Practice Exam 4

Which of the following is false regarding the taxation of life insurance?

A) Annuity death benefits are totally exempt from taxation.

In the life insurance planning process, the "blackout period" is considered:

C) The period of time when a surviving spouse does not receive any social security benefits.

Choose the correct statement about the ten-day free look provision in a life insurance policy:

A) 1 only

Settlement options provide a number of choices relating to how death benefits can be paid by the insurer. These choices:

A) 1, 2 and 3

The owner of a non-pair whole life policy never misses a payment, never borrows from the policy's cash value and finally reaches the age of 100. What cash value is this person entitled to in comparison to the face amount?

A) 100% of the cash value which is now the same as the face amount.

An additional amount of premium used to pay for an accidental death benefit provision does not increase the cash value of the policy: True or False?

True

An irrevocable beneficiary has certain rights to policy proceeds not shared by revocable beneficiaries. For example, an irrevocable beneficiary must grant permission for the policy owner to borrow from the cash value: True or False?

True

The master policy owner of a group insurance policy is responsible for paying the premiums, submitting information about the employees, forwarding the applications to the insurer and maintaining the policy: True or False?

True

Jerry is using a new time management technique in his insurance sales presentation. In order to cut the amount of time he spends at each appointment, he no longer answers questions when they are first asked. Instead, he answers them only if they are asked twice. He feels this will allow him to get to his next meeting quicker. Most insurance professionals would consider this:

A) An unethical practice

A type of contract, which is considered a savings instrument used for accumulating investment funds for the purpose of eventually receiving those through a systematic program of withdrawal is a/an:

A) Annuity

Select the incorrect statement from the choices below concerning insurance applications:

A) Before the insurer can issue the policy, the beneficiary must acknowledge any changes by providing his/her original initial.

Oscar owns a whole life policy that he has been paying into for many years. He would like to continue having life insurance, and can afford to make the premium payments, but needs about 30% of the cash value for a couple of years. What would be the best course of action for Oscar to take?

A) Continue making the premium payments to keep the contract in force and borrow from the cash value.

Which of these statements with regard to the tax treatment of life insurance is true?

A) Death benefits are generally exempt from taxation.

Which of the following supports the Medical Information Bureau?

A) Insurance Companies

One of the provisions commonly found in life insurance is the "misstatement or age" clause. If the age of the insured is in error but not discovered until much later, the insurance company will:

A) Make an adjustment to the face amount to properly reflect the premiums that have been paid.

In life insurance policies, naming beneficiaries is an important part of the application process. Choose from below the best description of a contingent beneficiary:

A) One with the first right to receive proceeds if there is no surviving primary beneficiary and the insured dies.

Which of the following is not a legal activity in this state?

A) Participating in a plan to offer free insurance of a person buys some form of service.

Harold, a variable annuity applicant, does not request the premium be invested in a stock or bond portfolio during the cancellation period. The policy is returned to the company within the cancellation period. What is Harold entitled to receive?

A) The entire premium.

Which of the following is true regarding the government social insurance program known as Social Security?

A) The majority of workers in the U.S. must pay into the program.

Which of the following is false about dividends paid from life insurance-policies? A dividend is:

A) Treated as a return of excess premium paid by the owner and is therefore taxable.

A binding receipt issued on the sale of a life insurance policy becomes effective from the date the receipt is given no matter what the insurability of the applicant. True or False?

A) True

Decreasing term insurance is frequently used to pay the unpaid balance of a mortgage upon death of the mortgage holder: True or False?

A) True

Generally, it is unfair to discriminate against any one class of individuals in the business of insurance. However, the code does permit the charging of a higher premium if such premiums can be supported by mortality tables segregated by sex (gender): True or False?

A) True

Patrick has been diligent in investing money for his retirement. He has managed to put $100,000 of after-tax money into a tax-deferred annuity. Now he is ready to take it out, and the insurance company that issued the annuity says his guaranteed payment is $8,000 a year for the rest of his life. This means he can expect a total amount of $200,000 back over his life. How much of each year's annuity payment is taxable?

