TN LIFE INSURANCE - STATE EXAM FLASHCARDS (EXAM FX)

What are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2?

10% penalty

A policy states that it will pay a specified face amount if the insured dies during the 20-year premium-paying period and nothing id death occurs after the 20-year period. What type of policy is this?

20-year level term

What is the penalty for excessive contributions to a traditional IRA?

6%

What is the name for an overfunded life insurance policy?

A Modified Endowment Contract (MEC)

What are the most common penalties for violations of insurance statutes?

A cease and desist order, a fine, and license suspension or revocation

To meet the requirement of the entire contract policy provision, an insurance policy must contain what?

A copy of the original insurance application

What type of premium is charged on a straight life policy?

A level premium for the life of the insured

What types of license(s) is/are required to sell variable annuities?

A life insurance license and a securities license

What is policy replacement?

A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value

Who is an insurance agent?

A person authorized to sell, solicit and negotiate insurance contracts

Who may contribute to an HR-10 plan?

A self-employed individual

Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?

Absolute assignment

What are the two phases of an annuity?

Accumulation and annuitization (or pay-in and pay-out)

Whole life policies provide protection until the insured reaches what age?

Age 100

Who is a field underwriter?

Agent/Producer

What are the four elements of an insurance contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

Who must be a member of insurance guaranty associations?

All insurers authorized to write insurance within a state

In flexible premium payments annuities, the term flexible refers to what?

Amount of premium

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the insurance contract is based

Who is considered a nonresident agent?

An agent who resides and is licensed in another state, but who is authorized to transact insurance in this state

Who would be considered a third-party owner?

An individual or an entity who is not the insured

Group life insurance policies are written as what type of insurance?

Annually renewable term

The death protection component of a universal life policy is expressed as what type of coverage?

Annually renewable term

Who receives income payments from an annuity?

Annuitant

Whose life expectancy is taken into consideration in an annuity contract?

Annuitant

If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?

Annuitant's estate

In an annuity, the accumulated money is converted into a stream of income during which phase?

Annuitization period

An individual has a contract that will provide him with a certain amount of income for the rest of his life. However, this in not a life insurance policy. What type of contract does this person have?

Annuity

When must insurable interest exist in a life insurance policy?

At the time of application

When must the policy summary for a life insurance policy be delivered to the policy owner?

At the time of policy delivery

If an insurer holds a Certificate of Authority, it is known as what type of insurer?

Authorized or admitted

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Authorized or admitted

What does liquidity mean in a life insurance policy?

Availability of cash value

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

Beneficiary

What type of licensee represents the insured?

Broker

Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?

Cash surrender

What are the three nonforfeiture options in life insurance policies?

Cash surrender, reduced paid up, and extended term

In variable universal life insurance, to what policy component does the term "variable" refer?

Cash value and death benefit

According to the taxation rules of life insurance policies, how are cash value increases taxed?

Cash value growth is tax deferred

What happens to the cash value when a whole life insurance policy matures?

Cash value is paid to the policyowner

What are the dividend options in life insurance policies?

Cash, reduced premium, accumulation at interest, paid-up additions. one-year term, and acceleration of endowment

If the Commissioner/Superintendent finds a licensee engaging in an unfair method of competition or an unfair practice, what order will be issued?

Cease and Desist Order

What document is required for an insurance company to transact insurance?

Certificate of Authority

What type of assignment is used to secure the payment of a debt with an existing life insurance policy?

Collateral assignment

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Complete a new application or ask the applicant to initial the correction on the original application

What are producers required to do in order to renew their license?

Complete continuing education hours and pay a renewal fee

Health contracts are prepared by insurers and must be accepted by the insured on an 'as is' basis. This describes what aspect of a health insurance contract?

Contact of adhesion

What type of beneficiary is next in line after the primary beneficiary?

Contingent beneficiary

What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?

Death benefits are generally not subject to income taxes

An individual has just borrowed $10,000 on a 5-year note from his bank. The note is due in installments. What type of life insurance policy would be best suited to this situation?

Decreasing term

What type of life insurance is best suited to cover a mortgage?

Decreasing term

If a producer makes maliciously critical statements about another insurer, what is this illegal practice called?

Defamation

Two individuals who are in the same risk and age class are charged different rates for their insurance policies due to an insignificant factor. What is this called?

Discrimination

Why are dividends in life insurance policies not taxable?

Dividends are not considered income for tax purposes; they are a return of unused premium

Insurers are classified according to their domicile. What are the three types of insurers?

Domestic, foreign, and alien

What is required to qualify an individual to contribute to a traditional IRA?

