Updated Insurance Cards
A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called a) 1035 exchange. b) Qualified distribution. c) Premature distribution. d) Rollover. In accordance with Section 1035 of the Internal Revenue Code, certain exchanges of life insurance policies and annuities may occur as nontaxable exchanges.
a) 1035 exchange.
What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? a) $1,000 b) $100 per violation c) Revocation of license d) $2,500
d) $2,500 An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500.
Which of the following is NOT a type of whole life insurance? a) Increasing term b) Single premium c) Straight life d) Limited payment
a) Increasing term There are several types of whole life policies. The first three, Straight Life, Limited Payment, and Single Premium, are the basic forms of whole life. Increasing term is a type of term insurance.
According to New York law, hearings ordered by the Superintendent must be a) Open to the public. b) Held at least once a month. c) Attended by at least 2 insurance company representatives. d) Held before a quorum consisting of 10 people.
a) Open to the public. Hearings must be open to the public unless the Superintendent feels a private hearing is in the best interest of the public.
An applicant wants to buy a policy that has a cash value element. Which type should she buy? a) Permanent b) Stock c) Investment d) Term
a) Permanent Unlike term insurance, permanent insurance provides lifetime death protection and a savings or cash value option.
In order for a nonresident licensee to become a resident producer in New York, the licensee must a) Pass a written exam. b) Apply within 90 days of becoming a resident. c) Wait 6 months and close out all existing business. d) Fulfill New York's prelicensing requirements.
b) Apply within 90 days of becoming a resident. If a licensed individual becomes a resident of New York, he or she must apply for a license within 90 days of becoming a legal resident, but does not have to fulfill prelicensing or examination requirements for lines of authority held in the previous state, unless the Superintendent determines otherwise.
Which of the following riders would NOT cause the Death Benefit to increase? a) Accidental Death Rider b) Payor Benefit Rider c) Guaranteed Insurability Rider d) Cost of Living Rider
b) Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.
Life income joint and survivor settlement option guarantees a) Payment of interest on death proceeds. b) Payout of the entire death benefit. c) Equal payments to all recipients. d) Income for 2 or more recipients until they die.
b) Payout of the entire death benefit. The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.
An individual purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy? a) Nothing b) $50,000 c) $100,000 d) $200,000
c) $100,000 In joint life policies, the death benefit is paid upon the first death only.
The Superintendent can examine an authorized fraternal benefit society and property/casualty insurance company once every a) 12 months. b) 18 months. c) 3 years. d) 5 years.
c) 3 years. The Superintendent will make an examination of every authorized fraternal benefit society and property/casualty insurance company at least once every 3 years. Every domestic life insurer must be examined at least once every 5 years.
Which concept is associated with "exclusion ratio"? a) How exclusion riders affect an insurance premium b) Policy provisions c) Annuities payments d) Dividend distribution
c) Annuities payments Some parts of an annuities payment are taxable, while others are not. The return of the principal paid in is nontaxable. The portion that is taxable is the actual amount of payment, less the expected return of the principal paid in. This relationship is called the "exclusion ratio".
Which of the following will NOT be an appropriate use of a deferred annuity? a) Accumulating funds in an IRA b) Funding a child's college education c) Creating an estate d) Accumulating retirement funds
c) Creating an estate Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education. Unlike life insurance, annuities do not create an estate, but liquidate it.
If an insured changes his payment plan from monthly to annually, what happens to the total premium? a) Doubles b) Increases c) Decreases d) Stays the same
c) Decreases Because the insurer would have the entire premium to invest for a full year, they would reduce the premium amount.
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? a) Reduction of premium b) Accumulation at interest c) Paid-up option d) One-year term
c) Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.
After three years of making payments into a flexible premium deferred annuity, the owner decides to surrender the annuity. The insurer returns all the premium payments to the owner, except for a predetermined percentage. What is this percentage called? a) Bail-out charge b) Inflation adjustment c) Surrender charge d) Termination penalty
c) Surrender charge If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.
Which of the following is called a "second-to-die" policy? a) Juvenile life b) Joint life c) Survivorship life d) Family income
c) Survivorship life Survivorship life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.
