2 favorite hobbies—skydiving and race car driving—because they are risky pursuits that could lead to his premature death. This method of dealing with risk is called A) risk avoidance B) risk transference C) risk retention D) risk sharing

A) risk avoidance Paul has chosen to deal with the risk of dying prematurely by giving up his 2 favorite hobbies, race car driving, and skydiving. This method of dealing with risk is called avoidance. Reference: 1.4 in the License Exam Manual

The needs approach can be used to determine all of the following EXCEPT A) the amount needed to replace the breadwinner's projected increasing annual salary B) the amount of income needed if the breadwinner dies C) the amount needed to pay for a child's education D) the amount needed to provide income for the surviving spouse's retirement

A) the amount needed to replace the breadwinner's projected increasing annual salary The needs approach to determine how much life insurance is needed is not limited to fulfilling objectives in the event of death only, such as final expenses and immediate debts that need to be paid. It also considers a family's (or business's) living needs, such as maintenance income for the family, providing for a child's education, and planning for the surviving spouse's retirement income. Replacement of the breadwinner's projected increasing annual salary is a factor that is taken into account when using the human life value approach to determine how much life insurance is needed. Reference: 3.5.2 in the License Exam Manual

With individual life insurance, all of the following would factor into the premium rate EXCEPT A) the insurer's reserves B) the insurer's expenses C) the applicant's mortality D) the insurer's interest earnings

A) the insurer's reserves Life insurance premium factors include interest earnings, expenses, and mortality. Reserves are funds set aside by the insurer for the payment of future claims and are not one of the premium elements. Reference: 3.7.1 in the License Exam Manual

During the accumulation period of a deferred variable annuity, the value of the individual account rises or falls based on A) the investment results B) the insurer's expenses C) the variable premiums D) the number of annuitants

A) the investment results During the accumulation period of a deferred variable annuity, the value of the individual account rises or falls based on the investment results of the annuity's underlying securities. Reference: 9.6.2 in the License Exam Manual

A primary difference between a SEP and an IRA is that A) the limit of money an employer is permitted to contribute to a SEP each year is higher than the limit for an IRA B) the amount contributed by an employer to a SEP is included in the employee's gross income C) the employer can contribute to an IRA but not to a SEP D) the amount an employer can contribute to a SEP is unlimited

A) the limit of money an employer is permitted to contribute to a SEP each year is higher than the limit for an IRA A SEP is an arrangement whereby an employee establishes and maintains an individual retirement account to which the employer contributes. Employer contributions are not included in the employee's gross income. A primary difference between a SEP and an IRA is the much larger amount that can be contributed each year to a SEP. The allowable limit for a SEP is much higher than that of an IR Reference: 11.4.4.6 in the License Exam Manual

A Notice to Applicant must be issued to the consumer no later than A) 3 days after completing the application B) 3 days after the report was requested C) 3 days after paying the initial premium D) 3 days after the policy has been issued

B) 3 days after the report was requested A Notice to Applicant must be issued to all applicants for life or health coverage. It notifies the applicant that a report regarding past credit history and previous insurance requests has been ordered. An agent must leave this notice with the applicant no later than 3 days after the report is requested. Reference: 2.7.1 in the License Exam Manual

Which of the following statements regarding the Fair Credit Reporting Act is TRUE? A) A Notice to Applicant is always issued within 3 days after the policy is delivered. B) A Notice to Applicant is required. C) Direct writers do not need to inform applicants about investigative reports. D) Third-party credit information may be given to insurers at any time.

B) A Notice to Applicant is required. All applicants must be informed that reports regarding their credit history are being ordered by an insurer. The Notice to Applicant must be given to the consumer no later than 3 days after the report has been requested. Reference: 2.7.1 in the License Exam Manual

With regard to insurable risks, which of the following statements is NOT correct? A) An insurable risk must be measurable. B) An insurable risk must involve loss that is within the insured's control. C) Only pure risks are insurable. D) Insurers will not insure risks that are catastrophic in nature.