Earned income

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

Either on the date of the application or the date of the medical exam (whichever occurs last)

If the annuitant dies before the annuitization period starts, what will the beneficiary receive?

Either the amount paid into the annuity or the cash value, which ever is greater

For a retirement plan to be qualified, it must be designed for whose benefit?

Employees

Who qualifies for tax-sheltered annuities, or 403(b) plans?

Employees of nonprofit organization under Section 501(c)(3) and employees of public school systems

What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?

Entire contract

What type of annuity credits its interest based upon a index such as S&P 500?

Equity indexed annuity

Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. What is this called?

Estate conservation

What is the main advantage of converting from group life insurance to individual coverage?

Evidence of insurability is not required

What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?

Extended term

What does the term "level" refer to in level term insurance?

Face amount

What policy component must decrease in term insurance?

Face amount

An annuity purchased with multiple payments that begins income payments after one year from the moment of purchase is known as what type of annuity?

Flexible premium deferred annuity

Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid

For 20 years or until the insured's death, whichever occurs first

For what reason can a temporary license be issued?

For continuation of business in case the licensed producer dies or becomes disabled

How long will a life annuity with a 15-year period certain pay?

For the life of the annuitant unless he/she dies within the first 15 years of the annuitization period; then the payments will last for 15 years.

What provision in a life insurance policy extends coverage beyond the premium due date?

Grace period

What required provision protects against unintentional policy lapse?

Grace period

What type of policy is typically issued without proof of insurability from the insured?

Group policy

What type of policy issues certificates of insurance to the insureds?

Group policy

What are the characteristics of the group that underwriters will consider before issuing a group life policy?

Group's purpose, size, financial strength and turnover

What qualified plan is suitable for the self-employed?

HR-10 or Keogh

What are some examples of qualified plans?

IRA, 401(k), HR10 (Keogh), SEP, SIMPLE

What are the two classifications of annuities according to the time when annuity payments begin?

Immediate and deferred

What type of annuity can be purchased with a single premium?

Immediate annuity

In what form of payment must the contributions to a traditional IRA be made?

In cash (or cash equivalents)

What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?

Incontestability

What two elements are necessary for a life insurance contract to have a legal purpose?

Insurable interest and consent

What do individuals use to transfer their risk of loss to a larger group?

Insurance

In general, who can be excluded from producer licensing and examination requirements?

Insurance company officers, directors, or any other employees who do not transact insurance and who do not receive commissions for their services (usually, their responsibilities include administrative, executive or clerical)

What is a controlled business?

Insurance on the producer's own life or property, or the lives or property of the producer's family or business associates

In the agent/insurer relationship, who is considered the principal?

Insurer

What entities make up the Medical Information Bureau?

Insurers

What are the three main instances when insurable interest exists in life insurance?

Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policyowner

During partial withdrawal from a universal life policy, what portion, if any, will be taxed?

Interest earned on the withdrawn cash value

If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion, if any, will be taxed?

Interest only

What report is used to assess risk associated with a health insurance applicant's lifestyle and character?

Investigative Consumer Report

What type of report provides information about the applicant's hobbies, habits and financial status?

Investigative consumer report

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?

It will be paid to the insured's estate

If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that?

Joint life annuity

Mortality tables are used by insurance companies to predict what?

Life expectancy and the death rather for specific groups of individuals

What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?

Life income with period certain

What type of life insurance policy is Life Paid-up at Age 65?

Limited-pay Whole Life

A whole life policy that requires that the policy owner only pays premiums for a specified number of years is known as what kind of policy?

Limited-pay whole life

Insurance is a contract that protects the insured from what?

Loss

If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used by the insurer?

Lump-sum payment

What settlement options are available in life insurance policies?

Lump-sum/cash, fixed period, fixed amount, life income, interest only

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. What is the company guilty of?

Misrepresentation

What illegal act does a producer commit when the producer represents a policy in a more favorable light than the policy really is?

Misrepresentation

How soon can income payments begin in an immediate annuity?

No later than 1 year from the time of annuity purchase

SIMPLE plans are available to groups of how many employees?

No more than 100

With a single premium deferred annuity, when will the annuity payments become available?

No sooner than 1 year after the annuity purchase

Can insurers advertise the existence of the guaranty association during solicitation and sale of insurance policies?

No, advertising of the existence of the guaranty association for the purposes of solicitation and sale of insurance policies by insurers is an illegal business practice

Can a business or a corporation be an annuitant?

No, an annuitant must always be a natural person

In qualified plans, are employer contributions taxed as income to the employees?

No, employer contributions are not taxed as income to the employees

Is the death benefit of a life insurance policy taxed to the beneficiary if it's received as a lump sum?

