Test for Life
Actuaries calculate net single premiums based on which of the following? mortality and dividend assumptions morbidity and expense assumptions mortality and interest assumptions expense and mortality assumptions
mortality and interest assumptions Explanation: The net premium, which is the insurer's estimated cost to provide the policy's benefits without accounting for its expenses, uses the factors of mortality and interest but excludes the expense load factor.
What is the minimum number of members necessary for an association to qualify for a group life insurance policy? 2 10 50 100
10
Two years ago, Abby earned a law degree and Certified Financial Planner (CFP) designation and now sells life insurance and annuities in the senior market. Which statement is TRUE? Abby cannot use any certifications or designations when selling insurance. Abby is prohibited from using the words certified or adviser when selling insurance. Abby must obtain the Commissioner's approval before advertising her credentials when selling insurance. Abby can inform prospects that she earned a law degree and CFP designation.
Abby can inform prospects that she earned a law degree and CFP designation. Explanation: Producers can use a certification or designation when selling insurance or annuities provided they actually earned the certification or designation. Terms such as retirement, certified, adviser, or consultant can be used if they are not misleading.
Variable life and variable universal life insurance are similar in all of the following ways EXCEPT: Both are considered securities. Both offer a death benefit that varies based on the performance of the subaccount investments. Both let the policyowner put funds in investment subaccounts. Both require fixed, set premiums.
Both require fixed, set premiums. Explanation: Both types of policies offer a death benefit and cash values that vary based on the performance of the investments in the subaccounts.
All of the following statements are true with regard to whole life insurance EXCEPT: It provides a guaranteed cash value. Cash value cannot be accessed until the insured's death. It has a level death benefit. The insurer's risk decreases over the life of the policy.
Cash value cannot be accessed until the insured's death. Explanation: In a whole life insurance policy, the steadily increasing cash value offsets a steadily decreasing net amount at risk to the insurer, thus maintaining a level death benefit.
Which of the following is NOT an unfair claims settlement practice if committed by an insurance company in New Jersey? Failing to promptly acknowledge communications about claims Failing to promptly settle a claim for which liability is uncertain Offering to settle claims for less than due to encourage litigation Raising policy defenses to reduce a claim
Failing to promptly settle a claim for which liability is uncertain Explanation: An insurer is not obligated to settle a claim for which it not clearly liable.
Who is the contingent (second) beneficiary in the following beneficiary designation: "Sally Grant, wife of the insured, if she survives the insured; otherwise to Frank Grant, brother of the insured; otherwise to the ASPCA." Sally Grant the ASPCA Frank Grant the insured's estate
Frank Grant Explanation: Sally Grant is the primary beneficiary.
Why do most insurers require a waiting period of three to six months before the disability income benefit rider begins payments? Insurers want to make sure the disability is permanent before beginning payments. Most disabilities are permanent after three weeks; almost all are permanent after six months. They must meet federal disability waiting period requirements. They must be sure that the cost of at least six months of insurance is covered before they pay for the disability.
Insurers want to make sure the disability is permanent before beginning payments.
If an employer sets up a profit-sharing plan, which one of the following statements is most correct? It must contribute the same amount to the plan each year. It must allow employees to contribute up to $15,000 to the plan each year. It must allow employees to make elective deferrals to plan accounts and to adjust their contribution levels at any time. It must establish individual accounts for each participant.
It must establish individual accounts for each participant.
All the following statements regarding about joint life insurance are correct, EXCEPT: It insures two persons under one policy. It pays the death benefit when the first insured dies. Only married couples may buy it. Its premium is less than the premium for two separate policies.
Only married couples may buy it. Explanation: Joint life insurance is permanent coverage that insures two persons under one policy. The death benefit is paid when the first insured dies.
With respect to adjustable life insurance, which one of the following statements is correct? The policyowner stops making premium payments after the policy has been in force for a certain period. The policyowner can increase the death benefit without hurting the policy's cash value. Premiums can increase or decrease to suit the policyowner's changing needs. It offers five times higher cash value than whole life insurance.
Premiums can increase or decrease to suit the policyowner's changing needs. Explanation: The policyowner can increase or decrease premium payments, but premium payments do not end.
The formal name for what is commonly called a 'double indemnity' rider is: guaranteed insurability rider return of premium rider cost-of-living rider accidental death benefit rider
accidental death benefit rider Explanation: An accidental death benefit (ADB) rider provides an additional amount of insurance if the insured dies as a result of an accident. The additional amount is typically double or triple the amount of the base policy's face value, which is why these riders are sometimes called "double indemnity" or "triple indemnity" riders.
An agent for ABC Insurance Company meets with a client. The agent shows the client ABC's sample policies, refers to the ABC rate book, and gives the client an ABC business card. The client assumes that ABC has appointed the agent to represent it. What kind of authority does the agent have? implied authority apparent authority express authority imputed authority
apparent authority Explanation: The contract between the agent and insurer gives express authority to an agent. The contract specifies the activities the agent can perform and outlines the agent's duties.
An insurable risk is not: ascertainable catastrophic uncertain an economic hardship
catastrophic Explanation: A catastrophic loss is not the determining factor. The potential loss must be ascertainable for the risk to be insurable.
After Bob and Ellen's first child is born, the couple wants to add the baby to their policy, while increasing Ellen's coverage. They would probably buy which of the following? spouse/other insured term rider children's term rider family term rider living benefits rider
family term rider Explanation: Many children can be covered under a children's term rider.
