Primerica Practice Exam 3

In life insurance, the death of a key family member is considered what type of loss? A.) A personal loss B.) A human loss C.) A personnel loss D.) An income loss

A.) A personal loss

The risk management technique of loss retention is effective when all of the following conditions exist, except: A.) The probability of loss is unknown B.) The losses are easily predictable C.) The worst possible loss is not very serious D.) The person assumes the risk of the loss themselves

A.) The probability of loss is unknown

Group members that are covered by group life insurance policies are required to be issued which of the following? A.) A master policy B.) A certificate of insurance C.) An estimate of the sponsors premium D.) None of the above

B.) A certificate of insurance

In which of the following qualified plans are the benefits linked to the employees number of years of service and/or the amount of compensation they earned? A.) Tax sheltered account (TSA) B.) defined benefit plan C.) Koegh plan D.) defined contribution plan

B.) defined benefit plan

In a group life insurance plan, unmarried children may be covered as eligible dependants until they reach the age of: A.) 18 B.) 20 C.) 21 D.) 25

C.) 21

There are four basic classes of life insurance. All of the following may be regarded as ordinary insurance, except: A.) Term life insurance policy B.) a whole life paid-up at 65 policy C.) A group life insurance policy D.) An 18-year endowment policy

C.) A group life insurance policy

Which of the following would an insured use to protect against the negative effect of inflation on the future purchasing power of their life or disability income policy? A.) Guaranteed insurability rider B.) Inflation offset rider C.) Cost of living rider D.) Increased benefits rider

C.) Cost of living rider

When may a representation be withdrawn by an applicant? A.) At any time as long as all parties agree B.) It can never be withdrawn once submitted C.) Only before the insurance is in effect D.) Only after the insurance is in effect

C.) Only before the insurance is in effect

Which of the following is a true statement about contributory group life insuracne? A.) The employer must pay 100% of the premium B.) All eligible employees must be covered by the plan C.) Participating employees will contribute towards the payment of premiums D.) All of the above

C.) Participating employees will contribute towards the payment of premiums

When an agent, broker, or solicitor handles premiums for an insurer, they are acting in which of the following capacities? A.) Managing General Agent (MGA) B.) A legal representative with power of attorney C.) A natural person under the code D.) A fiduciary

D.) A fiduciary

Which statement about federal income taxation of life insuracne settlement payments is true? A.) Upon surrender of a whole life policy no part of the cash value is taxable because it is paid in a lump sum B.) Choosing the "life income" settlement option saves the beneficiary from paying any income taxes C.) The "interest only" option results in no taxation until the beneficiary selects one of the other options D.) A lump sum settlement is paid out tax free when paid to a natural person

D.) A lump sum settlement is paid out tax free when paid to a natural person

Viatical settlement agreements are put into effect by which of the following? A.) By the settlement options listed in the policy B.) A collateral assignment C.) A non-forfeiture provision D.) An absolute assignment

D.) An absolute assignment

One of the reasons that a person would purchase an annuity is that they are concerned with the risk of: A.) Dying too soon B.) Becoming too old to qualify for ordinary life insurance C.) Having to pay taxes on their retirement savings D.) Outliving their retirement income

D.) Outliving their retirement income

Which of the following best describes the reduced paid-up non-forfeiture option? A.) The insured can no longer afford the policy so they receive the cash value minus the surrender charge B.) The insured receives a cheaper term policy with a reduced death benefit. No evidence of insurability required C.) The insured receives a cheaper term policy with a reduced death benefit. No evidence of insurability required D.) The insured exchanges the current whole life policy for another whole life policy with a lower death benefit. A reduced premium is charged. No additional premium is required.

D.) The insured exchanges the current whole life policy for another whole life policy with a lower death benefit. A reduced premium is charged. No additional premium is required.

Bob, the owner and insured has a non-participating whole life policy for $50,000. He never misses a payment and has never borrowed from the cash value. Bob turned 100 years old today. How much of the cash value is he entitled to? A.) All of it, $50,000 B.) About $25,000- it depends on the actuarial tables C.) None of it- Bob did not die, yet D.) None of the above

A.) All of it, $50,000

A contract or policy, which is considered a savings or investment vehicle used for the purpose of accumulating investment funds to be paid out some time in the future through a withdrawal provision, describes which of the following? A.) An annuity B.) A term life insurance policy C.) A long term care policy D.) All of the above