B) An insurable risk must involve loss that is within the insured's control. To be insurable, a risk must involve the chance of loss that is fortuitous and outside the insured's control. Reference: 1.3 in the License Exam Manual

Sam applied for a term life insurance policy, paid the initial premium, and received a conditional receipt on December 1. If the insurer issued the policy on January 1 and the agent delivered the policy on January 3, the policy effective date is A) January 1 B) December 1 C) when the policy is delivered and a statement of continued good health is obtained D) January 3

B) December 1 Sam's policy effective date will be December 1, the date the conditional receipt was issued in exchange for his initial premium payment. If Sam didn't pay the initial premium at the time of application, the effective date would typically be the date the policy was issued by the insurance company. Reference: 2.4.8.1 in the License Exam Manual

In which of the following cases would the insurance company most likely cover the loss under a life insurance policy? A) While robbing a convenience store, Sam is killed by the accidental detonation of a homemade bomb. B) During a cross-country flight to a shareholders' meeting, Judy's commercial airliner suffers engine failure and crashes with no survivors. C) While on a night patrol, Andrea, a first lieutenant in the U.S. Army, is killed in a gun battle with the enemy. D) Graham is killed by a shark while scuba diving.

B) During a cross-country flight to a shareholders' meeting, Judy's commercial airliner suffers engine failure and crashes with no survivors. Exclusions for death resulting from commercial aviation are rarely found in modern life insurance policies. However, this exclusion was not uncommon when commercial aviation was a new means of transportation. Reference: 7.6.2 in the License Exam Manual

Which of the following federal acts governs the funding, vesting, administration, and termination of private pension plans? A) Medicare and Medicaid B) ERISA C) OASDI D) McCarran-Ferguson Act

B) ERISA The Employee Retirement Income Security Act of 1974 (ERISA) establishes minimum standards for most pension and health plans in the private sector to protect people who participate in these plans. ERISA entitles participants to information about their plans and charges plan managers with fiduciary duties to these participants. Reference: 11.5 in the License Exam Manual

Which of the following statements regarding 401(k) plans is CORRECT? A) Contributions are required by employers. B) Employees can make elective salary deferrals. C) Employers must match the first 5% of an employee's elective deferral. D) All employees must contribute by law.

B) Employees can make elective salary deferrals. Employees have the choice to make elective deferrals to their employer's 401(k) plan. Employees are not required to contribute, and employers are not required to offer matching contributions. Reference: 11.4.4.4 in the License Exam Manual

Rick purchased an annuity, making a single lump-sum payment on September 1st. His benefits began on October1st. What kind of annuity did Rick buy? A) Secondary B) Immediate C) Continual D) Deferred

B) Immediate Annuities can be classified as immediate or deferred, depending on when benefits begin. An immediate annuity begins benefit payouts 1 payment interval following the annuitant's initial payment to the company. Immediate annuities are always purchased with a single payment. In contrast, a deferred annuity begins benefit payouts after a period longer than 1 payment interval. Reference: 9.4 in the License Exam Manual

Which of the following statements about variable universal life insurance is NOT correct? A) It allows the insured to make withdrawals or to borrow from the policy during the insured's lifetime. B) It guarantees a minimum cash value in the investment account. C) It pays a death benefit to a named beneficiary and offers the insured tax-deferred cash value investment options. D) It offers flexibility in premium payments and face amounts dependent on investment performance.

B) It guarantees a minimum cash value in the investment account. While most variable universal life products allow the policyholder to control the investment mix in order to build substantial cash value, a minimum cash value is seldom guaranteed. The death benefit and the cash value of the policy fluctuate according to the investment performance of a separate account fund. Most variable life insurance policies guarantee that the death benefit will not fall below a specified minimum. Because the policyowner assumes investment risk under variable life insurance policies, these products are considered securities contracts. Reference: 4.7.2.2 in the License Exam Manual

Which of the following provides for an enhanced death benefit on a universal life policy? A) The cost basis B) Option B C) Option A D) The corridor

B) Option B Option B (or option 2) allows the cash value in the account to be added to the death benefit. For example, if a $100,000 policy has $25,000 of cash value, the beneficiary will receive $125,000. Reference: 4.6.2.2 in the License Exam Manual

Employees of which of the following generally may participate in a tax-sheltered annuity (TSA) plan? A) Professional sports teams B) Public school systems C) Professional partnerships D) Manufacturing plants

B) Public school systems Employees of nonprofit charitable, educational, and religious organizations may participate in tax-sheltered annuity (TSA) plans. Reference: 11.4.4.5 in the License Exam Manual

Which of the following statements pertaining to variable life insurance is CORRECT? A) In a variable life insurance policy, cash values and the death benefit are not guaranteed. B) Variable life insurance cannot be proposed in a sales situation unless the proposal is preceded or accompanied by a prospectus. C) With a variable life insurance policy, the insurance company assumes the investment risk. D) The benefits of variable life insurance vary according to the amount of premiums paid.