Hank, the insured under a $500,000 life insurance policy, had paid $75,000 in premiums when he died unexpectedly. His wife, Sara, is the policy beneficiary and elects to take the death benefit in a lump sum. What amount is considered taxable income to Sara? $0 $75,000 $425,000 $500,000
$0 Explanation: The death benefit proceeds from a personal life insurance policy that are paid to a beneficiary in a lump sum are not subject to income taxation. This means that Sara will not include the death benefit proceeds in her income for income tax purposes.
Sue's annual premium is $1,500 and the declared dividend was $200. If Sue chooses the premium reduction dividend option, she will receive a premium notice for which of the following? $200 $1,300 $1,500 $1,700
$1,300 Explanation: Under the premium reduction option, the insurance company keeps the dividend and uses it to reduce the next premium due. Sue's next premium notice will be for $1,300.
Nancy, currently age 45, bought a deferred annuity with a single premium payment of $20,000. The contract is now valued at $23,000, which includes $3,000 in interest earnings. If she withdraws $5,000 from the annuity, how much tax penalty, if any, will she incur? $300 $500 $2,300 No tax penalty applies
$300 Explanation: Because she is under age 59', her withdrawal will be subject to a 10 percent penalty tax on the taxable amount of the withdrawal. Here, $3,000 of the $5,000 withdrawal will be treated as taxable interest, because this represents earnings. The 10 percent penalty tax is imposed on $3,000, so she must pay a $300 penalty tax.
Anthony becomes a producer for Acme Insurance Company. Acme has not filed the notice of appointment with the Commissioner. It must do so within how many days? 10 15 30 31
15 Explanation: The insurer must file a notice of appointment with the Commissioner within 15 days of making the producer its agent or receiving the first insurance application from the producer.
Candace submitted an application for a producer license and paid the licensing fee on June 1. She also obtained a temporary work authority on the same date. When will Candace's work authority expire? 30 days 60 days 90 days 180 days
60 days Explanation: The Commissioner may issue a temporary work authority that allows an applicant for a license to begin work when the person has submitted a licensing application and fee. A temporary work authority expires 60 days after it has been issued.
All the following statements regarding tax-free Section 1035 exchanges are correct EXCEPT: A 1035 exchange is not considered a policy replacement for regulatory purposes. A modified endowment contract (MEC) exchanged for a new life insurance policy will result in the new policy being a MEC. A nonqualified annuity cannot be exchanged for a qualified annuity. An annuity can be exchanged for a tax-qualified long-term care insurance policy.
A 1035 exchange is not considered a policy replacement for regulatory purposes. Explanation: By definition, 1035 exchanges involve the replacement of one policy with another. Producers have both an ethical and legal obligation to make sure policy replacements are suitable and done solely in the customer's best interest.
Which one of the following is guaranteed under most variable annuity contracts? A death benefit is paid if the owner or annuitant dies before the contract's funds are annuitized. The monthly benefit amount is guaranteed never to decrease. Accumulation unit values are guaranteed not to change once they have been purchased. Nothing about a variable annuity is guaranteed.
A death benefit is paid if the owner or annuitant dies before the contract's funds are annuitized. Explanation: Like fixed annuities, variable annuities provide for a death benefit if the owner or annuitant dies before the contract's funds are annuitized.
What is the difference between a representation and a warranty in an insurance contract? A representation is believed to be true, while a warranty is guaranteed to be true. A representation is always part of a contract, while a warranty is never included in a contract. A representation is guaranteed to be true, while a warranty is guaranteed to be true under certain conditions. Insurance applicants can make representations, but only insurance companies can make warranties.
A representation is believed to be true, while a warranty is guaranteed to be true. Explanation: A representation is not guaranteed by its maker to be true; it is only believed to be true. A warranty is a statement guaranteed to be true.
Acme Insurers started an advertising campaign in New Jersey for its new life insurance policies. Which statement is TRUE? Acme may not use statistics in the advertisements. Acme must state the names of its producers who are authorized to transact insurance on its behalf. Acme can compare its products to competitors only if such comparisons are fair and complete. Acme's advertisements cannot mention other competitors or products.
Acme can compare its products to competitors only if such comparisons are fair and complete. Explanation: An ad cannot make unfair or incomplete comparisons of policies or benefits offered by other insurers.
Ann is the beneficiary of an annuity owned by Jim. Jim intended to annuitize the contract at retirement but died shortly before retiring and selecting a payout option. What benefits will Ann receive from the annuity? Ann will receive the annuity's accumulated value and may select a payout option. Ann's right to any funds will be based on the income payout option that Jim selected. Ann will receive income for life. Ann will receive the contract's funds in a lump sum.
Ann will receive the annuity's accumulated value and may select a payout option. Explanation: This would be the case only if Jim dies after annuitizing the contract.
Which of the following information about a proposed life insurance policy is not contained in the Policy Summary given to a buyer? Coverage and benefits Limitations and exclusions Terms and conditions Appropriate amount of insurance
Appropriate amount of insurance Explanation: The Policy Summary states the coverage, costs, benefits, limitations, exclusions, and terms of a proposed life insurance policy for the prospective buyer. Information about selecting the appropriate amount of insurance is provided in the life insurance Buyer's Guide.
All the following are federal tax incentives intended to encourage employers to set up qualified plans and employees to participate in them EXCEPT: 1 Employer contributions are not taxable to the employee when made. 2 Benefits are tax-free if withdrawn after the employee's full retirement age. 3 Employee contributions are made with pre-tax dollars. 4 Plan earnings grow tax deferred until distributed.