A.) An annuity

All of the following are true regarding the taxation of life insurance products, except: A.) Annuity death benefits are paid out totally tax free B.) When an individual pays their own life insurance premiums they can not deduct them on their personal income taxes C.) Premiums paid by an employer on a non-contributory group plan are tax deductible as a business expense D.) All of the above are true

A.) Annuity death benefits are paid out totally tax free

Concerning federal tax treatment of life insurance payments, which of the following statement is/are correct? A.) Death benefits paid to the beneficiary are generally tax exempt B.) Ordinary life premiums are tax deductible for the owner C.) Employer paid premiums for their group life insurance plan are not tax deductible as a business expense. D.) None of the above

A.) Death benefits paid to the beneficiary are generally tax exempt

Common life insurance policy riders include all of the following, except: A.) Extended term B.) Guaranteed insurability C.) Accidental death D.) Waiver of premium

A.) Extended term

All of the following are policy dividend options, except: A.) Fund the distribution of periodic income payments B.) Purchase one year term insurance C.) Apply it towards paying the current premium D.) Puchase paid-up additions to their policy

A.) Fund the distribution of periodic income payments

Which of the following are members of and financially supports the Medical Information Bureau? A.) Insurance Companies B.) National association of insurance commissioners C.) Licensed insurance agents D.) All of the above

A.) Insurance Companies

All of the following are not true about the Social Security program, except: A.) It is mandatory for most workers to pay FICA taxes B.) All participants are provided with a copy of the contractual agreement C.) The retirement benefit is the same for everyone D.) The benefits received closely match the amount of the taxes paid

A.) It is mandatory for most workers to pay FICA taxes

In which of the following classes of insurance can a binder not be issued? A.) Life insurance B.) Auto insurance C.) Fire insurance D.) Marine insurance

A.) Life insurance

When policy illustrations are used with senior citizen clients in California, which include non-guaranteed elements, a statement to that effect must be included with the illustration. Which of the following is true regarding this statement? A.) Non-guaranteed elements must be printed in bold type B.) Guaranteed elements must be in bold print and the non-guaranteed elements must be in plain type C.) Whether the print is in bold type or plain type is at the discretion of the insurer. D.) According to the code, all policy illustration statements must be uniform and in plain type

A.) Non-guaranteed elements must be printed in bold type

Which of the following is an agent only required to present to elder clients? A.) Notice of Medi-Cal eligibility B.) A policy summary C.) A policy illustration D.) A buyers guide

A.) Notice of Medi-Cal eligibility

Which of the following beneficiary designations would meet the policyowners wish to have his children receive equal shares of his life insurance. And if any of his children should die before he does, he wants the surviving children to receive the deceased child's share rqually divided among them. A.) Per capita designation B.) Per stripes designation C.) Each named as contingent with equal shares D.) Any of the above would produce the desired results

A.) Per capita designation

Which of the following statements about contingent beneficiaries is false? A.) The contingent beneficiary receives benefits equally with the primary beneficiary B.) More than one contingent may be named C.) They will received the death benefit if the primary predecceases the insured D.) They receive remaining installment or income payments to be made under a settlement agreement if the primary were to decrease prematurely

A.) The contingent beneficiary receives benefits equally with the primary beneficiary

Why is having a large number of similar exposure units important to insurance companies? A.) The larger the number insured, the more accurately the insurer can predict losses and set appropriate premiums B.) The larger the number of insureds, the larfer the market share for the insurer. This is very important for advertising purposes C.) The larger the number of insureds, the more premium collected, the more profitable the company D.) None of the above

A.) The larger the number insured, the more accurately the insurer can predict losses and set appropriate premiums

The insured buys a non-participating whole life policy. Many years later the insured is disabled and cannot afford the premiums anymore. She exercises the Extended Term Non-forfeiture option. Which statement is not true? A.) The policy will accrue cash value, but with a lower death benefit coverage B.) No more premium payments are required C.) THe coverage amount will remain the same as the original policy D.) The policy will remain in force a certain number of years, then expire

A.) The policy will accrue cash value, but with a lower death benefit coverage

The purpose of the laws regarding the replacement of life insurance and annuity contracts includes all of the following, except: A.) To protect the interests of life insurers and their agents B.) To reduce the opportunity for misrepresentation and incomplete disclosures C.) To assure the purchaser receives information to make an informed decision D.) To establish penalties for failure to comply with replacement requirements