What are the continuing education requirements for licensed insurance agents in the state of New York? a) 25 hours of instruction annually b) 30 hours of any insurance-related courses every 4 years c) 20 hours for life and heath agents and 25 hours for property and casualty brokers every 2 years d) 15 hours of approved instruction every 2 years
d) 15 hours of approved instruction every 2 years To renew a license, any resident or nonresident agent must complete 15 hours of instruction by an approved provider of continuing education biennially (every 2 years).
An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe? a) Good health b) Adhesion c) Conditional d) Aleatory
d) Aleatory In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.
Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? a) Term insurance only b) Permanent insurance only c) Universal life insurance only d) Any form of life insurance
d) Any form of life insurance Any form of Life insurance may be used to fund a buy-sell agreement.
Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be a) Discounted. b) Adjusted to the insured's age at the time of renewal. c) Determined by the health of the insured. d) Based on the issue age of the insured.
d) Based on the issue age of the insured. If a level term product is renewed at the end of the term period the premium will be based upon the attained age of the insured.
A producer who fails to segregate premium monies from his own personal funds is guilty of a) Larceny. b) Embezzlement. c) Theft. d) Commingling.
d) Commingling. It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.
In a direct rollover, how is the money transferred from one plan to the new one? a) From trustee to the participant b) From the participant to the new plan c) From the original plan to the original custodian d) From trustee to trustee
d) From trustee to trustee In a direct rollover, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan.
Stranger-originated life insurance policies are in direct opposition to the principle of a) Law of large numbers. b) Good faith. c) Indemnity. d) Insurable interest.
d) Insurable interest. Because the purchaser of a stranger-originated life insurance policy doesn't know the insured, or have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest.
Which of the following is NOT true regarding a nonqualified retirement plan? a) Contributions are not currently tax deductible. b) It can discriminate in benefits and selecting participants. c) Earnings grow tax deferred. d) It needs IRS approval
d) It needs IRS approval Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.
Which of the following is NOT true concerning the purpose of the Insurance Fraud Prevention Act? a) It helps stop fraudulent acts more effectively. b) It helps insurers to not sell policies to those applicants who are high risks. c) It permits the Department to receive assistance from federal and state law enforcement agencies. d) It permits the Superintendent and Department to investigate insurance fraud.
d) It permits the Superintendent and Department to investigate insurance fraud. The Insurance Fraud Prevention Act is intended to permit the Superintendent and the department to utilize their expertise to investigate and discover insurance fraud, halt fraudulent activities more effectively and receive assistance from federal and state law enforcement agencies.
A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the a) Secondary beneficiary. b) Contingent beneficiary. c) Irrevocable beneficiary. d) Revocable beneficiary.
d) Revocable beneficiary. The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent.
A domestic insurer issuing variable contracts must establish one or more a) Liability accounts. b) Annuity accounts. c) General accounts. d) Separate accounts.
d) Separate accounts. Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.
Which of the following statements regarding HIV testing for life insurance purposes is NOT true? a) Positive test results will be forwarded to the state's Department of Health if a physician is not selected by the applicant. b) The testing practices must meet the criteria of the U.S. Department of Health and Human Services. c) HIV testing is regulated at the state level. d) Insurers are barred from requesting HIV testing. It is common for insurers to require HIV testing when an applicant seeks a policy with a large face amount. The insurer must abide by a variety of rules created by its respective state.
Insurers are barred from requesting HIV testing.
The paid-up addition option uses the dividend a) To reduce the next year's premium. b) To accumulate additional savings for retirement. c) To purchase a smaller amount of the same type of insurance as the original policy. d) To purchase a one-year term insurance in the amount of the cash value.
c) To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.
The death benefit under the Universal Life Option B a) Decreases by the amount that the cash value increases. b) Increases for the first few years of the policy, and then levels off. c) Remains level. d) Gradually increases each year by the amount that the cash value increases.
d) Gradually increases each year by the amount that the cash value increases. Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases.