Benefits are tax-free if withdrawn after the employee's full retirement age. Explanation: Employer contributions to a qualified retirement plan on behalf of an employee-participant are not taxable to the employee when they are made. Benefits are taxed only when they are withdrawn or otherwise distributed from the plan to the employee.
What will happen if a person starts receiving Social Security retirement benefits before reaching his or her full retirement age (FRA) and continues to work and earn money that exceeds specified earnings limits? Benefits will be temporarily reduced until the worker attains FRA. Benefits will be permanently reduced. Benefits will be increased but are then reduced at the worker's FRA. Benefits will not be affected.
Benefits will be temporarily reduced until the worker attains FRA. Explanation: Retired workers who are collecting Social Security retirement benefits may continue working with no reduction in their monthly benefit amount beginning at their FRA. But, if they elect early retirement and continue working, the monthly benefit is temporarily reduced until they reach their FRA.
Which statement correctly describes the purpose of the McCarran-Ferguson Act? It stated that insurance is a type of interstate commerce. It required the insurance industry to conform to federal legislative requirements concerning insurance. It exempted the insurance industry from federal antitrust laws as long as the state regulates in this area. It subjected the insurance industry to federal antitrust and discrimination laws.
It exempted the insurance industry from federal antitrust laws as long as the state regulates in this area. Explanation: The McCarran-Ferguson Act recognized that state regulation of insurance was in the public's best interest and exempted the insurance industry from federal antitrust regulation as long as the state regulates in this area.
Which of the following correctly defines the meaning of 'life insurance settlement' option? It is one of several ways a life insurer can reduce the benefit amount it is obligated to pay on a death claim. It is one of several ways a policyowner or beneficiary can choose to receive life insurance death benefit proceeds. It is one of several amounts a life insurer is prepared to offer in a contested death claim. It is one of several ways a life insurance policyowner can take a policy's cash value upon surrender of the policy.
It is one of several ways a policyowner or beneficiary can choose to receive life insurance death benefit proceeds. Explanation: Every life insurance policy lists a variety of ways - called settlement options - the death benefit can be paid, or "settled," upon the insured's death.
Delta Computers just replaced its group life insurance policy with a new policy issued by Beta Insurers. Which statement about the new coverage is TRUE? Delta's employees must provide evidence of insurability before coverage will continue. It must cover all employees who were eligible to participate under the prior plan. It may impose a six-month probationary period for all participating employees. It may exclude coverage for death caused by illness or accidents within six months after the new policy's effective date.
It must cover all employees who were eligible to participate under the prior plan. Explanation: When one group life insurance plan replaces another, the prior carrier is liable for all claims incurred during any extension periods. The new insurer must cover all employees who were eligible to participate under the prior plan.
If an employer sets up a profit-sharing plan, which one of the following statements is most correct? It must contribute the same amount to the plan each year. It must allow employees to contribute up to $15,000 to the plan each year. It must allow employees to make elective deferrals to plan accounts and to adjust their contribution levels at any time. It must establish individual accounts for each participant.
It must establish individual accounts for each participant. Explanation: Unlike other defined contribution plans, employees do not contribute to profit-sharing plans. Instead, the employer is the sole contributor to the plan.
Marge owns a family shoe manufacturing business. Wanting to see that the business continues after her death, the business will benefit most from purchasing a life insurance policy on which of the following? Marge Marge's mother, the part-time receptionist Marge's husband, a sales representative Marge's brother, one of 25 leather tanners
Marge Explanation: Businesses often buy life insurance to cover the lives of their key employees or owners. The intent is to compensate for the financial losses that might occur when a key employee or owner dies.
Thomas and his wife, Jane, have three children: Harry, who is 14 years old; Mary, who is 18 years old; and James, who is 23 years old and totally disabled. Which person would NOT be eligible for Social Security survivor benefits should Thomas die this year? Jane James Harry Mary
Mary Explanation: Since Mary is over the age of 17 and able-bodied without a disability, she would not be eligible for survivor benefits. A child who is totally disabled is eligible for survivor benefits indefinitely.
The New Jersey Civil Lawyers' Association (NJCLA) is meeting with Agent Smith to discuss whether it can obtain a group accident and health insurance policy for its members. Which of the following is required for NJCLA to be eligible for group coverage? NJCLA must have at least 100 members. NJCLA must have been formed to obtain insurance. NJCLA must have been formed at least five years ago. NJCLA must operate on a for-profit basis.
NJCLA must have at least 100 members. Explanation: A group policy may be issued to an association to insure its members if the association has at least 100 members, was organized for a purpose other than obtaining insurance, has existed for at least two years, and has a constitution and bylaws.
Which of the following reasons correctly explains why life insurance is most frequently used to fund buy-sell agreements? Most states require it by law. Life insurance premiums used in funding a buy-sell agreement are tax deductible. Only life insurance can guarantee to make a precise sum of money available precisely when it is needed. There is no other way to provide the money needed to fund a buy-sell agreement.
Only life insurance can guarantee to make a precise sum of money available precisely when it is needed. Explanation: Life insurance premiums are not tax deductible, but on the other hand, death benefit proceeds are tax-free.
Which of the following correctly explains why a waiver of premium rider functions differently with a universal life insurance policy than with a traditional whole life policy? Premium payments for a universal life policy are predetermined. Premium payments for a universal life policy are flexible, making it difficult to know how much premium to waive. State insurance laws require that universal life waiver of premium riders function differently than traditional fixed life premium waivers. Federal laws mandate the difference.