B) Variable life insurance cannot be proposed in a sales situation unless the proposal is preceded or accompanied by a prospectus. Because variable life insurance is considered a security, a prospectus must precede any sale of it. Reference: 4.7.2 in the License Exam Manual

Which of the following policies endows at age 100? A) Level term and whole life B) Whole life and limited-pay life C) Endowment and decreasing term D) Any endowment policy

B) Whole life and limited-pay life A policy endows when it reaches the point when the cash value equals the face amount. Endowment policies can endow at different ages. Whole life and limited-pay life policies endow at age 100. Term policies do not endow. Reference: 4.5.2.2 in the License Exam Manual

All of the following are annuity premium factors EXCEPT A) assumed interest rate B) medical history C) age D) sex

B) medical history Age, sex, and assumed interest rate are all annuity premium factors. Annuities do not require any medical underwriting for issuance. Reference: 9.5.1.6 in the License Exam Manual

Jake and Sue signed a contract in which Sue agreed to pay half of the life insurance proceeds to Jake if he murdered her estranged spouse. The contract between Jake and Sue would not be enforceable in court because A) the contract lacks consideration B) the contract lacks a legal purpose C) Jake could not legally accept the contract D) Jake and Sue are not considered competent parties

B) the contract lacks a legal purpose To be legally enforceable, a contract must have a legal purpose. This means that the goal of the contract and the reason the parties enter into the agreement must be legal. A contract wherein Jake agrees to kill Sue's spouse in exchange for half of the insurance proceeds would be unenforceable in court because the contract does not have a legal purpose. Reference: 1.10.1.1 in the License Exam Manual

Archibald surrenders a life insurance policy and receives a lump-sum cash payment of $32,000. His premium payments up to the time of surrender amounted to $26,000. How is the surrender treated for tax purposes? A) Archibald will receive $6,000 tax-free and will be taxed on his $26,000 cost basis. B) The full $32,000 is taxable as ordinary income. C) Archibald will receive his $26,000 cost basis tax-free and will be taxed on $6,000. D) The full $32,000 is received tax-free.

C) Archibald will receive his $26,000 cost basis tax-free and will be taxed on $6,000. Archibald will be taxed on the amount that exceeds the $26,000 he paid into the policy's cost basis. Reference: 10.3.1.3 in the License Exam Manual

Which of the following statements regarding group insurance is INCORRECT? A) Tax advantages are available to small employers in the same or similar industries who form trusts to provide insurance for employees. B) Two or more labor unions may join together to provide group insurance for collective members. C) Group insurance plans sponsored by a business are sometimes referred to as employer group plans. D) Group life insurance premiums are less expensive than premiums for individual insurance policies.

C) Group insurance plans sponsored by a business are sometimes referred to as employer group plans. Group insurance plans sponsored by a business are sometimes referred to as employee, not employer, group plans. Reference: 8.4 in the License Exam Manual

Which of the following statements about policy delivery is CORRECT? A) Policies cannot be mailed to agents for delivery to policyowners. B) Constructive delivery is not considered a legal means of delivering an insurance policy. C) Most insurers require agents to personally deliver the policy so that they can explain the policy's terms, exclusions, and riders. D) The insurer typically sends the policy directly to the policyowner.

C) Most insurers require agents to personally deliver the policy so that they can explain the policy's terms, exclusions, and riders. Some states and most insurers require policies to be delivered in person. This gives the agent a timely opportunity to review the contract and its provisions, exclusions, and riders with the insured. In addition, the agent's review helps reinforce the sale and builds the client's trust and confidence in the agent's abilities. Reference: 2.6 in the License Exam Manual

Which of the following statements regarding nonqualified annuities and their tax treatment is NOT correct? A) Interest earnings accumulate tax deferred and are taxed when distributed. B) Nonqualified annuities are LIFO contracts, meaning that the last money credited (interest earned) is the first money distributed in a withdrawal. C) Premiums are tax deductible. D) The 10% early withdrawal tax penalty is waived if the owner is disabled.

