primerica exam 6
d)Survivor protection, estate creation and conservation, cash accumulation and liquidity Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity.
#54. What are the personal uses of life insurance? a)Insured protection, estate creation and cash accumulation b)Cash accumulation, estate depletion and liquidity c)Beneficiary protection, liquidity, estate creation and cash accumulation d)Survivor protection, estate creation and conservation, cash accumulation and liquidity
d)Loss Claims result from losses by a peril insured against in an insurance policy.
#7. Which of the following is the basis for a claim against an insurance policy?a)Material change b)Hazard c)Misrepresentation d)Loss
b)Benefit payment amounts are not guaranteed. Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent's license.
45. Which of the following is a feature of a variable annuity? a)Securities license is not required. b)Benefit payment amounts are not guaranteed. c)Payments into the annuity are kept in the company's general account. d)Interest rate is guaranteed.
b)The larger the group. According to the Law of Large Numbers, the larger a group becomes, the easier it is to predict losses. Insurers use this law in order to predict certain types of losses and set appropriate premiums.
30. A group's reported losses are more likely to become equal to the statistical probability of loss, a)The more active the group. b)The larger the group. c)The smaller the group. d)The older the group
a)They earn lower interest rates than fixed annuities Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
47. Which of the following is NOT true regarding Equity Indexed Annuities? a)They earn lower interest rates than fixed annuities. b)The insurance company keeps a percentage of the returns. c)They have guaranteed minimum interest rates. d)They are less risky than variable annuities.
b)Policy summary A policy summary describes the features and elements of the specific policy for which a person is applying.
4. What describes the specific information about a policy? a)Producer's report b)Policy summary c)Illustrations d)Buyer's guide
a)Survivor Juvenile protection provision The death of a primary wage earner(s) in a family can be devastating. Survivor Protection planning helps to assess the needs, assets, and liabilities of the survivors in order to determine how to best care for them in the event of the primary wage earner's death.protection
#56. An insurer is helping a married couple determine their children's needs, assets, and liabilities, in the event that one or both of the spouses should die. What is the term most closely associated with this? a)Survivor protection b)Life planning c)Survivorship insuranced)
c)50% If there are no distributions at the required age, or if the distributions are not large enough, the penalty is 50% of the shortfall from the required annual amount
43. What is the penalty for IRA distributions that are below the required minimum for the year? a)10% b)25% c)50% d)60%
a)Seek higher returns. Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.
61. Equity indexed annuities a)Seek higher returns. b)Are more risky than variable annuities c)Are security instruments. d)Invest conservatively.
d)Target premium The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime
#84. Which of the following would help prevent a universal life policy from lapsing? a)Face amount b)Adjustable premium c)Corridor of insurance d)Target premium
b)The annuitant assumes the risks on investment. The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds". Therefore, the annuitant assumes the risk of the investment
#87. Which of the following is true regarding variable annuities? a)A person selling variable annuities is required to have only a life agent's license. b)The annuitant assumes the risks on investment. c)The funds are invested in the company's general account. d)The company guarantees a minimum interest rate.
c)The same face amount as in the whole life policy Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.
#89. Under an extended term insurance policy, the policy cash value is converted to a)A lower face amount than the whole life policy b)A higher face amount than the whole life policy c)The same face amount as in the whole life policy d)The face amount equal to the cash value
c)Monthly If the policyowner chooses to pay the premium more frequently than annually, there will be an additional charge (loading) because the company will not have the premium to invest for a full year, and the company will have additional expenses in billing the premium.
#90. Which of the following premium modes would result in the highest annual cost for a Life Insurance Policy? a)Semi-annual b)Annual c)Monthly d)Quarterly
d)Universal life The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium for the first time in the policy of the following is a statement that is guaranteed to be true
#98. A life insurance policyowner skips her premium payment, but the policy does not lapse. Instead, the premium amount is deducted from the cash value of the policy. What type of policy is this? a)Variable life b)Adjustable life c)Whole life d)Universal life
b)Participants in the policy each receive a policy. Participants receive a certificate of insurance, but the sponsor, not the participants, is in control of the policy.