A.) To protect the interests of life insurers and their agents

Keith has purchased a variable annuity. He has not waived his rights during the free-look period. Where will the premiums be initially invested during the free-look period? A.) The policys separate account B.) A fixed income or money market account C.) A stock portfolio chosen by the insured D.) The insurers general account for preservation of fund value

B.) A fixed income or money market account

A representation in an insurance contract qualifies as: A.) An opinion B.) An implied warranty C.) An express warranty D.) A policy provision

B.) An implied warranty

Agent Bill has decided to use a new time management strategy while making sales presentations. To save time, he decides to not answer a clients question the first time it is asked. Instead, he answers them only if they are asked a second time. This way he can make it to his next appointment on time. Professional insurance organizations would consider this to be: A.) A smart and ethical strategy B.) An unethical practice C.) Not in violation of their codes of conduct D.) None of the above

B.) An unethical practice

An insurer owned by the parent company to provide insurance to cover the parent companys loss exposure only is call a: A.) Reciprocal insurer B.) Captive insurer C.) Mutual insurer D.) Stock insurer

B.) Captive insurer

In group insurancem to avoid proving insurability an employee usually needs to join the group insurance plan: A.) During the probationary period B.) During the enrollment period C.) After the elimination period D.) At anytime with group insurance

B.) During the enrollment period

Which of the following benefits is never included in a LTC policy? A.) Hospice B.) Hospice Acute Care C.) Respite Care D.) Adult Day Care

B.) Hospice Acute Care

The additional amount of premium paid for an accidental death benefit rider on a whole life policy does not: A.) Cover the cost of the added protection B.) Increase the cash values C.) Both a and b D.) neither a nor b

B.) Increase the cash values

What do we call an insurer who has enough financial resources to only provide for all its liabilities and for reinsurance of all outstanding risks? A.) Solvent B.) Insolvent C.) Guaranteed D.) Compliant

B.) Insolvent

Any transaction in which new life insurance or a new annuity is to be purchased, and it is known or should be known that existing life insurance or annuity will be lapsed, forfeited, surrendered or otherwise terminated is known as what type of transaction? A.) Absolute assignment B.) Replacement C.) Reinsurance D.) Unethical

B.) Replacement

When an agent submits a license renewal application with the required renewal fee on or before the expiration date, which of the following statements is true? A.) If they have not received the new license by the day after the current license expires, they may not transact until the new license is received B.) The agent may transact all normal business for up to 60 days after the specified expiration date C.) The agent may only transact after the expiration date if they have received a payment receipt from the department D.) The agent may transact only if they appear in person to the DOI and request a temporary extension of thei license

B.) The agent may transact all normal business for up to 60 days after the specified expiration date

All of the following statements are true about the free look provision in life insurance policies in California, except: A.) A full refund of the premium paid is required if the policy is returned within 10 days of delivery B.) The contract is in force during the 10 day period and any claims must be paid even though the owner has returned the contract C.) Senior citizens must be given a minimum of 30 days free look D.) Death during the free look period results in a full death benefit

B.) The contract is in force during the 10 day period and any claims must be paid even though the owner has returned the contract

The standard policy provision which prevents an insurance company from rescinding a policy for misstatements on the application after two years is: A.) The misstatement protection clause B.) The incontestability provision C.) The double indemnity clause D.) There is no such provision in life insurance

B.) The incontestability provision

In order to calculate how much premium an insurance policyowner will pay, the insurer multiples the rate by which of the following? A.) The premium adjustment factor B.) The number of exposure units C.) The expense load (or loading factor) D.) The number of people covered on the policy

B.) The number of exposure units

All of the following are true about the Social Security System except: A.) The majority of workers in the US are required to pay into the system B.) The system is fully funded C.) Meant to supplement other retirement income, it provides a minimum floor of income D.) Benefits are prescribed by law, not by contract

B.) The system is fully funded

Which deparment of division of an insurance company is responsible for the selection, evaluation, and distribution of risks? A.) Marketing and sales B.) Underwriting C.) Claims D.) Acturial

B.) Underwriting

A dependent who is developmentally disabled can continue to be covered by the insureds policy: A.) Up to age 26 B.) Up to age 21 C.) For as long as the condition causing the disability persists D.) Until the insurer terminated coverage

C.) For as long as the condition causing the disability persists

The owner chooses the annual mode to pay their life insurance premium. For the year, they will pay ____________. A.) More as compared to the other payment modes B.) The same as compared to the other payment modes C.) Less as compared to the other payment modes D.) None of the above