B) $4,000

From the following, identify that which constitutes the "entire contract" in a life insurance policy. The Policy:

B) And a copy of the application when attached.

Employees that have group life policies covering them are required to be issued a ___________________.

B) Certificate of Insurance

Many insurance policies issued contain a common disaster provision. The provision is designed to protect:

B) Contingent Beneficiaries

Jennifer has reached a time in her life where she wishes to begin receiving payments from her tax-deferred annuity. Her agent has suggested she take the money by means of the "Life income with 10 years certain" option. When she does, the insurer will make payments:

B) For at least 120 months or the remainder of her life.

Juan has been named an an irrevocable beneficiary in a life insurance policy. Juan, therefore:

B) Has vested rights to the policy proceeds that, unless he gives consent, cannot be affected by the policy owner nor any creditors

Select the correct statement about the social security system:

B) It is only meant to be a supplement to an individual's major income; it only supplies a minimum floor of income.

What does the incontestable clause of a life insurance policy do?

B) It keeps the insurer from canceling the policy if, after two years, there is a discovery of error, concealment, or misstatement by the policy owner.

Fran is comparing life insurance available through her employer and an independent life-only agent. Her employer provides automatic coverage and requires (More/Less) medical information than the life-only agent?

B) Less

Variable life insurance policies and variable annuities are primarily governed by which agency?

B) SEC

Charles received a large inheritance from his uncle's estate. Because he can use the income, he buys an annuity with the full amount of his inheritance that will begin paying him monthly payments starting the following month. Charles has purchased a/an ____________ annuity.

B) Single Premium Immediate

Choose the payments from an insurance policy which are not subject to federal income taxes:

B) The death benefit paid to a beneficiary in a lump sum.

From the examples below, choose the one that gives the best description of a reduced paid-up non-forfeiture option:

B) The insured decides to cease paying premiums on his $100,000 cash value policy. He uses the cash value to buy a paid-up policy of $40,000 face amount.

Frequently, juvenile life policies contain a payor rider. This rider states that in the event the payor of premiums is disabled or dies, and the juvenile has yet to reach a specific age:

B) The premiums will be paid by the insurer until the child reaches the age of 21 or 25.

All of the following are reasons for an individual to purchase personal life insurance, except:

B) To cover a buy/sell agreement.

Beth wants to purchase more life insurance through her current policy. She calls you, the agent, and asks your opinion. You know Beth has a guaranteed insurability rider on the policy. She can buy more insurance:

B) Without the need to prove insurability on her life at specific ages.

Choose the best beneficiary designation for the following case: The children are to receive equal shares of the benefit. If any of the children die before the insured does, the insured wishes the remaining children receive the deceased child's share equally divided among them:

B) per capita

There are four basic classes of life insurance. All of the selections listed below are regarded as ordinary insurance, except:

C) A group life insurance policy.

When applying for insurance, there is usually the owner of the contract, the insured and the applicant. They may be:

C) Both 1 and 2

Inflation can have a tremendous eroding effect on the purchasing power benefits that are received from a disability income policy. What type of supplementary benefit rider can be used by the insured to offset the effects of inflation?

C) Cost of living adjustment rider

When premiums are paid into a universal life insurance policy, insurers must make certain adjustments to the cash value. The company will add the current premium paid, and:

C) Deduct for expenses and mortality costs, then add current interest.

From the description below, identify which one is a term policy:

C) Each year the premium increases as the insured grows older. After several years the coverage and premiums end simultaneously. Cash value is not created.

Which of the following cannot legally be used when determining premium rates for life insurance?

C) Nationality.

If the owner of a life insurance policy elects to pay an annual premiums, they will:

C) Pay less as compared to paying premiums every 6 months

Choose the correct statement about a cost of living rider. The policy owner:

C) Pays an additional premium for the extra protection the rider provides and will see the face amount of the contract increase according to the increase of the index.

