Types of Insurance Compa
All of these statements correctly describe an aleatory
Only one party makes any kind of legally enforceable offer.
When would evidence of insurability be required for a person already covered with a variable universal life policy?
When the death benefit is increased
At what point are death proceeds paid in a joint life insurance policy?
When the first insured dies
What is a juvenile life insurance policy?
a life policy that covers the life of a minor
Under the law of agency. The principal is considered to be
the producer
A material change in a modified endowment contract (MEC) results in
the seven pay test, adjusted for cash value, applies again
How does a continuous premium whole life policy differ from a limited payment whole life policy?
the time period in which premiums will be paid
Which of these is NOT a reason to buy a term life policy?
to accumulate savings
How long does protection normally extend under a limited pay whole life policy?
until age 100
An insurance policy that can also be classified as a securities product is called
variable life insurance
Which type of life insurance policy allows a policyowner the choice of investments along with flexible premium payments?
variable universal life
An insurance company's failure to enforce a contract's provision is called a(n)
waiver
Giving up a known right on a voluntary basis is called a(n)
waiver
During the application process a statement made by an applicant that becomes part the contract is considered to be a(n)
warranty
A contract is considered void in all the following situations except
when consideration is unequal
An insurance company can be liable for a producers unauthorized acts
when the agency contract is unclear concerning the authority given
Which statement regarding universal life insurance is correct?
Additional premiums may be required under certain conditions
A survivorship life insurance policy usually covers how many lives?
2
Which situation would not require the insured's consent when life insurance policy issued
A policy is purchased by a parent for a minor child
A producer working for insurance company may be personally liable for
Acts performed which are prohibited in the agency contract
Insurance is NOT characterized as which of the following
As the number of insureds increases the number of of losses decreases
Insurance is not characterized as which of the following
As the number of insureds increases the number of of losses decreases
Which of these statements regarding insurance is false
As the number of units increases, the number of losses decreases
Which of these is true regarding the exchange of consideration among parties involved in an insurance contract
Can be unequal
An insurance application requires an applicant to make a full accurate disclosure of the risk factor involved. Using this criteria, an insurance policy is considered what type of contract?
Contract of utmost good faith
Which of the following situations would an insurance agent need to guard against liability for professional errors and omissions
Making a recommendation to a potential insured to replace existing coverage
Which of the following relationships demonstrate insurable interest in the absence of economic interest
Marriage partners.
Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk gregs false statement is called a(n)
Material misrepresentation
Insurable interest involves what assumption
One person benefits from the continuation of another's life
According to the law of large numbers, how would losses be affected in the number of similar insured units increase
Predictability of losses will be improved
Which of the following outlines the authority given to the producer on behalf of the insurer
Producer contract.
Which of the following would NOT be a reason for purchasing life insurance on a child's life?
Provide benefits for the child if the parent dies
Which of these statements is NOT a characteristic of the law of large numbers
Rates can be calculated to compensate for losses
Ambiguities in insurance contracts are typically interpreted in favor of the insured. The rule is referred to as
Reasonable expectations
An insured is entitled to coverage under a policy that a prudent person would expect it to provide. The principle is called
Reasonable expectations
A(n) ___ insurer assumes risk from another insurance company
Reinsurance
An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this
Reinsurance
Statement made by an insured on an accident and health insurance application are consideration
Representations
What is the insurance responsible for when a producer is acting within the scope of authority granted in the agency contract
Responsible for acts by the producer that are authority only
A group-owned insurance company that is formed to assume and spread the liability risk of its members is known as a
Risk Retention Group
When a producer acts within the scope of his/her contractual authority, which of the following is legally responsible for these actions
The Insurer
Type of insurance policies
Type of insurance policies
An agent's authority to bind an insurer to an insurance contract may be granted in the
an agents contract and the insurance company's appointment
A reciprocal insurer typically has an administrator who manages the premiums collected from the group's members. The administrator is called A(n)
attorney-in-fact
Voluntarily terminating an insurance policy is also known
cancellation
A(n) ___ agent is an insurance agent who represents only one insurance company
captive
Which of the following types of insurers limits the exposures it writes to those of its owners
captive insurer
The payment of the first premium, the promise to pay a covered loss and the agreement to abide by policy conditions are all examples of
consideration
The courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is a(n)
contract of adhesion
An agreement is reached when an insurance contract is formed. Which of the following is not considered to be an element of an agreement
equity
The powers directly given to a producer in an agency contract are called
express
An appointed producer implied authority is derived from
express authority
When a ceding insurer transfers a portion of its risk to an assuming insurer on a case basis, this process is referred to as
facultative reinsurance
The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement is called
implied authority
XYZ insurance company gives a direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums
implied authority
When must insurable interest exist for a life insurance contract to be valid
inception of the contract
A(n) ___ agent may represent several insurers
independent
legal concepts
legal concepts
Risk __ is the process of analyzing exposures that create risk and designing programs to handle them
management
An insurance contract may be voided if a misrepresentation found on the application is determined to be
material
An agent whose actions exceed the authority granted by contract is
not backed by the insurer
Which of the following is NOT an example of risk retention
not doing a business deal after deciding it would be too risky
Which of the following is an unincorporated association whose members provide coverage for one another
reciprocal
Which of the following describes the act of insuring a risk against possible loss
risk transfer
Assets that back the non-guaranteed values of variable life insurance products are held in which account?