C.) Less as compared to the other payment modes

An insurance company that is owned by the policyholders is called a: A.) Stock insurer B.) Reciprocal insurer C.) Mutual insurer D.) Fraternal insurer

C.) Mutual insurer

When determining life insurance premium rates an insurer may not legally use which of the following? A.) Age B.) Gender C.) Nationality D.) All of the above may be used

C.) Nationality

In reinsurance, the insurance company who transfers its loss exposure to another insurer is the: A.) Reciprocal insurer B.) Reinsurer C.) Primary insurer D.) Secondary insurer

C.) Primary insurer

Cliff, who is 44 years old, falls while mountain climbing on vacation. He is left paralyzed. After a year, doctors feel he will never recover from his injuries. Which of the following programs will he be able to collect disability income? A.) Medi-cal B.) Workers compensation C.) Social Security D.) Medicare

C.) Social Security

An individual investor is trying to decide between a bank CD and an insurance company annuity. They both pay the same interest rate on an equal principal amount invested over the same period of time. Which one will be worth the most total dollars at the end of that period of time? A.) The CD and the annuity will both be the same, even after considering the taxes paid over the years B.) The CD will be worth more because of the FDIC C.) The annuity will be worth more because of its tax deferred characteristics D.) The CD will be worth more because the insurer ussuing the annuity will have paid commissions to the writing agent that must be deducted

C.) The annuity will be worth more because of its tax deferred characteristics

The California Insurance Commissioner may deny an application for license for all of the following reasons, except: A.) The applicant lacks the integrity B.) The applicant is not properly qualified to perform the duties C.) The applicant does not have a California business address D.) The applicant does not have a good business reputation

C.) The applicant does not have a California business address

Regarding group life insurance coverage sponsored by a business, which of the following persons is the one responsible for applying for the plan, providing member info, making the premium payments for the members, and maintaining the policy or contract? A.) The agent who obtained the group plan B.) The insurer that provided the group plan C.) The master policyholder D.) The individuals who make up the covered group

C.) The master policyholder

What is the written instrument called in which the contract of insurance is set forth? A.) The convenant of insurance B.) The document of record including all warrantees granted C.) The policy D.) The California Insurance Code

C.) The policy

A variable annuity applicant invests his premiums immediately into the stock portfolio chosen for his annutiy. He then returns his annuity during the free look period when the stock market drops significantly. What will the client receive? A.) His entire premium B.) The policy account value on the date the returned policy is received by the insured C.) The policy account value on the date the returned policy is received by the insurer D.) The full premium minus the surrender charge

C.) The policy account value on the date the returned policy is received by the insurer

When the insured becomes disabled under the requirements of the policy, which of the following provisions keeps the policy in force even though the owner stops making the premium payments? A.) The guaranteed insurability provision B.) The accelerated living benefit provision C.) The waiver of premium provision D.) The spendthrift trust provision

C.) The waiver of premium provision

The annuitant is about to retire and wants to begin receiving payments from the insurer. He has selected the "Life income with 10 years certain" option. Which of the following is the best description of the payments the insurer will make? A.) They will be made for 120 months assuming the annuitant lives that long B.) They will be made for 120 months and then will decrease and be paid for life C.) They will be paid for at least 120 months or the remainder of the annuitants life D.) They will be paid up to the annuitants death and thereafter to his named beneficiary

C.) They will be paid for at least 120 months or the remainder of the annuitants life

A retirement plan participants absolute ownership of the monies in his or her account is referred as: A.) Funded B.) Qualified C.) Vested D.) Matured

C.) Vested

Which of the following best represents what the phrase "life insuracne creates an immediate estate" means? A.) the policy creates immediate cash value B.) the death benefit will always be paid to the estate of the insured C.) the face value of the policy is payable to the beneficiary upon the death of the insured D.) None of these represent what this phrase means

C.) the face value of the policy is payable to the beneficiary upon the death of the insured

Which of the following statements is false regarding the application for life insurance? A.) When bound to the policy, applications become part of the entire contract B.) The name of the insured person must be indicated on the application C.) Answers to application questions are considered to be representations and not warranties D.) Before a policy can be issued or changed, the beneficiary must initial the application to indicate their approval

D.) Before a policy can be issued or changed, the beneficiary must initial the application to indicate their approval

Concerning the "Family Protection Policy" all of the following statement are true, except: A.) This type of policy consists of whole life on the base insured and riders on the others B.) Covertible term riders cover both the spouse and all children C.) Additional children born after the policy is issued are covered automatically at no extra cost D.) Children, upon reaching the age of majority are permitted to convert to an individual policy with proof of insurability