Bill holds two jobs. If Bill were to apply for an insurance policy and the insurer reviews the risk exposure based on his occupation, which of the following would the insurer most likely use to classify him? The job:

C) That represents the highest hazard.

In an overall comparison of a savings account and a tax-deferred annuity, where the savings account and annuity both pay the same interest, on the same principal amount, and for the same period of time, which will generate the highest return on investment dollars?

C) The annuity will pay more because of the tax deferral qualities it has.

Identify the statement that is true about contributory group life insurance:

C) The employee will contribute to the premium payments.

Insurance companies have several departments handling various responsibilities in the issuance of policies. Which department is primarily involved with the selection of risks?

C) The underwriting unit

The dividends and cash value continue, and all features of the policy remain in force, even though the insurance company, not the owner, is making the premiums. This is a description of a _____________ rider.

C) Waiver of premium

When an insured becomes totally and permanently disabled, her condition triggers a provision that keeps the policy in force even though the insured stops making premium payments. This is a:

C) Waiver of premium provision

The California Insurance Code contains very specific regulations regarding the ability of a senior citizen to return a life insurance policy or annuity. The regulation:

D) 2 only

Which of the following is not an acceptable risk to the underwriting department of an insurance company?

D) All are acceptable risks.

Every Licencee must indicate on which of the following documents his or her licence number?

D) All of the above

Select the policy riders frequently found in life insurance policies:

D) All of the above.

Survivorship life or second-to-die policies:

D) Both 1 and 2

Frank is an eligible employee who wishes to participate in group insurance. To get this coverage without having to provide the insurer with evidence of insurability, Frank must:

D) Enroll for insurance during the eligibility period.

When any change in residence occurs, every licencee and every applicant for a licence must notify the Commissioner ......

D) Immediately

All of the following are examples of the dividend options available on a whole life insurance policy, except:

D) Life income with period certain.

If no other selection is made, which of the following settlement options becomes the default or automatic mode of settlement for the death benefit of a life insurance policy?

D) Lump sum in cash

When the public purchases annuities, they are attempting to address the risk of:

D) Outliving the money they have saved for retirement.

What type of life insurance policy gives the owner the right to share in the insurer's profits in the form of a dividend?

D) Participating policy

All of the following are used in determining life insurance rates, except:

D) Policy reserves.

According to the terms of the suicide clause found in a life insurance policy, if an insured commits suicide within six months after the policy is issued, what will the insurer do?

D) Refund all the premiums paid.

All of the following are true regarding a policy owner that ceases making premium payments on a 10-pay life policy and selects the extended term insurance option, except:

D) The extended term policy will reflect the same cash value as the original policy.

Assume two people apply for life insurance with exactly the same monthly premiums. One individual buys a whole life policy, and the other, a 10 year renewable term plan. Both are standard risks with no difference in their ages or health ratings. Select the statement from below which is false:

D) The whole life policy will pay a higher amount to the beneficiary should the insured die within the first 10 years.

Why would a business use a key person life insurance policy?

D) To protect the company from the financial consequences of the death of a vice-president.

An agent makes a misleading comparison of a policy he is selling in order to convince a prospect to lapse an old insurance policy. What is this called?

D) Twisting

An annuity which may be used to help fund retirement in a few years maintains a "separate account". The owner purchases "accumulation units." This is called a _________ annuity:

D) Variable

A policy owner makes the last premium payment on his $250,000 non-par whole life policy today. The owner is 70 years of age. When will the cash value reach $250,000?

D) When he reaches the age of 100

A family life insurance policy that provides coverage for children may be converted to permanent insurance for children, but evidence of insurability is required: True or False?

False

When the insured of a non-participating paid-up-at-age-65 life insurance policy attains the age of 65, the cash value will equal the face amount: True or False?

False