Premium payments for a universal life policy are flexible, making it difficult to know how much premium to waive. Explanation: Universal life premium payments are flexible, so a waiver of premium for the disability of a universal life policy owner must operate differently than is common with traditional policies, while still ensuring consistent premium payments.
When collecting personal financial or health information, an insurance company is required to do all of the following EXCEPT: Notify individuals about the company's privacy practices Describe conditions under which the company may disclose the information to other parties Provide methods for individuals to prevent disclosure of the information Provide individuals with copies of documents disclosed to other parties
Provide individuals with copies of documents disclosed to other parties Explanation: When collecting or using nonpublic personal financial or health information, an insurer must notify individuals about the insurer's privacy policies and practices, describe conditions under which the insurer may disclose this information to other parties, and provide methods for individuals to prevent this disclosure.
Which of the following statements about universal life insurance (UL) cash value withdrawals is correct? Universal life insurance policy cash value withdrawals are possible either through policy loans or partial surrenders. Withdrawals are limited to 50 percent or less of the total cash value. Regardless of withdrawn amounts, a UL policy will continue in force as long as the remaining cash value can cover the monthly deductions. Withdrawals can be in any amount, with no minimum amount requirements.
Regardless of withdrawn amounts, a UL policy will continue in force as long as the remaining cash value can cover the monthly deductions. Explanation: Traditional policy loans are not available with universal life insurance policies. Instead, UL policy cash values are accessible only through withdrawals called partial surrenders.
Who is the primary beneficiary in the following beneficiary designation: "Sally Grant, wife of the insured, if she survives the insured; otherwise in equal shares to surviving children of the insured, if any; otherwise to Frank Grant, brother of the insured." Sally Grant the surviving children Frank Grant the insured's estate
Sally Grant Explanation: The surviving children are contingent beneficiaries, first level.
Monica wants to take a second loan against her life insurance policy. She has not fully repaid the first loan. Which of the following describes what Monica will find when she attempts to take another loan against the policy? She will not be able to take another loan until the first loan has been repaid. She can borrow up to the cash surrender value, less her outstanding obligation. She can borrow against the policy, but she will pay a higher rate of interest on the second loan. Because she has taken out one policy loan, she will never again be allowed to borrow from the policy.
She can borrow up to the cash surrender value, less her outstanding obligation. Explanation: The policyowner can borrow the entire cash surrender value less any prior debt against the policy. However, the death benefit is reduced on a dollar-for-dollar basis for the full unpaid loan at the insured's death.
Which of the following statements about the funding of Social Security benefits is correct? Self-employed workers pay a lower FICA tax than employees. In an employer/employee relationship, the employer pays the entire FICA tax. The FICA tax applies to a worker's full annual income. The FICA tax is allocated between OASDI and Medicare.
The FICA tax is allocated between OASDI and Medicare. Explanation: While there is no earnings cap on the Medicare portion of the FICA tax, the amount of annual income subject to the OASDI portion of the FICA tax, known as the taxable wage base, is limited. Annual earnings that exceed the taxable wage base are not subject to OASDI taxes.
Lisa is 72 years old and is thinking about purchasing a fixed deferred annuity to hold the proceeds gained from the recent sale of her house. Which of the following would suggest that this product may not be well-suited for Lisa? The annuity has a 10-year surrender charge period. Her investment objective is for tax-deferred, guaranteed accumulation. She has a low risk tolerance. She may eventually want the annuity to provide lifetime income.
The annuity has a 10-year surrender charge period. Explanation: A fixed annuity may be suitable for a customer looking for guarantees in a product with low investment risk that may eventually be annuitized, but potentially steep surrender charges, lasting ten or more years, can make deferred annuities unsuitable for seniors who are simply interested in a place to hold their savings.
All of the following statements about annuity beneficiaries are correct, EXCEPT: The beneficiary of an annuity is guaranteed to receive funds from the contract. If the owner's (or annuitant's) death occurs before the contract has annuitized, the beneficiary will receive the contract's accumulated value. If the owner or annuitant dies after annuitization begins, the beneficiary's right to any funds will be based on the income payout option the owner selected. The beneficiary is the person designated to receive the contract's values if the owner or annuitant dies before annuitization.
The beneficiary of an annuity is guaranteed to receive funds from the contract. Explanation: The beneficiary is the person designated to receive the contract's values if the owner or annuitant dies before annuitization. Unlike the beneficiary of a life insurance policy, the beneficiary of an annuity may or may not receive any funds from the contract.
In an owner-driven deferred annuity contract, what happens upon the death of the contract owner prior to annuitization if the annuitant is still alive? The contract remains active and the annuitant becomes the owner. The contract terminates and the death benefit is paid to the beneficiary. The contract is immediately annuitized and monthly payments are made to the annuitant. The contract is immediately cancelled and contract values are paid to the annuitant.
The contract terminates and the death benefit is paid to the beneficiary. Explanation: An owner-driven contract terminates upon the death of the owner, triggering payment of the contract death benefit to the beneficiary, even if the annuitant is still alive.
With respect to life insurance settlement options, the term 'without life contingency' means: The death benefit payout is based on a specified period or amount, not on the life of the beneficiary. The beneficiary is a non-human entity. The benefit is paid out for as long as the beneficiary lives, however long that may be. The beneficiary is not permitted to choose the settlement option under any circumstances.
The death benefit payout is based on a specified period or amount, not on the life of the beneficiary. Explanation: A settlement option without a life contingency is one whose payment is not determined by the life of the person receiving the income payment.