Which of the following is NOT considered Business of Life Settlement? a) A producer discusses the advantages of a universal life policy and how the flexible premium allows the owner to control the cash value and death benefit income. b) A producer mails life settlement advertising to a client outside of the state. c) A producer tracks the progress of a life settlement contract he has submitted to a life settlement provider. d) A producer discusses the advantages and disadvantages of a life settlement contract for a client. The term Business of Life Settlement refers to any activity relating to the solicitation and sale of an insurance policy to a third party who has no insurable interest in the insured (i.e. soliciting, negotiating, effectuating, monitoring or tracking life settlement contracts).
a) A producer discusses the advantages of a universal life policy and how the flexible premium allows the owner to control the cash value and death benefit income.
Which of the following may NOT be included in an insurance company's advertisement? a) That its policies are covered by a state Guaranty Association b) The policies' limitations or exclusions c) The name of a specific agent d) An identification of a limited policy as a limited policy
a) That its policies are covered by a state Guaranty Association It is illegal for insurers to state that their policies are guaranteed by the existence of a Guaranty Association.
Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? a) The key employee is the owner and the employer is the beneficiary. b) The employer is the owner and beneficiary. c) The employer is the owner and the key employee is the beneficiary. d) The key employee is the owner and beneficiary.
a) The key employee is the owner and the employer is the beneficiary. With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.
Which of the following is TRUE regarding the accumulation period of an annuity? a) It is a period of time during which the beneficiary receives income b) It is limited to 10 years. c) It is a period during which the payments into the annuity grow tax deferred. d) It is also referred to as the annuity period.
c) It is a period during which the payments into the annuity grow tax deferred. The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.
Which of the following best describes what the annuity period is? a) The period of time from the accumulation period to the annuitization period b) The period of time during which money is accumulated in an annuity c) The period of time from the effective date of the contract to the date of its termination d) The period of time during which accumulated money is converted into income payments
d) The period of time during which accumulated money is converted into income payments The annuity period is the time during which accumulated money is converted into an income stream.
All of the following entities regulate variable life policies EXCEPT a) The Guaranty Association. b) Federal government. c) The SEC. d) The Insurance Department.
a) The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.
Term policies are available as Level, Increasing, and Decreasing. Which policy component fluctuates depending on the policy type? a) Nonforfeiture values b) Death benefit c) Premium d) Cash value
b) Death benefit There are three basic types of term policies: level, increasing and decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may change.
All of the following are general requirements of a qualified plan EXCEPT a) The plan must be permanent, written and legally binding. b) The plan must provide an offset for social security benefits. c) The plan must be communicated to all employees. d) The plan must be for the exclusive benefits of the employees and their beneficiaries. Plans must meet the general requirements established by IRS.
b) The plan must provide an offset for social security benefits.
Which of the following types of insurance policies would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources? a) Annuity b) Variable life c) Term d) Whole Life
c) Term Term insurance provides a death benefit only; cost per $1,000 of coverage is less than other types of policies that create cash values.
If an agent fails to promptly remit the premiums collected from the insured to the insurer, the agent may be found guilty of which of the following? a) Controlled business b) Rebating c) Fraud d) Embezzlement
d) Embezzlement Embezzlement is the criminal act of taking money belonging to someone else. In addition to revocation of license, criminal penalties will be imposed.
The Superintendent may refuse to issue a license in all of the following situations EXCEPT if the proposed licensee a) Is from another state. b) Has not completed the prelicensing education. c) Is not trustworthy. d) Is not competent.
a) Is from another state. The Superintendent may refuse to issue any insurance agent's license if the proposed licensee is found to be not trustworthy and competent, or has not complied with any prerequisites.
Which nonforfeiture option provides coverage for the longest period of time? a) Paid-up option b) Accumulated at interest c) Reduced paid-up d) Extended term
c) Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.
The Federal Fair Credit Reporting Act a) Regulates telemarketing. b) Prevents money laundering. c) Regulates consumer reports. d) Protects customer privacy.
c) Regulates consumer reports. The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.
What type of life insurance is most commonly used for group plans? a) Decreasing term b) Annually renewable term c) Whole life d) Flexible premium whole life
b) Annually renewable term Group insurance is usually written for employee-employer groups as annually renewable term insurance.