#58. All of the following statements are true regarding group insurance EXCEPT a)Small groups such as labor unions are eligible for group insurance. b)Participants in the policy each receive a policy. c)The group sponsor is the policyholder. d)Participants in a group insurance plan are issued certificates of insurance.
b)Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values.
53. What does "liquidity" refer to in a life insurance policy? a)The insured is receiving payments each month in retirement. b)Cash values can be borrowed at any time. c)The death benefit replaces the assets that would have accumulated if the insured had not died. d)The policyowner receives dividend checks each year.
c)Death benefits for any reason Annuities are most commonly used to fund a person's retirement, but they can technically be used to accumulate cash for any reason. Annuities can also be used to liquidate an estate. Annuities do not provide death benefits; those are provided by life insurance.
69. Which of the following are NOT fundable by annuities? a)A person's retirement b)Estate liquidation c)Death benefits d)Cash accumulation
c)Pure risk and speculative risk. Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.
55. The risk of loss may be classified as a)Named risk and un-named risk. b)High risk and low risk. c)Pure risk and speculative risk. d)Certain risk and uncertain risk.
c)Estimate market conditions for the life of the policy Some insurers tie their current interest rates to Treasury Bills, while others maintain a specified spread (profit margin) between the interest that they credit on their in-force policies and the interest that they are earning on their own investment portfolio. Some insurers have their current interest rate declared by the company's board of directors each year,
#40. Which of the following is NOT a way to determine the interest rate in a Universal Life Policy? a)Tie current interest rates to Treasury Bills b)Maintain a profit margin between the interest credited on in-force policies and the interest earned on their own investment portfolio c)Estimate market conditions for the life of the policy d)Declare the annual rate by the company's board of directors
b)The recommended amount to keep the policy in force throughout its lifetime to make sure the policy is annually renewable The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
#74. Which of the following best defines target premium in a universal life policy? a)The corridor of insurance b)The recommended amount to keep the policy in force throughout its lifetime c)The maximum amount the policyowner may pay on a policy d)The minimum amount
c)Beneficiary's age To ensure suitability of annuity products, producers must obtain relevant information about the consumer's age, income, financial status, tax status, financial experience and objectives. Beneficiary's age is not a suitability factor.
20. All of the following information about a customer must be used in determining annuity suitability EXCEPT a)Financial experience. b)Annual income. c)Beneficiary's age. d)Tax status.
b)Taxation on accumulation Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.
25. All of the following would be different between qualified and nonqualified retirement plans EXCEPT a)IRS approval requirements b)Taxation on accumulation c)Taxation of withdrawals d)Taxation of contributions
c)It provides temporary protection. Level term insurance is the most common type of temporary protection purchased.
28. Which of the following is true regarding a level term insurance policy? a)It charges the lowest premiums of all term insurance policies. b)Death benefit is paid out to the beneficiary if the insured dies after the premium paying period ends. c)It provides temporary protection. d)The premium remains level, but the death benefit could be increased or decreased.
d)Illegal under any circumstances When a company criticizes the financial situation of another company, with the intention of injuring that company, it has committed an illegal trade practice called "defamation."
#57. An insurer publishes intimidating brochures that portray the insurer's competition as financially and professionally unstable. Which of the following best describes this act? a)Legal, provided that the information can be verified b)Illegal until endorsed by the Guaranty Association c)Legal, provided that the other insurers are paid royalties for the usage of their names d)Illegal under any circumstances
d)At the end of 20 years, the policy's cash value will equal $100,000. Term policies do not develop cash values. All the other statements are true.