separate account set up by the insurer
Dividends from a stock insurance company are normally sent to
shareholders
A stock insurance is owned by its
shareholders.
Which of these policies is considered a whole life policy?
single premium life
Which of the following would not have a restricted ability to enter into a contract
small employees
What type of risk involves the potential for loss AND the possibility for gain?
speculative risk
Which one of these is NOT considered to be an element of insurable risk
speculative risk
Which statement concerning adjustable life insurance is accurate?
the face amount and premiums can be changed simultaneously by the policyowner
all of these statement concerning group credit life insurance are false except
the face amount is based on the outstanding loan balance
What would be considered an advantage of purchasing term life insurance
the initial premium is lower compared to an equivalent amount of whole life coverage
A business becoming incorporated is an example of risk
transfer
A hold-harmless claude is an example of
transfer
Which of the following involves sharing an uncertain risk within another similar group
transfer
Purchasing insurance is an example of risk
transference
Which reinsurance contract between two insurers involves an automatic sharing of the risk assumed
treaty reinsurance
Which statement concerning a decreasing term life policy is accurate?
Face amount decreases over the policy period
What type of risk involves the potential for loss with no possibility for gain
pure
Which of the following types of risk is insurable
pure
ABC company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk
reduction
Which of the following is not an objective of the National association of insurance commissioners
regulate state insurance commissioners.
How can an insurance company minimize exposure to loss?
reinsuring risk
What is the accounting measurement of an insurance company's future obligations to it policyowners
reserves
Which statement regarding whole life insurance is accurate?
Insurance coverage can continue for life
Which of the following statements about universal life insurance is NOT true?
Universal life insurance normally has a minimum guaranteed cash value for duration of the policy
A nonparticipating whole life insurance policy was surrendered for its $20,000 cash value. The total premiums paid had totaled $16,000. What were the federal income tax consequences to the policy owner on receipt of the cash value?
$16,000 was received tax-free and $4,000 as ordinary income
A "premature" distribution from a modified endowment contract (MEC) incurs a penalty tax of
10%
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?
100%
Which type of life insurance policy is best suited for paying off the outstanding balance of a 30-year mortgage in the event of the insured's death?
30 year decreasing term
Which of these is NOT an advantage of term life insurance?
A cash benefit will be produced if the insured is alive at the end of the policy period
Which is an accurate description of the premium in a grade premium life insurance policy?
Annual increases in premium for a stated number of years then remains level.
the following are all elements of valid contract except
Answer written evidence
When does the insured stop making payments under a thirty-payment whole life policy?
At the time of death or 30 years after the policy's inception, whichever comes first
Which statement regarding universal life insurance is correct?
Cash value accumulations have a guaranteed minimum interest rate
What kind of life policy typically offers mortgage protection?
Decreasing term
Which of these is NOT considered a type of limited payment whole life insurance?
Endowment at age 70
Rick owns a variable universal life policy and chooses a variable death benefit option. What will typically happen to the death benefit as a result of this selection?
