2-15 Insurance Course (Chapters 5 - 9)
A policy that pays double or triple the face amount if death occurs during a specified period is a a. multiple protection policy b. credit life policy c. family policy d. joint policy
a
Art, the owner and insured under a $75,000 life policy, is killed in an accident. He had paid total premiums of $26,000. How much of the $75,000 death benefit that was paid to Art's wife in a lump sum is taxable income to her? a. $0 b. $26,000 c. $49,000 d. $75,000
a
Which of the following allows 30 days during which premiums may be paid to keep policies in force? a. Grace period b. Reinstatement clause c. Incontestable clause d. Waiting period
a
Which of the following is (are) a common life insurance policy exclusion? a. Death from war b. Death from accidental means c. Death by commercial aviation d. All of the above
a
All of the following are standard life insurance policy nonforfeiture options EXCEPT a. cash surrender option b. one-year term insurance option c. extended term insurance option d. reduced paid-up (permanent) insurance option
b
All of the following statements about beneficiary designations are correct EXCEPT a. when a charity is named beneficiary, the policy owner's heirs cannot contest the gift b. minors cannot be named life insurance beneficiaries c. a business may be designated as a beneficiary d. when a trust is named beneficiary, a trustee will manage the insurance proceeds
b
"When level premium insurance is renewed, the premium amount rises to reflect the increased mortality risk of the insured's older age." What phrase best describes this approach to increasing premiums? a. Variable rate b. Targeted rate c. Step rate d. Seniority rate
c
A clause that states that policy distributions payable to the beneficiary after the insured dies are not assignable or transferable and may not be attached in any way is called a a. facility-of-payment clause b. debtors protection clause c. spendthrift trust clause d. assignment clause
c
A mortality table reveals which of the following? a. There is no death rate for persons age 99. b. The people who will die in any given year. c. The average number of deaths that will occur each year in an age group. d. The death rate normally is higher in the lower age groups.
c
All of the following are primary premium factors EXCEPT a. expense b. interest c. dividends d. mortality
c
All of the following statements about term insurance are correct EXCEPT a. it pays a benefit only if the insured dies during a specified period b. level, decreasing and increasing are basic forms of term insurance c. cash values build during the specified period d. it provides protection for a temporary period of time
c
In a viatical, who benefits from the policy's death benefit? a. the person buying the policy b. the insured c. the beneficiary d. the viator
c
Which of the following is stated in the consideration clause of a life insurance policy? a. Insured's risk classification b. Insured's general health condition c. Amount and frequency of premium payments d. Benefits payable upon the insured's death
c
Which of the following statements pertaining to life insurance premiums is CORRECT? a. The premiums for a policy that insures a spouse are tax deductible. b. A company may purchase key-person life insurance and deduct the premiums as a business expense. c. Premiums for group term insurance covering employees are tax deductible, assuming certain requirements are met. d. Premiums for policies in which the insured is someone other than the policyowner are tax deductible.
c
A policy covering two lives that only pays a death benefit when the second injured person dies is a a. joint life policy b. family policy c. family maintenance policy d. joint and last survivor policy
d
Underwriting is a process of a. selection and issue of policies b. evaluation and classification of risks c. selection, reporting, and rejection of risks d. selection, classification and rating of risks
d
What type of policy would be best used when the need for protection declines from year to year? a. Level term b. Decreasing term c. Whole life d. Universal life
b
Art, the owner and insured under a $75,000 life policy, is killed in an accident. He had paid total premiums of $26,000. How much of the death benefit will be included in the gross estate for estate tax purposes? a. $0 b. $26,000 c. $49,000 d. $75,000
d
Assume the following persons buy identical life insurance policies from the same company. Generally speaking, who will pay the lowest premium, if all have standard ratings? a. Linda, age 28 b. Thomas, age 28 c. Louise, age 40 d. Joe, age 45
a
Generally, the party who delivers the insurance policy to the new policy owner is the a. insurance company's home office b. sales agent c. state chief financial officer d. underwriter
b
Which type of policy allows for flexible premiums and an adjustable death benefit? a. indeterminate whole life b. universal life c. interest sensitive whole life d. variable whole life
b
Life insurance premiums are typically based on what increment of the face value? a. $10 b. $100 c. $1,000 d. $10,000
c
To what period would a 14-day free-look apply in Florida? a. The first 14 days after the application has been signed by the applicant. b. The first 14 days after the application has been received by the insurer. c. The first 14 days after the policy has been issued by the insurer. d. The first 14 days after the issued policy has been received by the insured.