To sell variable life insurance policies, an agent must receive all of the following EXCEPT a) A securities license. b) A life insurance license. c) SEC registration. d) FINRA registration.
c) SEC registration. Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.
Which of the following best describes rescission? a) An insured allows a policy to lapse. b) An insurer cancels a policy after it has been issued and refunds all paid premiums. c) An insurer cancels a policy after an insured files a suspicious claim. d) An insured agrees to cancel a policy for the return of the most recent premium paid. When an insurer rescinds a policy after it has been issued and refunds all premiums paid, this is rescission.
b) An insurer cancels a policy after it has been issued and refunds all paid premiums.
An applicant wants to buy a life insurance policy in which he can count on receiving the same benefits as stated in the contract. Which type should he buy? a) Variable b) Any type of annuity c) Fixed d) Permanent
c) Fixed Fixed life insurance policies offer minimum guaranteed or fixed benefits stated in the contract. Variable life insurance or annuities are contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance.
Which of the following features of the Indexed Whole Life policy is NOT fixed? a) Policy period b) Cash value growth c) Premium d) Death benefit
b) Cash value growth Under the Indexed Whole Life policy, the premium is fixed, and the death benefit is guaranteed. Cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed.
Which of the following is NOT an allowable 1035 exchange? a) A whole life insurance policy is exchanged for a term insurance policy. b) A whole life insurance policy is exchanged for a Universal life insurance policy. c) An annuity is exchanged for another annuity. d) A life insurance policy is exchanged for an annuity.
b) A whole life insurance policy is exchanged for a Universal life insurance policy. The key is that the exchange may not be from a less tax-advantaged contract to a more tax-advantaged contract. "Same to same" is acceptable.
Joe, Larry, and Curly own a small business. They have made a legal arrangement which states that if one of them dies or becomes disabled, the other two will be able to buy the partner's shares. Which term best describes this arrangement? a) Buy-up Distribution b) Business Continuation c) Shares Distribution d) Business Partner Disability Provision
b) Business Continuation In a Business Continuation arrangement, the partners of a business can buy shares belonging to a recently deceased or disabled partner.
Which of the following is NOT true regarding a nonqualified retirement plan? a) Earnings grow tax deferred. b) It needs IRS approval. c) Contributions are not currently tax deductible. d) It can discriminate in benefits and selecting participants.
b) It needs IRS approval. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.
Which statement is NOT true regarding a Straight Life policy? a) It has the lowest annual premium of the three types of Whole Life policies. b) Its premium steadily decreases over time, in response to its growing cash value. c) The face value of the policy is paid to the insured at age 100. d) It usually develops cash value by the end of the third policy year. Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.
b) Its premium steadily decreases over time, in response to its growing cash value.
Which of the following would be the best option that would help the surviving spouse of the insured to put her child through daycare after the insured's death? a) Viatical settlement b) Estate conservation c) Life insurance proceeds d) State Education Waiver
c) Life insurance proceeds There are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Daycare is considered to be among these expenses.
An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term? a) The insured must provide evidence of insurability to renew the policy. b) The insured may only convert the policy to another term policy. c) The insured may renew the policy for another 10 years at the same premium rate. d) The insured may renew the policy for another 10 years, but at a higher premium rate.
d) The insured may renew the policy for another 10 years, but at a higher premium rate. Policies that are guaranteed renewable and convertible may be renewed, without evidence of insurability, for another like term, or may be converted to permanent insurance, without evidence of insurability.
Which of the following is a short-term annuity that limits the amounts paid to a certain fixed period or until a certain fixed amount is liquidated? a) Annuity certain b) Fixed annuity c) Refund life d) Variable annuity
a) Annuity certain Annuity Certain option allows the annuitant to select the time period or the amount of the benefits to be paid out. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date.
Which of the following will be included in a policy summary? a) Copies of illustrations and application b) Comparisons with similar policies c) Primary and secondary beneficiary designations d) Premium amounts and surrender values
d) Premium amounts and surrender values A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.
Which of the following types of annuities will generally provide the highest monthly income? a) Joint and survivor b) Installment refund c) Life with a 10-year period certain d) Straight life
d) Straight life Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; therefore, it has the potential to provide the highest monthly income. Any time a "period certain" option is included, it will reduce the monthly payout amount because, even if the annuitant dies, the company must continue to pay benefits for the period certain.