What is the main difference between a traditional deferred compensation plan and a salary continuation plan? The employee funds the future benefit under a salary continuation plan. The employer cannot deduct benefits that are paid under a salary continuation plan. Term life insurance is often used to fund a deferred compensation plan. The employee does not fund it by deferring salary, rather, the employer funds the future benefit under a salary continuation plan.
The employee does not fund it by deferring salary, rather, the employer funds the future benefit under a salary continuation plan. Explanation: With a salary continuation plan, the employer funds, or pays for, the future benefit. In contrast, the employee funds the benefit under a traditional deferred compensation plan by deferring a portion of current compensation.
If the owner of a lapsed whole life insurance policy that was issued on a standard basis does not choose a nonforfeiture option, which of the following will the insurer do? 1 cancel the policy and retain the cash value in its reserves 2automatically apply the extended term option 3automatically apply the reduced paid-up option 4automatically surrender the policy for cash
automatically apply the extended term option If an owner of a lapsed policy that was issued on a standard basis does not choose a nonforfeiture option, then the insurer automatically applies the extended term insurance option.
All the following statements about family term riders with life insurance are correct, EXCEPT: A family term rider is an alternative to either a separate spousal rider or separate children's rider. The family term rider covers multiple family members (spouse plus children) with term insurance based on their ages. The policyowner can add or drop insureds on this type of policy at any time but must prove insurability if adding insureds. Children covered by this rider can convert their coverage to permanent coverage at age 21 without proof of insurability.
The family term rider covers multiple family members (spouse plus children) with term insurance based on their ages. Explanation: The policyowner can add or drop insureds on this type of policy at any time but must prove insurability if adding insureds.
Sally's $750,000 life insurance policy was payable to her son when she died. Based only on this information, which of the following correctly describes how that money will be treated for income tax purposes? The basis is tax free, and the interest earnings are taxable. The full amount is subject to income taxation. The full amount is income tax-free. The full amount is subject to capital gains taxation.
The full amount is income tax-free. Explanation: Life insurance death benefit proceeds are generally income tax free. This income tax exclusion makes life insurance an attractive financial and estate planning tool.
Which of the following statements is true about the age at which people can collect full Social Security retirement benefits? The full retirement age is the same for everyone. The full retirement age varies by the person's year of birth. The age varies based on the number of years worked. The age varies by the person's average earnings.
The full retirement age varies by the person's year of birth. Explanation: The age at which people can collect full Social Security retirement benefits is not the same for everyone.
Which one of the following statements about the tax treatment of viatical settlements is most correct? The insured pays no federal income tax on the money from a viatical settlement, but may have to pay state taxes depending on his or her state. The insured pays capital gains tax on the money from a viatical settlement. The insured must pay state income taxes on the money from a viatical settlement. The insured is never required to pay any taxes on the money from a viatical settlement, either at the federal or state level.
The insured pays no federal income tax on the money from a viatical settlement, but may have to pay state taxes depending on his or her state. Explanation: Some states treat viatical settlements as tax-free transactions while others do not.
Which of the following statements regarding Keogh (HR-10) qualified plans is correct? It must be structured as a defined contribution plan. They are available only for unincorporated businesses and not-for-profit organizations. The plan must comply with the same maximum contribution and benefit limits applicable to other qualified plans. The partners are not permitted to participate in the plan.
The plan must comply with the same maximum contribution and benefit limits applicable to other qualified plans. Explanation: Keogh plans today are treated the same way as corporate plans with respect to maximum contribution and benefit limits, participation and coverage requirements, and nondiscrimination requirements.
The Notice of Replacement provides all of the following information to the life insurance applicant EXCEPT: A list of any life insurance policies that will be replaced Whether an existing policy will fund the new policy The insurer's identity The role of the Department of Insurance in regulating replacement transactions
The role of the Department of Insurance in regulating replacement transactions Explanation: The Notice of Replacement does not discuss the Department of Insurance's role in regulating replacement transactions.
A married couple is insured under a joint life policy. The first spouse dies. What can the surviving spouse do with the policy? The surviving spouse can renew the policy. The surviving spouse can convert the policy if he or she proves insurability. The surviving spouse may convert the policy without proving insurability. The surviving spouse cannot convert the policy.
The surviving spouse may convert the policy without proving insurability. Explanation: When the first spouse dies in a joint life policy, the surviving spouse has a conversion right that allows him or her to buy an individual policy with the same or lesser face amount.
Which is true about warranties in an insurance contract? They are believed to be true. They establish competency among the parties. They disclose material facts. They are guaranteed to be true.
They are guaranteed to be true. Explanation: A warranty is a statement the maker guarantees to be true in every respect. The warranty becomes a part of the contract.
Which of the following statements about life insurance accelerated living benefits riders or provisions is correct? 1 They have been around a long time. 2 They are designed to provide financial support to beneficiaries after the insured dies. 3 Any policyowner facing a financial crisis can access benefits through a living benefits rider. 4 They let the insured access a portion of the policy's face amount while still alive.
They let the insured access a portion of the policy's face amount while still alive. Explanation: To qualify for accelerated benefits, an insured must prove that he or she has a terminal illness of catastrophic injury resulting in permanent disability.
Why is it that endowment policies do not meet the IRS definition of life insurance? They mature before age 120. They mature after age 120. They do not build cash values. They do not pay death benefits.
They mature before age 120. Explanation: Like other types of life insurance, endowment contracts pay a death benefit at the insured's death.