C) Premiums are tax deductible. Nonqualified annuities are funded with after-tax dollars that accumulate tax deferred until distributions occur. Those distributions are on a LIFO basis. If a contract is annuitized, part of the distribution will be returned as principal. Reference: 10.3.5.1 in the License Exam Manual

What action will an insurer take if it learns that a deceased life insurance policyholder was actually older than the insurer had believed? A) The face amount will be increased to reflect the proper amount based on the correct age. B) The face amount will be paid to the beneficiary and the employer will be required to pay the additional premiums owed. C) The face amount will be lowered to reflect the proper amount based on the correct age. D) The insurer cannot take any action.

C) The face amount will be lowered to reflect the proper amount based on the correct age. According to the misstatement of age provision in a life insurance contract, if the insured's age was misstated on an application, any amount payable under the policy will be determined according to how much coverage the premium would have purchased for the correct age. Consequently, if a deceased life insurance policyholder was actually older than the insurer had believed, the insurer can lower the face amount to reflect the proper amount based on the insured's correct age. Reference: 7.4.13 in the License Exam Manual

A nonprofit organization with a representative form of government and an elected officer that sells life insurance only to its members would be considered A) a risk retention group B) a service insurer C) a fraternal benefit society D) a home service insurer

C) a fraternal benefit society To be characterized as a fraternal benefit society, the organization must have a lodge system that may include charitable work. Insurance programs are operated under a special section of the state code, and fraternals receive some income tax advantages. Reference: 1.6.3 in the License Exam Manual

An unincorporated group of subscribers who operate through an attorney-in-fact to provide indemnity insurance for each other is called A) a fraternal benefit society B) a surplus lines insurer C) a reciprocal exchange D) an unauthorized insurer

C) a reciprocal exchange A reciprocal exchange is a type of cooperative insurance. Under this form of insurance, each policyowner is insured by all of the others. Each insured is also an insurer, because contracts are exchanged on a reciprocal basis. A reciprocal is managed by an attorney-in-fact. Reference: 1.6.4 in the License Exam Manual

Annuity buyers who want their product to be supported by the insurers' general accounts would most likely be looking for interest returns that A) can go up but can never go down B) will keep pace with inflation C) are guaranteed never to be less than the rate specified in the contract D) can compete with equity investment returns

C) are guaranteed never to be less than the rate specified in the contract Life insurance and annuity policies that are supported by the insurer's general account include a provision that guarantees interest returns to never be less than the rate specified in the contract. Reference: 9.6 in the License Exam Manual

All of the following policyowner rights contribute to the flexibility of a life insurance policy EXCEPT A) beneficiary selection B) nonforfeiture options C) classification of the applicant D) settlement options

C) classification of the applicant Nonforfeiture options provide help when the insured no longer wants to pay premiums. Settlement options offer a choice of how proceeds will be paid. Choosing and changing the beneficiary is a right of the policyowner. Classifying the applicant according to her risk is the right of the insurer. Reference: 7.4.3 in the License Exam Manual

The parties to an insurance contract must act in utmost good faith, which means that both the agent and the applicant A) agree to transact insurance business B) always arrive on time for meetings C) make no attempt to deceive each other D) work together to find insurance for the lowest possible price

C) make no attempt to deceive each other Both the policyowner and the insurer must know all material facts and relevant information. There can be no attempt by either party to conceal, disguise, or deceive. A consumer purchases a policy largely on the basis of what the insurer and its agent claim are its features, benefits, and advantages. An insurer issues a policy primarily on the basis of what the applicant reveals in the application. Reference: 1.10.2.3 in the License Exam Manual

When a life insurance beneficiary is revocable, A) the policyowner and the beneficiary share ownership of the policy B) the policyowner is limited with respect to how many times he can change the beneficiary during the policy's term C) the policyowner can change that beneficiary at any time with written notice D) the policyowner may only change the beneficiary with the beneficiary's consent

C) the policyowner can change that beneficiary at any time with written notice When beneficiaries are revocable, the policyowner may change this designation at any time. The policyowner also retains complete ownership of the policy and may change the beneficiary any number of times during the policy's term. A revocable beneficiary has no vested claim in the policy or its proceeds while the insured is living. Reference: 7.5.4 in the License Exam Manual