No, lump-sum benefits are received tax free

Is the beneficiary required to have insurable interest in the insured?

No. Beneficiates do not have insurable interest in the insured

Health insurance contracts are unilateral. What does that mean?

Only one party makes a legally enforceable promise

Who may share in the commission from the sale of a life insurance policy?

Only producers properly licensed for the type of insurance transaction

Upon surrender of a life insurance policy, what portion of the cash value will be taxed?

Only the portion in excess of the premium paid

What universal life option has a gradually increasing cash value and a level death benefit?

Option A

What are the death benefit options in universal life policies?

Option A- level death benefit, and Option B - increasing death benefit

What is the name for a lift insurance policy rider that provides coverage on the insured's family members?

Other-insured rider

What dividend option can increase the death benefit of the existing life policy?

Paid-up additions

What dividend option is automatically selected by the company if not chosen by the policyowner?

Paid-up additions

An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?

Pay a reduced death benefit

What is adverse selection?

People who are more likely to submit insurance claims are seeking insurance more often than preferred risks.

What type of life insurance offers an applicant a cash value element?

Permanent insurance (usually, whole life)

How can health insurance policies be delivered to the insured?

Personally delivered by the agent or mailed

Who has the right to the cash value of a life insurance policy?

Policy owner

What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?

Policy premium in a reinstated policy will be set according to the insured's original age

With the interest only settlement option, what happens to the policy's death benefit?

Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary

What document describes the specific information about a policy?

Policy summary

Who controls changes in premium payments, face values, and loans in a life insurance policy?

Policyowner

Who must have insurable interest in the insured?

Policyowner

What risk classification would typically qualify for lower premiums?

Preferred risk

What term describes the fee a person pays an insurance company to receive coverage?

Premium

What beneficiary designation has first claim to the death proceeds of a life insurance policy?

Primary beneficiary

Who can usually be granted a temporary license?

Producer's spouse or designee in case the licensed producer dies or becomes disabled

What is the primary purpose of a 401(k) plan?

Provide retirement income

If an insurer needs to obtain information about the applicant from investigators, what is the insurer required to do?

Provide the applicant a Disclosure Authorization Notice

An agent offers a client free tickets to a sporting event in exchange for the purchase of an insurance policy. What is the agent guilty of?

Rebating

What nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up

What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?

Reinstatement

What are three types of Social Security benefits?

Retirement, disability and survivors

What are policy dividends?

Return of unused premiums

What is the best way to handle incomplete insurance applications?

Return the application to the applicant for completion

What type of beneficiary can be changed at any point by the policyowner?

Revocable

What is the main responsibility of a company's underwriting unit?

Risk selection

If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?

Send the application back to the applicant for signature

What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?

Settlement options

What type of whole life insurance policies only requires a payment of premium at its inception, and in addition to providing insurance protection for the life of the insured, endows at the insured's age 100?

Single premium whole life

What type of whole life insurance policy generates immediate cash value?

Single premium whole life

What are the three types of risk rating classifications in life insurance?

Standard, substandard and preferred

Who owns stock companies?

Stockholders

What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives

Straight life

What are the personal uses of life insurance?

Survivor protection, estate creation and conservation, cash accumulation and liquidity

What type of life insurance policy offers pure death protection?

Term

Who must be notified of a producer's change of address?

The Department of Insurance (Commissioner /Director/Superintendent)

What law protects consumers from the circulation of inaccurate or obsolete information?

The Fair Credit Reporting Act

If an applicant does not receive a copy of the new insurance policy, who would be help responsible?

The agent

What type of licensee represents the insurance company?

The agent

Whose responsibility is it to determine that all the questions on a insurance application are answered?

The agent's

What is the purpose of the agent's report during the application process?

The agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process.

What elements of an adjustable life policy can be changed by the policyowners?

The amount and payment period of the premium, the face amount, and the period for protection

A policyowner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?

The amount of the loan will be subtracted from the death benefit

Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?

The annuitant receives payments from the annuity during the annuitization period; the beneficiary receives benefits after the annuitant's death

What happens to a policy's cash value under an extended term nonforfeiture option?

The cash value is converted to the same face amount as in the whole life policy

An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?

The death benefit will be adjusted to the amount that the insured could obtain for her correct age

With the reduction of premium dividend option, how is the dividend used?

The dividend is applied to the next year's premium (it reduces the next year's premium)

Who owns a group life insurance contract?

The employer (also known as the sponsor of the group)

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?

The existence of insurable interest between the applicant and the insured

Whole life insurance policies mature when the insured reaches the age of 100. If the owner of a whole life policy (the insured) dies at the age 80, and there are no outstanding loans on the policy, what portion of the death benefits will be paid to the beneficiary?