All the following statements comparing variable life insurance (VLI) and variable universal life insurance (VUL) are correct EXCEPT: VLI policies have fixed premiums while VUL policies feature premium flexibility. VLI policy cash values are accessible only through policy loans while VUL policy cash values are accessible only through partial surrenders. VLI policies generally offer a wide variety of subaccounts to choose from while VUL policies are typically based on a single investment account of mixed stocks. VLI policies provide a minimum guaranteed death benefit while VUL policies have no death benefit amount guarantees.
VLI policies generally offer a wide variety of subaccounts to choose from while VUL policies are typically based on a single investment account of mixed stocks. Explanation: Like whole life, VLI policies guarantee a minimum death benefit whereas VUL policies (like regular UL) cannot guarantee a minimum death benefit because of the premium flexibility inherent in the product.
The expense charge, or load factor, of a life insurance premium usually covers all the following EXCEPT: commissions and salaries safety margin to account for higher than expected mortality losses a charge to reflect the insured's risk of death contribution to profits
a charge to reflect the insured's risk of death Explanation: The load factor covers the insurer's expenses for rent, salaries, benefits, commissions, and field expenses. The insurer also accounts for a margin of profit it wants to earn on its operations.
Brenda owns a nonqualified deferred annuity. Through a Section 1035 exchange, she can exchange her annuity income tax-free for which of the following? an endowment policy or a nonqualified annuity a nonqualified annuity only a life insurance policy or a nonqualified annuity either a qualified annuity or a nonqualified annuity
a nonqualified annuity only Explanation: A nonqualified annuity can only be exchanged for another nonqualified annuity (but not for a qualified annuity, which can only be exchanged with another qualified annuity).
Two months after buying a single premium life insurance policy, Norton kills himself. As a result, what will Norton's family receive from Norton's life insurance policy? nothing a return of premiums paid a return of the premiums paid, plus interest the policy's full death benefit
a return of the premiums paid, plus interest Explanation: If an insured commits suicide during the two-year exclusion period, the insurance company returns the premiums paid, with interest, to the policyowner (if different from the insured) or the beneficiary (if the insured was the policyowner).
Section 529 plans may be used to pay for which of the following? retirement expenses college tuition and related expenses any child-related expenses medical expenses
college tuition and related expenses Explanation: A Section 529 plan is a savings vehicle use to pay for costs associated with registered apprenticeships, homeschooling, up to $10,000 of qualified student loan repayments, and private, elementary, secondary, or religious schools. Although contributions are not tax deductible, the earnings on the investment are tax deferred.
Flora's deferred annuity contract has an 11-year surrender charge period, during which the surrender charge will most likely: remain level increase decrease fluctuate up and down .
decrease Explanation: The surrender charge is typically a declining percentage of the withdrawn amount
Which of the following arrangements best suits a life insurance applicant's goal of keeping the policy out of his or her estate? designate the insured's estate to be the owner of the policy designate the insured to be the owner of the policy designate the insurance company to be the owner of the policy designate an irrevocable trust to be the owner of the policy
designate an irrevocable trust to be the owner of the policy Explanation: A common reason for third-party ownership of a life insurance policy is to prevent the policy's death benefit from being included in the insured's estate. Designating an irrevocable life insurance trust (ILIT) to be the owner is a common way to achieve this.
What must an agent do to figure out a family's lump sum needs if the breadwinner dies? use the human life value approach estimate the amount of taxes and self-maintenance costs for the surviving family estimate the amount of cash needed to pay debts, taxes, and funeral expenses determine the present value of the insured's future potential earnings
estimate the amount of cash needed to pay debts, taxes, and funeral expenses Explanation: The human life value approach estimates the amount of taxes and self-maintenance costs, and subtracts this amount from the insured's estimated earnings each year until retirement.
Howard is 45 and has a modest but steady income. He wants to invest in a product that will provide him a steady, dependable monthly income when he turns 65. Which of the following products would be most suitable for Howard? fixed deferred annuity variable deferred annuity indexed deferred annuity fixed immediate annuity
fixed deferred annuity Explanation: Howard is seeking a specific monthly income in retirement, so an annuity that requires a fixed payment and will guarantee a stable income is his best choice.
John's life insurance policy guarantees a level death benefit amount and a cash value of a specified amount. What type of life insurance does John have? variable life policy fixed whole life policy level term life policy universal life policy
fixed whole life policy Explanation: Term life insurance does not have a cash value.
The types of charges and fees common to variable annuities include all of the following EXCEPT: an annual contract fee the mortality and expense (M&E) cost fund management fees guaranteed cash value fee
guaranteed cash value fee Explanation: Variable annuity charges and fees include the mortality and expense (M&E) cost.
Fred's wife was the primary beneficiary of his $750,000 life insurance policy. She received payments of approximately $900 a month during her life, and at her death, their son received a lump-sum payment equal to $750,000. Which of the following death benefit settlement options does this best describe? lump-sum payment fixed amount option interest-only option fixed period option
interest-only option Explanation: The fixed amount settlement option reduces the death benefit to zero through payments of an amount selected by the beneficiary. That doesn't apply here.
In applying for a whole life insurance policy, Andrea disclosed that she is an avid rock climber. To account for this high-risk hobby, the insurer may do any of the following EXCEPT: issue a policy but charge an additional premium decline the application (do not issue a policy) issue a term life rather than a whole life insurance policy issue a policy that does not pay the death benefit if death is a direct result of rock climbing
issue a policy that does not pay the death benefit if death is a direct Explanation: An insurer may exclude coverage if the insured dies as a result of the occupation or hobby. Alternatively, some policies will cover these risks but charge an additional premium.