Brian, a 45-year-old general contractor, wants financial protection for his family while $300,000 of his assets are tied up in a building project for the next 5 years. Which of the following types of life insurance policies would give him that protection at the lowest cost? A) Straight whole life B) Single premium whole life C) Life paid-up at 50 D) 5-year level term

D) 5-year level term Level term insurance provides a level face amount of coverage for the term of the policy. Because it covers a specified term only and does not have a cash value, it is cheaper than whole and limited-pay (including single premium) life insurance. Because the $300,000 amount remains level, level term insurance is the recommended insurance product for Brian. Reference: 4.4 in the License Exam Manual

Gerald, a 40-year-old building contractor, wants financial protection for his family while $150,000 of his assets are tied up in a building project for about 5 years. Which of the following types of life insurance policies would give him that protection at the lowest cost? A) Single premium whole life B) Straight whole life C) Life paid-up at 45 D) 5-year level term

D) 5-year level term Level term insurance provides a level face amount of coverage for the term of the policy. Because it covers a specified term only and does not have a cash value, it is cheaper than whole and limited-pay (including single premium) life. Because the $150,000 amount remains level in this situation, level term insurance is best suited to Gerald's needs. Reference: 4.4.3.1 in the License Exam Manual

Cybil is insured under a key-person life insurance policy owned by Delta Corporation and then quits her job. Which of the following statements is NOT correct? A) Delta can assign the policy. B) Delta can keep the policy in force. C) Delta can surrender the policy for cash. D) Cybil can convert the policy to an individual policy.

D) Cybil can convert the policy to an individual policy. If Cybil leaves Delta Corporation, the company can surrender the policy for cash, assign the policy, or keep it in force because there is no need to maintain an insurable interest. Cybil has no conversion right with respect to the key-person policy because she does not own the policy. Reference: 3.5.3.2 in the License Exam Manual

Joe buys his first home after obtaining a 30-year mortgage from his bank. He is considering the purchase of life insurance to ensure that the mortgage will be paid in the event of his death, in which case he will leave the house to his spouse and children. What would be the best life insurance protection for Joe? A) Universal life B) Level term C) Whole life D) Decreasing term

D) Decreasing term Decreasing term insurance is the best policy for Joe to buy. It addresses his need for protection that will decline from year to year. This would be a good choice to insure the declining balance on a home mortgage. Reference: 4.4.2.2 in the License Exam Manual

Malia purchases a $50,000 5-year level term policy. Which of the following statements about Malia's coverage is NOT correct? A) If Malia lives beyond the 5 years, the policy expires and no benefits are payable. B) The policy provides a straight, level $50,000 of coverage for 5 years. C) If Malia dies at any time during the 5 years, her beneficiary will receive the policy's face value. D) If Malia dies after the specified 5 years, only the policy's cash value will be paid.

D) If Malia dies after the specified 5 years, only the policy's cash value will be paid. If the insured lives beyond the 5-year period, the policy expires and no benefits are payable. There are no cash values in term policies. Reference: 4.4.1 in the License Exam Manual

Which of the following statements regarding the tax treatment of distributions from an individually owned, nonqualified, deferred annuity is NOT correct? A) If the contract owner makes a partial surrender, the amount withdrawn is treated first as a taxable distribution of gain (LIFO). B) An owner of a deferred annuity who annuitizes the contract will receive the basis tax-free. C) If the contract owner is younger than age 59½, a partial surrender may be subject to a 10% penalty in addition to ordinary income taxation. D) If the distribution is the result of the annuity contract owner's death, the cash value payable to the beneficiary is income tax-free.