Which of the following characteristics applies to defined benefit plans but not defined contribution plans? a) They are subject to the rules of ERISA. b) The amount of contributions made by the employer is determined by an actuarial formula. c) They are qualified plans. d) Employers can choose not to make contributions for a particular year.
Defined benefit plans offer benefits that are based on a definite contribution formula. Defined contribution plans may specify that contributions are made based on corporate profits, so contributions may not be made when that corporation is not profitable. Both are qualified plans subject to the rules of ERISA.
What insurance concept is associated with the names Weiss and Fitch? a) Index used by stock companies b) Guides describing company financial integrity c) Policy dividends d) Types of mutual companies
b) Guides describing company financial integrity Because an insurance company's strength and stability are two very crucial factors in its sustainability, independent rating services have formed to publish regular updates on the financial integrity of different insurance companies. Weiss and Fitch are two of these services, although there are more.
An independent adjuster may include which of the following? a) A firm who acts on behalf of the insurer b) Officer, director or regular salaried employee of an insurer c) Adjustment bureau or association owned by the insurers d) Attorney at law An independent adjuster is any person, firm, association or corporation, who, for a commission, acts on behalf of an insurer in the work of investigating and adjusting claims.
a) A firm who acts on behalf of the insurer An independent adjuster is any person, firm, association or corporation, who, for a commission, acts on behalf of an insurer in the work of investigating and adjusting claims.
If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered a) An unfair trade practice. b) A misrepresentation. c) A required disclosure. d) A legal representation of the Association.
a) An unfair trade practice. It is an unfair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the Insurance Guaranty Association. Though it is illegal to advertise, the statement is still true and would not be considered a misrepresentation.
A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? a) Cost of Living Rider b) Value Adjustment Rider c) Return of Premium Rider d) Inflation Rider
a) Cost of Living Rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.
When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will a) Issue the policy anyway and pay the face value to the beneficiary. b) Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. c) Return the premium to Y's estate, since it has no obligation to pay the death claim. d) Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued.
a) Issue the policy anyway and pay the face value to the beneficiary. The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.
Which Universal Life option has a gradually increasing cash value and a level death benefit? a) Option A b) Juvenile life c) Term insurance d) Option B
a) Option A Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures.
Which of the following insurance options would be considered a risk-sharing arrangement? a) Reciprocal b) Stock c) Mutual d) Surplus lines
a) Reciprocal When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.
Which of the following is true regarding the insurance amount in a credit life policy? a) The amount of coverage can be greater than the amount owed. b) Creditor can only insure the debtor for the amount owed. c) Creditor may insure the debtor for an unlimited amount of coverage. d) Allowable amount of coverage is determined by the State Insurance Commissioner. Credit life insurance cannot pay out more than the balance of the debt, so that there is no financial incentive for the death of the insured.
b) Creditor can only insure the debtor for the amount owed.
Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? a) Effect of inflation on income over time. b) Predicted needs of the family after the insured's death. c) Insured's current and future income. d) Insured's annual expenses.
b) Predicted needs of the family after the insured's death. The Human Life Value Approach to determining the value of an individual's life requires the calculation of probable future earnings of the insured, which involves wages, expenses, inflation, amount of time until retirement, and the time value of money. Predicted needs of the family after the insured's death are used in the needs approach.
35. An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? a) The premium for individual coverage will be based upon the insured's attained age. b) The insured may choose to convert to term or permanent individual coverage. c) The insured would not need to prove insurability for a conversion policy. d) The insured may convert coverage to an individual policy within 31 days. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance.
b) The insured may choose to convert to term or permanent individual coverage.
Under an extended term nonforfeiture option, the policy cash value is converted to a) A higher face amount than the whole life policy. b) The same face amount as in the whole life policy. c) The face amount equal to the cash value. d) A lower face amount than the whole life policy.
b) The same face amount as in the whole life policy. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.
Which of the following is NOT a goal of risk retention? a) To fund losses that cannot be insured b) To minimize the insured's level of liability in the event of loss c) To reduce expenses and improve cash flow d) To increase control of claim reserving and claims settlements
b) To minimize the insured's level of liability in the event of loss Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.