All of the following are true statements about the insuring clause of a life insurance policy EXCEPT: it is the basic agreement between the insured and the company. it is typically found on the schedule of benefits page in the policy. it states the promise to pay the death benefit to the insured or named beneficiary. it lists the policyowner's rights under the policy.
it lists the policyowner's rights under the policy. Explanation: The insuring clause states the company's promise to pay the policy's face amount (death benefit) to the named beneficiary if the insured dies while the policy is in force.
Which of the following annuity settlement options would be the best choice for a couple who wants the assurance that annuity income payments will continue as long as either is alive? life income with refund option straight life option life income with period certain option joint and survivor option
joint and survivor option Explanation: Couples who want the assurance of income that will continue as long as both are alive would do best with a joint and survivor option.
Bridget's life insurance policy provides $500,000 of coverage for a period of ten years, at which time the coverage terminates. Which type of policy does Bridget own? increasing term level term decreasing term temporary term
level term Explanation: All forms of term life insurance provide temporary coverage.
The life insurance Buyer's Guide helps prospective buyers determine all of the following EXCEPT: type of insurance to buy most qualified insurer amount of insurance to buy most suitable policy
most qualified insurer Explanation: The life insurance Buyer's Guide helps prospective buyers determine what kind of insurance they need, how much insurance they should buy, and how to find a suitable policy that best suits their needs and objectives.
To own life insurance, the policyowner must be a(n): American citizen natural or non-natural person married individual business owner
natural or non-natural person Explanation: The owner of life insurance does not have to be an American citizen.
Dividend options apply to which of the following? term life insurance non-participating life insurance policies participating life insurance contractual dividend distributions participating life insurance policies when dividends are declared by the insurer
participating life insurance policies when dividends are declared by the insurer Explanation: Participating life insurance does not offer contractual dividend distributions. Dividends are paid when declared by the insurer.
The type of Section 529 plan that lets parents "prepay" a child's tuition at participating in-state public colleges and universities is called a(n): deferred annuity plan college savings plan education savings plan prepaid tuition plan
prepaid tuition plan Explanation: Available in about a dozen states, a prepaid tuition plan is a state-sponsored plan that lets parents "prepay" a child's tuition at participating in-state public colleges and universities.
Under the re-entry renewal method, an insured can renew a level term insurance policy at the end of the specified term at a lower rate than the guaranteed rate by doing what? proving that he or she is under age 50 proving insurability submitting to a medical examination agreeing to convert to a permanent life insurance policy
proving insurability Explanation: To get the lower re-entry rate, the insured must prove insurability at the time of renewal or at periodic intervals throughout the policy's term.
Which entity spreads the cost of losses among its members by having each member pay a pro-rata share of these losses? risk retention group reciprocal insurer reinsurer self-insurer
reciprocal insurer Explanation: A reciprocal insurer is a group of people or businesses that exchange this promise: each member agrees to pay a pro-rata share of any loss suffered by any other member. A reciprocal insurer is essentially a formal risk-sharing arrangement.
With interest-sensitive whole life insurance policies, insurers may change interest and premium rates after reviewing their investment experience. What is the process that insurers use to make these changes called? re-evaluation reconfiguration indexing redetermination
redetermination Explanation: With interest-sensitive whole life insurance policies, both the interest and premium rates can change when the insurer reviews and re-evaluates its assumptions. The process that insurers use to evaluate their actual experience and to apply the changes to their premium rates is called redetermination.
If the owner of a lapsed whole life policy decides to apply its $20,000 cash value to the purchase of a smaller whole life policy requiring no further premiums, she has selected which of the following options? cash surrender option extended term option reduced paid-up option cash surrender and withdrawal provision
reduced paid-up option Explanation: Policyowners can access policy cash values through policy loans, withdrawals, and partial surrenders, but these are not nonforfeiture options.
Timothy buys a declared rate fixed annuity with a guaranteed interest rate of 3 percent. For the first two years of his contract, the annuity paid a current rate of 4 percent. Now, in its third year, the insurer is declaring a new current rate of 5 percent. This new rate is called the: fixed rate step-up rate renewal rate laddered rate
renewal rate Explanation: The second interest crediting rate (called a renewal rate) will also be guaranteed for a limited time. The same applies to all future renewal rates. It may be higher or lower over time, but never below 3 percent.
Carol was 35 when she bought her deferred annuity. Now, at age 38, she wants to withdraw funds from the contract to take a vacation. Carol is likely to encounter all of the following consequences in making the withdrawal EXCEPT: surrender charges statutory minimum withholding requirements LIFO income tax treatment a 10 percent premature distribution tax penalty
statutory minimum withholding requirements Explanation: Carol is under age 59', so the withdrawal will be subject to a 10 percent premature distribution penalty tax. The withdrawal is also subject to last in-first-out (LIFO) income tax treatment and to surrender charges. There are no statutory minimum withholding requirements.
A type of life insurance that covers two people and pays the death benefit only upon the second insured's death is called survivorship life family life spousal life joint life
survivorship life Explanation: Joint life, also called first-to-die insurance, pays the death benefit upon the first insured's death.