D) If the distribution is the result of the annuity contract owner's death, the cash value payable to the beneficiary is income tax-free. There are no tax-free death benefits associated with annuities, as there are with life insurance. The portion of the cash value death benefit that constitutes gain is subject to income taxation whenever distributed. Reference: 9.4 in the License Exam Manual

Suppose a whole life insurance policy was issued on August 3. On August 31, two years later, the insured committed suicide. What action will the insurer probably take? A) Pay the policy's face amount minus premiums paid B) Return all premiums paid plus interest C) Return all premiums without interest D) Pay the policy's face amount

D) Pay the policy's face amount Since the policy was in effect beyond the 2-year suicide clause period, the insurer is obligated to pay the face amount of the policy. Reference: 7.4.12 in the License Exam Manual

Upon the insured's death, which of the following policies will pay the face amount of the policy plus a sum equal to all or a portion of the premiums paid? A) Adjusting benefit policy B) Cost-of-living policy C) Guaranteed dividend policy D) Return-of-premium policy

D) Return-of-premium policy Return-of-premium policies promise to pay the policy face amount plus a sum equal to all or a portion of the premiums paid. Reference: 5.7.2 in the License Exam Manual

AGC Publishing applied for key-person life insurance on its chief executive officer. Which of the following parties must sign the application? A) An officer of AGC and the agent handling the application B) The CEO and another officer of AGC C) The CEO and the agent handling the application D) The CEO, another officer of AGC, and the agent handling the application

D) The CEO, another officer of AGC, and the agent handling the application Each life insurance application requires the signatures of the proposed insured and the agent who solicits the application. If the policyowner is a firm or corporation, one or more partners or officers other than the proposed insured must sign the application. As a result, the CEO, another officer of AGC, and the agent handling the application must all sign the insurance application. Reference: 2.4.5 in the License Exam Manual

Which of the following statements about accelerated living benefits is NOT correct? A) They allow access to the policy's face value. B) They are provided at no additional cost to the policy owner. C) They are standard in life insurance policies. D) The proceeds must be spent on the insured's medical expenses.

D) The proceeds must be spent on the insured's medical expenses. Accelerated benefit provisions are standard in life insurance policies and are included at no additional cost to the policyowner. They allow access to the policy's face value if the insured suffers from a terminal illness or injury. (The death benefit, less any accelerated payment, is still payable.) The insured can spend the proceeds in any manner. Reference: 5.5.1 in the License Exam Manual

With regard to substandard life insurance risks, which of the following statements is CORRECT? A) To provide coverage to substandard risks, insurers are allowed to charge an extra premium; however, they cannot alter benefit periods or waiting periods. B) An applicant can be deemed a substandard risk based on physical condition only; no other criteria may be considered. C) Because of stringent underwriting requirements, most life insurance applicants are classified as substandard risks. D) When the applicant represents a substandard risk, the policy may be modified to reduce the benefits provided.

D) When the applicant represents a substandard risk, the policy may be modified to reduce the benefits provided. To take into account the above-average exposure involved with a substandard risk, insurers may charge a higher premium or make an adjustment in regard to the benefits involved. An individual can be deemed a substandard risk based on physical condition, occupation, or moral hazards (risky habits). For most insurers, substandard or declined risks represent a small percentage of applicants. Reference: 2.5.2 in the License Exam Manual

Herb and Felicia have been married for several years and are interestedin increasing their life insurance protection as their family grows. Herb is a lawyer with a midsized firm. Felicia is a freelance writer of childrenâ™s books. In planning for the future, when might they expect that their family will have its greatest need for income should one of them die? A) If Herb is diagnosed with a terminal illness B) When the children move away from the home and are self-supporting C) If Felicia survives Herb and lives to an old age D) While the children are in elementary school

D) While the children are in elementary school The greatest need the survivor might have is when the children are young. Cash needs for paying the mortgage and bills, as well as saving money for college educations may be met through purchasing adequate amounts of life insurance. Reference: 3.5.2.1 in the License Exam Manual

When credit life or health insurance is required to secure a debt, the debtor must A) have the option of buying federal government credit coverage through the Social Security Administration B) purchase the required coverage from the loan institution's insurer C) buy required coverage directly from the loan institution itself D) have the option of getting required coverage from existing coverage or from any authorized insurer

D) have the option of getting required coverage from existing coverage or from any authorized insurer If a creditor requires credit life or health insurance as additional security on a debt, the debtor must be given the option of furnishing the required insurance through existing coverage owned by the debtor or by purchasing coverage from any authorized insurer. Reference: 8.12 in the License Exam Manual

The type of risk that involves the chance of both loss and gain is A) pure risk B) whole risk C) impure risk D) speculative risk

D) speculative risk Speculative risk involves the chance of both loss and gain. For example, the placement of a bet at a racetrack is a speculative risk. Reference: 1.3 in the License Exam Manual