In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years? a) 1 b) 3 c) 5 d) 10
c) 5 If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage.
In addition to examinations that are specifically authorized by the Insurance Code, the Superintendent may examine each domestic life insurer as often as it is deemed necessary for the protection of the consumers. The Code requires examination of domestic life insurers every a) 3 years. b) 4 years. c) 5 years. d) 2 years. Every authorized domestic life insurer and every rate service organization that makes or files rates will be examined at least once in every 5 years.
c) 5 years.
Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be a) Based on the issue age of the insured. b) Discounted. c) Adjusted to the insured's age at the time of renewal. d) Determined by the health of the insured.
c) Adjusted to the insured's age at the time of renewal. If a level term product is renewed at the end of the term period the premium will be based upon the attained age of the insured.
If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered a) A required disclosure. b) A legal representation of the Association. c) An unfair trade practice. d) A misrepresentation.
c) An unfair trade practice. It is an unfair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the Insurance Guaranty Association. Though it is illegal to advertise, the statement is still true and would not be considered a misrepresentation.
All of the following are business uses of life insurance EXCEPT a) Funding against financial loss caused by the death of a key employee. b) Funding business continuation agreements. c) Funding against general company financial loss. d) Compensating executives.
c) Funding against general company financial loss. Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees.
What is the purpose of a free-look period in insurance policies? a) It allows the insurer to temporarily suspend coverage after an insured's disability. b) It allows the insurer to cancel coverage if a misrepresentation is discovered. c) It allows the insured to reject the policy with a full refund. d) It allows the insured 10 days to pay the initial premium.
c) It allows the insured to reject the policy with a full refund. The free-look provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium.
If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined? a) It is a flat fee determined by the annuity owner when the annuity is purchased. b) It will increase as the accumulation period increases. c) It is a percentage of the cash value and decreases over time. d) It is always 7% of the cash value.
c) It is a percentage of the cash value and decreases over time. If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.
Which of the following is true of a children's rider added to an insured's permanent life insurance policy? a) The policy covers only the natural children of the insured. b) Each child covered must show evidence of insurability. c) It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. d) It is permanent insurance
c) It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. Children's rider is term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.
An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called? a) Tax-sheltered account plan b) HR 10 plan c) Profit sharing plan d) 401(k) plan
c) Profit sharing plan A profit sharing plan is one where the employer will contribute monies into an employee's retirement plan when the company shows a profit. The others are all qualified plans, but company profit isn't an issue with them.
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean? a) The beneficiary will receive the lump sum, plus interest. b) The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments. c) The beneficiary will only receive payments of the interest earned on the death benefit. d) The beneficiary must pay interest to the insurer.
c) The beneficiary will only receive payments of the interest earned on the death benefit. With the Interest Only settlement option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually).
Which of the following is NOT required on an illustration used in the sale of a life insurance policy? a) Name of insurer b) Underwriting or rating classification upon which the illustration is based c) The name of the primary and secondary beneficiaries d) Generic name of policy
c) The name of the primary and secondary beneficiaries Other required items include the name and business address of producer or insurer's authorized representative; the name, age and sex of proposed insured; underwriting or rating classification upon which the illustration is based; and the initial death benefit.
Which of the following is true about warranties? a) They are true to the best of the agent's knowledge. b) They are true to the best of the applicant's knowledge. c) They are guaranteed to be true. d) If they aren't true, the insurer must file with court to void the policy.
c) They are guaranteed to be true. Warranties are statements that are guaranteed to be true. Representations are true to the best of the insurance applicant's knowledge.
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? a) Term life b) Limited pay c) Universal life d) Adjustable life
c) Universal life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.
The insured is also the policyowner of a whole life policy. What age must the insured attain in order to receive the policy's face amount? a) 65 b) 70 1/2 c) 90 d) 100
d) 100 Whole life insurance policies mature when the insured reaches the age of 100. The cash value at that time is scheduled to equal the face amount; therefore, when the insurance company pays the face amount, it also, in effect, pays the cash value.