#59. Which of the following would NOT be true regarding a $100,000 20-year level term policy? a)The policy premiums will remain level for 20 years. b)If the insured dies before the policy expired, the beneficiary will receive $100,000. c)The policy will expire at the end of the 20-year period. d)At the end of 20 years, the policy's cash value will equal $100,000.
d)A provision that allows the effective date of the policy to be backdated up to 8 months in order to effect a lower premium rate for the insured A life insurance policy may be backdated up to 6 months in order to effect a lower premium rate for the insured.
2. Which of the following provisions would not be allowed as a part of a life insurance policy issued in Michigan? a)A provision that allows for a settlement option that is equal to the face amount of the policy b)A provision that allows the insurer to cancel the policy for nonpayment if the amount of a policy loan, plus interest, exceeds the existing cash value of the policy c)A provision that allows the policyowner to initiate a legal action against the insurer within 6 years after the cause of action d)A provision that allows the effective date of the policy to be backdated up to 8 months in order to effect a lower premium rate for the insured
d)A copy of the original application for insurance. An insurance contract must contain a copy of the original application
#83. To meet the Entire Contract provision, a policy must contain a)A declarations page with a summary of insureds. b)Buyer's guide to life insurance. c)Listing of the insured's former insurer(s) for incontestability provisions. d)A copy of the original application for insurance.
a)Other-insured rider. The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance
#88. A rider attached to a life insurance policy that provides coverage on the insured's family members is called the a)Other-insured rider. b)Change of insured rider. c)Juvenile rider. d)Payor rider.
b)3 years The insurer must keep a copy of all the documents related to the replacement transaction for 3 years, or until the next examination by the Commissioner.
13. When replacing a policy, how long must an insurer maintain the documents related to the replacement? a)1 year b)3 years c)5 years d)6 months
b)Participants in the policy each receive a policy. Term policies do not develop cash values. All the other statements are true.
#59. Which of the following would NOT be true regarding a $100,000 20-year level term policy? a)The policy premiums will remain level for 20 years. b)If the insured dies before the policy expired, the beneficiary will receive $100,000. c)The policy will expire at the end of the 20-year period. d)At the end of 20 years, the policy's cash value will equal $100,000.
c)Size of each installment The size of each installment determines the length of time that benefits are received under the Fixed Amount settlement option. It logically follows that larger installments translate into shorter benefit periods
#75. Which of the following determines the length of time that benefits will be received under the Fixed Amount settlement option?a)Length of income period b)Amount of interest c)Size of each installment d)Predetermined length of time stipulated in the contract
b)Insures the life of a debtor. Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor.
16. Credit Life insurance a)Has a maximum term for insurance of 20 years. b)Insures the life of a debtor. c)Is purchased on an installment basis. d)Insures the life of a creditor.
d)$9,800 In this scenario death occurred within the mandatory 30 day grace period. Past due premium would be subtracted from the face amount of the policy.
24. Lyle has a $10,000 term life policy. He paid his annual premium on February 1. Lyle fails to renew the policy and dies on February 28 of the following year. Accounting for the $200 of earned premium, how much will the beneficiary receive from Lyle's insurance company? a)$200 b)$0 c)$10,000 d)$9,800
d)Highest All other things being equal, of the three primary types of term insurance sold, level term has the highest premiums.
82. In comparison with the other primary types of term insurance sold, what kind of premium does level term have? a)Most inconsistent b)Lowest c)Most level d)Highest
c)The insurer will pay the full death benefit from the group policy to the beneficiary. The employee usually has a period of 31 days after terminating from the group in order to exercise the conversion option. During this time, the employee is still covered under the original group policy.
#15. An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen? a)The insurer will pay the death benefit minus one month's premium. b)The insurer will pay nothing because the employee has terminated his group insurance and hasn't started the individual one. c)The insurer will pay the full death benefit from the group policy to the beneficiary. d)The insurer will pay a reduced death benefit to the beneficiary.
a)Universal life The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.