The full death benefit

Who is responsible for the contents of insurance advertisements?

The insurance company

In annually renewable term policies, what is the annual premium based upon?

The insured's attained age

When planning for survivor protection in life insurance, what needs to be considered?

The insured's current assets, liabilities and survivor's needs

Who bears the investment risk in a fixed annuity?

The insurer

Who is responsible for the costs associated with the examination of insurers?

The insurer who is being examined

What does the term double indemnity mean?

The insurer will pay a benefit of twice the face amount

In the fixed-period settlement option, how will the number of installments for the death period proceeds determine the amount of the installments?

The longer the period selected, the smaller each installment will be

What is the difference between a single premium and a flexible premium payment options in a deferred annuity?

The number of payments that purchase the annuity

If a retirement plan is qualifies, what does that mean?

The plan has favorable tax treatment

Who is entitled to the cash values in a life insurance policy?

The policyowner

What happens to the premium in a annually renewable term life policy?

The premium increases with each renewal

How is the premium determined in a joint life insurance policy?

The premium is based on the average age of the insureds

What happens to the proceeds of a life insurance policy if there is no named beneficiary?

The proceeds are paid to the insured's estate

What is insurance underwriting?

The process of risk selection and classification

Why are policy loans not available on term insurance?

There is no cash value to borrow against

How is the information obtained for an investigative consumer report?

Through interviews with the applicant's associates, friends, and neighbors

What is the purpose of a free-look period?

To allow the insured to return the policy with a full refund

To whom may a certificate of authority be issues?

To an insurer authorized to transact business in this state

What is the purpose of settlement options in life insurance policies

To determine how the death benefit will be paid to the beneficiary

What is the main purpose of the 7-pays Test?

To determine if a life insurance policy is a Modified Endowment Contract

What is the purpose of a cease and desist order?

To prevent a producer or insurer from further violating laws for transacting insurance

What is the purpose of establishing the target premium for a universal life policy?

To prevent the policy from lapsing

What is the purpose of the Automatic Premium Loan provision?

To prevent the unintentional lapse of a policy because of nonpayment of the premium

What is the purpose of insurance guaranty associations?

To protect policyowners, insureds and beneficiaries from financial losses caused by insolvent insurers

What is the main reason for purchasing an annuity?

To provide income that the annuitant cannot outlive

What type of misrepresentation persuades an insured, to his or her detriment, to cancel, lapse, or switch policies from one to another?

Twisting

Under Option B in a universal life policy, what happens to the death benefit?

Under Option B, the death benefit increases each year by the amount of the cash value increases

During which stage in the insurance process do insurers evaluate information that identifies adverse selection risks?

Underwriting

What is the name of the process that insurance companies use to determine whether or not an applicant is insurable?

Underwriting

In health insurance contracts, the insured is not legally bound to any particular action; however, the insurer is obligated to pay for losses covered by the policy. What contract element does this describe?

Unilateral

In what type of life insurance policies can the policy owner skip premium payments without the policy lapsing?

Universal life

In a joint life policy, when is the death benefit paid?

Upon the first death

What type of annuity requires an agent to have a securities license?

Variable annuity

What life insurance policy rider allows the company to forgo collecting the premium if the insured becomes disabled?

Waiver of premium

What are the most common exclusions in life insurance policies?

War and military service, hazardous occupation, and aviation

When can an insurance company use suicide as a defense against paying a death claim?

When a suicide is committed within a specified period of time after the policy is purchased (usually two years)

When can the Commissioner or Director examine insurers?

When deemed necessary, but at least once every few years (please check your state regulations for specific time requirement)

When would a misrepresentation on an insurance application be considered fraud?

When it is intentional and material

When would a misrepresentation be considered material?

When it may alter the underwriting decision

When does an adjustable life policy accumulate cash value?

When premiums paid are more than the cost of the policy

When is controlled business legal?

When the commissions from controlled business do not exceed the aggregate commissions on all the other business (specific limits may vary from state to state)

In insurance, when is the offer usually made on a contract?

When the insurance application is submitted

When would a 20-pay whole life policy endow?

When the insured reaches age 100

In forming an insurance contract, when does an acceptance usually occur?

When the insurer approves a prepaid application

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid

When will a contingent beneficiary receive death benefit from a life insurance policy?

When the primary beneficiary dies before the insured

When would life insurance policy proceeds be included in the insured's taxable estate?

When there is an incident of ownership at the time of death

If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?

Whole life

What type of life insurance policy provides a permanent protection?

Whole life

What type of insurance would perform the function of cash accumulation?

Whole life insurance