Fluctuate with changes in the cash account
How long does one premium payment cover in a single premium whole life policy?
Full life of the policy
Which of the following is a TRUE statement regarding universal life insurance?
Policy indicates how much of each premium is used toward company expenses
Which statement regarding an adjustable life insurance policy is NOT true?
Policy loans are not permitted
Straight whole life insurance can be accurately described in all of these statements EXCEPT
Policy protection normally expires at age 65
Which of the following could be a future use of the cash value that builds in a recently-purchased whole life insurance policy?
Provide supplemental income in 35 years
How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies?
Survivorship life policy is lower
Which of these must be disclosed in a universal life policy?
The policy's surrender charges
What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued?
Under $50,000 initially, but increases over time
An individual who purchases a modified life insurance policy expects
an improvement in future income
what qualifies as acceptance of an insurance contract offer
an issued policy
Use of XYZ insurance company brochures, business cards and rating guides is an example of
apparent authority
Who normally pays the premiums for group credit life insurance?
borrower
Which of the following is generally a form of group credit life insurance?
decreasing term insurance
Which of these life insurance policies does NOT contain a cash value provision?
decreasing term life
Christopher is issued an insurance policy that contains an attached agreement which alters the terms of the policy. This attached agreements is called a(n)
endorsement
Which statement concerning an adjustable life insurance policy is FALSE?
evidence of insurability is required when there is a change in premium
Which of these may NOT be deducted from premium payments or the cash value of a variable insurance policy?
federal premium taxes
Which of the following combinations best describe a universal life insurance policy?
flexible premium deposit fund and a monthly renewable term insurance policy
A condition that increases the possibility of financial loss is called a(n)
hazard
For insurance purposes, similar objects which are exposed to the same group of perils are referred to as
homogeneous exposure units
A policy owner has just borrowed from a life insurance policy's cash value. Which of these statements is true?
in the event of death, the loan amount is deducted from the policy proceeds
What happens when an initial offer is answered with a counteroffer
initial offer is voided
In what way are insurance policies said to be aletory
involves the potential for the unequal exchange of value
What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?
joint
The death proceeds of a credit life insurance policy are typically paid to the
lender
What is the guaranteed cash value of a whole life insurance policy when the insured turns 65 years old?
less than the policy's face amount
What type of premiums are associated with individual mortgage protection life insurance policies?
level premiums
Laura added a children's rider to her life insurance policy. What type of coverage was added?
level term
Which of the following financial products creates an instant estate, no matter when the date of death.
life insurance
which of the following is a syndicate established by a group of insurers to share underwriting duties
lloyds organization
Which of these do not indicate the presence of insurable interest in a life insurance contract
long-life friendship
A life policy that has premiums that are lower than normal during the early years is called
modified life
The insurer's obligation to pay a claim depends on whether the insured or beneficiary has complied with all the policy conditions. This makes the policy a(n)
offer
Which element of a contract constitutes a definite and unqualified proposal by one party to another?
offer
These are accurate statements regarding universal life insurance
policy are not permitted
Which of these statements accurately portrays an adjustable life insurance policy?
policy can alternate between form of term and whole life insurance
Which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)?
policy loans
Dividends from a mutual insurance company are paid to whom
policyholders
Which of the following can be accurately described as participating insurance policy
policyowners may be entitled to receive dividends
What typically changes at the re-entry option date found in some term life policies?
premium
How are level term policies able to provide level premiums?
premium are average over the term of the policy
which of the following can be defined as the potential for loss
risk
Which term describes the elimination of a hazard?
risk avoidance
Who regulates an insurer's claim settlement practices?
state insurance department
Which group is the DO NOT call registry designed to protect against
telemarketing calls
When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for
ten year term insurance for a person aged 55
An insurable risk requires
that the chance of loss be calculable
Taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for
the Policy is surrendered for less than what was paid into it
An arrangement where an individual is authorized to act on behalf of another person or company is established through
the law of agency
Under an adjustable life insurance policy, which of the following may NOT be changed without further underwriting?
the person insured
An advantage of owning a flexible premium life insurance policy would be
the policy owner can make policy changes without difficulty