D.) Children, upon reaching the age of majority are permitted to convert to an individual policy with proof of insurability

A beneficiary is set to receive $2,500 a month until the lump sum amount and interest are exhausted. Which settlement option was chosen? A.) Fixed period option B.) Interest (only) option C.) Life income option D.) Fixed amount option

D.) Fixed amount option

What happens to the insurance license of a corporation when the corporation ceases to exist? A.) It becomes inactive B.) it terminates unless the corporation files an application to continue business within 30 days C.) it is suspended temporarily by the DOI D.) It terminates

D.) It terminates

As per the Code, when are the parties to a contract required to communicate to the other information which is based solely on their personal judgement? A.) Only when asked B.) Only when relevant C.) Only when the terms of the contract require it D.) Never

D.) Never

The Social Security system has four main benefit programs. Disability, Retirement and Medicare are three of them. The fourth program is: A.) Rehabilitation B.) Medical C.) Hospice D.) Survivors

D.) Survivors

Larry is age 50, has been paying premiums on his whole life policy for more than 15 years, and now has a need to use about 1/3 of his available cash value for a short period of time. He does not want to give up his insurance, and can afford to continue paying premiums. What advice would you give Larry? A.) Look for the other available funds. Policy cash value is unavailable for loans before 59 1/2 due to IRS tax penalties B.) Tell Larry he should have purchased term insurance because whole life has no cash value C.) The only way to access he cash value is through a surrender of the policy. He can have up to 90% of the cash value to purchase other insurance D.) Tell Larry to take the policy loan, continue paying premiums to prevent a lapse, and also recommend that he repay the principal and interest on the loan

D.) Tell Larry to take the policy loan, continue paying premiums to prevent a lapse, and also recommend that he repay the principal and interest on the loan

Which of the following would be appropriate for an individual with a low income and high insurance needs? A.) Straight whole life B.) Paid-up at 65 insurance C.) Endowment insurance D.) Term insurance

D.) Term insurance

If an agent currently has an inactive license, this means: A.) The agent can transact any insurance which is authorized by that license B.) The agent is restricted to transacting only in California and no other state C.) The agent can only transact insurance business that is approved by his managing general agent D.) The agent cannot transact any insurance business for which a valid license is required

D.) The agent cannot transact any insurance business for which a valid license is required

Life insurance settlement options provide the beneficiary several choices as to how the insurer will pay them the death benefits of the policy. Which of the following is not true about these options? A.) The choice can be made by the policyowner at the time of application B.) The policyowner can change to another option any time before the death of the insured C.) If no pre-selection is in effect at the time the insured dies, the insurer allows the beneficiary to choose the option D.) The beneficiary can change to a second option if made within 6 months of the initial payout

D.) The beneficiary can change to a second option if made within 6 months of the initial payout

An insurance commissioner is unable to finish their 4 year term due to death or for some reason leaves office. How will a new commissioner be chosen? A.) A special election must be held within 120 days B.) The NAIC appoints an interim commissioner C.) A deputy officer within the DOI is promoted D.) The governor appoints a replacement commissioner

D.) The governor appoints a replacement commissioner

With a waiver of premium rider attached to a whole life policy issued by a mutual insurer, all of the following are true, except: A.) Dividends will continue to be paid, if earned B.) Cash values will continue to grow C.) All features of the policy will remain in force D.) The insurer will waive the premium payment while the policyowner will continue to pay the cost of the WP rider

D.) The insurer will waive the premium payment while the policyowner will continue to pay the cost of the WP rider

What is the purpose of "key person" insurance? A.) To provide key employees with life insurance coverage B.) To provide retirement benefits to key employees C.) To give senior managers the ability to purchase shares in the business D.) To cover decreased business revenues as a result of the death or disability of a key employee

D.) To cover decreased business revenues as a result of the death or disability of a key employee

Ron is paying into an annuity that will be used to help supplement his retirement in a few years. His premium payments go into the insurers "seperate account" and they purchase "accumulation units" What type of annuity did Ron buy? A.) Periodic premium immediate annuity B.) Fixed annuity C.) Guaranteed qualified plan annuity D.) Variable annuity

D.) Variable annuity

Which of the following polciy riders is/are frequently found in life insurance policy? A.) Cost of Living rider B.) AD&D C.) Waiver of premium D.) all of the above

D.) all of the above