Genevieve borrowed $300,000 from XYZ Home Mortgage Corporation and purchased an individual credit life insurance policy to guarantee repayment of the debt. Which of the following will not be stated in her policy? the term of coverage the insurer's name and home office address the circumstances under which premium refunds are payable to Genevieve that the entire amount of proceeds will be payable to Genevieve's named beneficiary or estate at death
that the entire amount of proceeds will be payable to Genevieve's named beneficiary or estate at death Explanation: Individual and group credit life insurance policies must state the insurer's name and home office address, the amount and term of coverage, and the circumstances under which premium refunds are payable to the debtor. Policies must also state that benefits will be paid to the creditor to reduce any unpaid indebtedness at the debtor's death.
What is the name of the period during which premium funds are paid into an annuity contract? the annuity period the benefit period the accumulation period the annuity payout
the accumulation period
A worker's Social Security primary insurance amount (PIA) represents: the benefit amount the worker would receive at full retirement age the benefit amount the worker would receive at age 62 the amount of the benefit that will be used to pay Medicare premiums the amount of the benefit that is taxable
the benefit amount the worker would receive at full retirement age Explanation: PIA is the amount of the retirement benefit the worker will receive when he or she reaches full retirement age. It is the basis for benefits payable to the worker's family and dependents.
What does the length of an annuity's surrender charge period depend on? the age of the beneficiary the amount selected by the owner the contract design and the insurer issuing the contract the age of the annuitant
the contract design and the insurer issuing the contract Explanation: The amount selected by the owner is not an issue in determining an annuity's surrender charge period.
When paying policy death benefits, life insurance companies must consider all of the following, EXCEPT: the order of beneficiaries and their succession the insurable interest between the insured and beneficiary the succession of beneficiaries the share of the death benefits that goes to each beneficiary, if the insured has named more than one
the insurable interest between the insured and beneficiary Explanation: The insurance company must follow the deceased owner's instructions about the succession of beneficiaries.
A change in the net asset value (NAV) of a variable annuity subaccount will change all the following EXCEPT: the number of accumulation units held in that subaccount the number of accumulation units that would be acquired through a premium payment to that subaccount the accumulated value of that subaccount the deferred annuity's total accumulated value of all subaccounts
the number of accumulation units held in that subaccount Explanation: While a change in NAV affects the value of VA subaccounts (and the annuity as a whole) and accumulation units acquired, it does not change the number of accumulation units held in that VA subaccount.
Which of the following is not a potential consequence of replacing a life insurance policy? the need to prove insurability again the possibility of the new insurer cancelling the replacement policy after it is issued a new surrender charge period a new contestability period
the possibility of the new insurer cancelling the replacement policy after it is issued Explanation: Though there are several risks associated with policy replacement, the new insurer canceling the policy is not one of them. Except for non-payment of the premium, life insurance policies are non-cancellable.
Matt participates in the company's qualified retirement plan and is planning to retire at age 67. He must begin receiving distributions from the plan by April 1 of the year following the year in which he: reaches his Social Security full retirement age turns age 62 turns age 70' turns age 75
turns age 70' Explanation: Plan distributions must begin no later than April 1 of the year following the year the participant turns 70' or upon retirement from the plan sponsor, whichever is later.
Children covered by a family term rider can convert their coverage to permanent coverage at age 21 without proof of insurability. The converted policy's face value is typically which of the following amounts? one-half of the base whole life policy's face amount the same amount as the term insurance provided under the family term rider up to two times the coverage under the family term rider up to five times the coverage under the family term rider
up to five times the coverage under the family term rider Explanation: Children covered by this rider can convert their coverage to permanent coverage at age 21 without proof of insurability. Typically, the converted policy's face value can be up to five times the coverage under the family term rider.
Producers must inform consumers about the practices that insurance companies will use in their review and underwriting processes. Typically, these processes include all of the following, EXCEPT: getting an attending physician's statement (APS) using investigative agencies and credit agencies using the MIB using phone taps
using phone taps Explanation: For information about their applicants, insurance companies look to sources including the MIB.
If a person buys a new life insurance policy to replace an existing one, the producer must give the applicant the Notice Regarding Replacement form no later than when? when the initial premium is paid when the application is taken when the person is first solicited when the policy is delivered
when the application is taken Explanation: If a new life insurance policy will replace an existing one, the producer is required to give the applicant no later than at the time of application the Notice Regarding Replacement form.
If the insurer provides a ten-day free-look period for a life insurance policy it sells, when may it give the Buyer's Guide and policy summary to the policyowner? when the initial premium is paid when the application is taken when the person is first solicited when the policy is delivered
when the policy is delivered Explanation: If an insurer provides for a free-look period of at least ten days, it may deliver the Buyer's Guide and policy summary with the policy to the policyowner, but not any later. Otherwise, the insurer must deliver the Buyer's Guide and policy summary before it accepts the initial premium.
For which one of the following types of life insurance policies would a fixed premium payment plan be required? whole life insurance adjustable life insurance universal life insurance variable universal life insurance
whole life insurance Explanation: Under a flexible premium payment plan such as universal life (including variable universal life) and adjustable life, the policyowner can change the premium payment amount or frequency of payment, at will, after the first payment.
Harry is diagnosed with a cognitive disorder. To become eligible for payments under his policy's long-term care rider, which condition must he meet? that his health or safety had been at risk within the last six months that he has been mentally handicapped for the past 12 months within the past 12 months, a physician-certified that his health or safety would be at risk without supervision that the mental condition appeared within the past ten months
within the past 12 months, a physician-certified that his health or safety would be at risk without supervision Explanation: To become eligible for payments under a long-term care rider for a mental health reason, Harry must prove that his health or safety would be at risk without supervision. The insured must be certified within the last 12 months.