#36. A life insurance policyowner has the flexibility to increase the amount of premium and then decrease it at a later date. The person is also allowed to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount. What type of policy is this? a)Universal life b)Flexible life c)Variable life d)Adjustable life
a)Funds exceeding the premium paid are taxable as ordinary income The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.
#77. Which is true about the cash surrender nonforfeiture option?a)Funds exceeding the premium paid are taxable as ordinary income. b)After the cash surrender, the insured is covered for a grace period of 1 month. c)The policy remains active for some time after the policyholder opts for cash surrender. d)The policyholder receives the original cash value of the policy.
d)1035 exchange. In accordance with Section 1035 of the Internal Revenue Code, certain exchanges of life insurance policies and annuities may occur as nontaxable exchanges.
#97. A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called a)Qualified distribution. b)Premature distribution. c)Rollover. d)1035 exchange.
b)Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy
23. Which nonforfeiture option provides coverage for the longest period of time?a)Accumulated at interest b)Reduced paid-up c)Extended term d)Paid-up option
b)Face amount In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages term policies maintain level death benefit (or face amount) throughout the term of the policy.
29. What does "level" refer to in level term insurance? a)Interest rate b)Face amount c)Premium d)Cash value
b)180 days. A temporary license is good for 180 days.
3. A temporary license in this state is valid for a)90 days. b)180 days. c)30 days. d)60 days.
c)Producer commission schedules. Commissions are set by a schedule or negotiation between the producer and the insurance company. The Insurance Department regulations are to protect the insurance-buying public.
34. The following areas are regulated by the Insurance Department EXCEPT a)Insurer financial requirements. b)Policyowner rights and disclosures. c)Producer commission schedules. d)Producer regulations and testing requirements.
b)Guaranteed insurability option. The Guaranteed Insurability option allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.
35. If Tom's policy allows him to make periodic additions to the face amount at standard rates, without proving insurability, his policy includes a a)Nonforfeiture option. b)Guaranteed insurability option. c)Guaranteed renewable option. d)Conversion option.
b)Annually renewable term whole life Group insurance is usually written for employee-employer groups as annually renewable term insurance.
37. What type of life insurance is most commonly used for group plans?a)Decreasing term b)Annually renewable term c)Whole life d)Flexible premium
d)Misrepresentation. Issuing or circulating any sales material that is false or misleading would be considered misrepresentation and is illegal.
41. On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. The company is guilty of a)Concealment. b)Unfair claim practice. c)Rebating. d)Misrepresentation.
b)The policy will not be affected. In insurance, fraud is the intentional misrepresentation of material information that is crucial when deciding whether or not to write a contract for an applicant. If an insurer finds that an applicant has committed fraud, it can void the contract, provided that the discovery occurs within the first two years of the effective policy date. In this particular instance the applicant did not commit intentional fraud.
42. An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history 1 year later. What will probably happen?a)Because the insured is currently not a drug user, his policy will not be affected. b)The policy will not be affected. c)The policy will be voided. d)The insurer will sue the insured for committing fraud.
b)It transfers the owner's rights under the policy to the extent expressed in the assignment form. The policyowner may assign a part of the policy (collateral assignment) or the entire policy (absolute assignment).
67. Which of the following statements is true about a policy assignment? a)It is valid during the insured's lifetime only, because the death benefit is payable to the named beneficiary. b)It transfers the owner's rights under the policy to the extent expressed in the assignment form. c)It is the same as a beneficiary designation. d)It permits the beneficiary to designate the person or persons to receive the benefits.
c)The policy contains sufficient cash value to cover the cost of insurance. In Universal Life Insurance, the policyowner may skip a premium payment without lapsing the policy as long as the policy contains sufficient cash value at the time to cover the cost of insurance for that premium period.
68. The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as a)The policyowner cannot skip premiums without the policy lapsing. b)The next month's premium is sufficient to cover both the current premium amount and the skipped amount. c)The policy contains sufficient cash value to cover the cost of insurance. d)The previous premium payments were high enough to create an excess of premium.