d
What is the beneficiary designation that can only be changed with the beneficiary's written agreement? a. Revocable beneficiary b. Wife of the insured c. Per stirpes d. Irrevocable beneficiary
d
Which of the following premiums modes would have the lowest cost? a. direct deposit b. quarterly c. monthly d. annually
d
All of the following statements about facility of payment provisions are correct EXCEPT a. they are often found in group life policies b. the permit an insurer to pay all or part of the proceeds to a party who is not named in the contract c. they are typically found in industrial policies d. they permit insurance proceeds to be paid to someone not named in the policy when the named beneficiary is a minor
a
All of the following statements about the classification of applicants are correct EXCEPT a. a substandard applicant can never be rejected outright by the insurer b. applicants who are preferred risks have premium rates that are generally lower than standard rate risks c. an individual can be rated as a substandard risk because of a dangerous occupation d. a standard applicant fits the insurer's guidelines for policy issue without special restrictions
a
All of the following statements about accelerated death benefits and viatical settlements are correct EXCEPT a. a terminally ill person receives accelerated death benefits tax-free b. an insured who sells an insurance policy to a viatical company usually receives 100 percent of the policy's face value c. the maximum amount of accelerated benefits that a chronically ill person can exclude from income is limited d. accelerated benefit provisions are standard in most individual and group life insurance policies
b
All of the following statements about variable insurance are correct EXCEPT a. they are considered insurance contracts b. sellers must hold a state insurance license c. they are not considered securities contracts d. sellers must hold a registered representative license from FINRA
c
All of the following statements about variable insurance policies are correct EXCEPT a. sales presentations must be preceded or accompanied by a prospectus b. state laws protect consumers and promote meaningful communication c. materials used in selling variable policies must be approved only by the state Office of Insurance Regulation d. full and fair disclosure must be provided to prospective policy owners
c
All of the following statements regarding basic forms of whole life insurance are correct EXCEPT a. generally, straight life premiums are payable, at least annually, for the duration of the insured's life b. the owner of a 30-pay life policy will owe no more premiums after the 30th year the policy is in force c. limited payment life provides protection only for the years during which premiums are paid d. a single-premium life policy is purchased with a large one-time only premium
c
An error in age is discovered after the death of an insured but before any policy death proceeds are distributed. The insured was older than previously assumed. How would an insurance company handle such a situation? a. No adjustment would be made because the contestable period has passed. b. The amount of death proceeds would be reduced to reflect the statistically diminished mortality risk. c. The amount of death proceeds would be reduced to reflect whatever benefit the premium paid would have purchased at the correct age. d. The beneficiary would be required to pay all underpaid back premiums before the death benefit received.
c
Bill names his church as the beneficiary of his $300,000 life insurance policy. When Bill dies, who is responsible for the income taxes payable on the lump-sum proceeds received by the church? a. His estate. b. His church. c. No income tax is payable on the death proceeds. d. His estate and the beneficiary share the tax liability equally.
c
In contrast to traditional whole life insurance policies, with variable life insurance products a. premiums are invested in an insurer's general account b. investments match the insurer's contractual guarantees and liabilities c. contract cash values are not guaranteed d. the insurer assumes the investment risk
c
When a policy owner cannot exercise his rights of ownership without the policy beneficiary's consent, the beneficiary is designated a. vested b. contractual c. irrevocable d. primary
c
"If an insurance company determines that the insured is totally disabled, the policy owner is relieved of paying the policy premiums as long as the disability continues." This statement describes the a. premium suspension clause b. waiting period exemption c. disability income rider d. waiver of premium rider
d
An increasing term policy's death benefit may increase each year. The amount of the increase could be tied to all of the following except: a. The consumer price index (CPI) b. A flat amount c. A per centage of the face amount d. A guaranteed minimum amount each year
d
If the insurance company requests an inspection report, which of the following would require notice to be given to the applicant? a. The Freedom of Information Act b. The Office of Insurance Regulation Information Act c. The Health Insurance Portability & Accountability Act (HIPAA) d. The Fair Credit Reporting Act
d
In which of the following situations does the incontestable clause apply? a. Impersonation of the applicant by another b. No insurable interest c. Intent to murder d. Concealment of smoking
d
Which life insurance provision allows the policyholder to inspect and, if dissatisfied, to return the policy for a full refund? a. Waiver of premium b. Facility of payments c. Probationary period d. Free look
d
John stopped paying premiums on his permanent life insurance policy eight years ago though he never surrendered it. He is still insurable and has no outstanding loan against the policy. The company probably will decline to reinstate the policy because the time limit for reinstatement has expired. The limit usually is a. six months b. one year c. two years d. three years or as long as seven years
d
Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will a. continue to increase b. decrease gradually c. remain the same as in the old policy d. be forfeited
a
The cash values of insurance policies belong to which of the following? a. Policy owner b. Insured c. Insurer d. Beneficiary
a
The method used today to change beneficiaries is known as the a. recording method b. beneficiary alteration method c. assignment method d. change of designation method
a
If a medical report is required on an applicant, it is completed by a. a home office underwriter b. a paramedic or examining physician c. the agent d. the home office medical director
b
Beth, age 50, the beneficiary of her late husband's life insurance policy, has elected to receive the proceeds in monthly installments over the next five years. Due to the insurer's interest earnings, Beth notices that the amount of the payments is often more than what she was guaranteed. What kind of settlement option did Beth select? a. Life-income b. Fixed-amount c. Cash-value d. Fixed-period
d
All of the following statements about the taxation of insurance proceeds are correct EXCEPT a. interest earned on policy dividends is exempt from income tax b. a beneficiary will not be taxed on insurance proceeds paid as a lump sum death benefit c. a policy owner who receives the cash value for a surrendered policy must pay taxes on any gain d. generally, no gain or loss is recognized when one insurance policy is exchanged for another
a
All of the following statements pertaining to reinstatement of a life insurance policy are correct EXCEPT a. a suicide exclusion period is renewed with a reinstated policy b. when reinstating a policy, the insurer will charge the policy owner for past-due premiums c. when reinstating a policy, the insurer will charge the policy owner for interest on past-due premiums d. a new contestable period becomes effective in a reinstated policy
a
An applicant, in good health, completed the application without the premium. Upon delivery of the policy the agent noticed the applicant's health had changed. The agent is to do which of the following? a. return the policy to the insurance company b. deliver the policy, obtain a check, and a signed statement of the insured's good health c. collect the additional premium d. start the underwriting process over again
a
If an application is missing answers to certain questions and the policy is issued, the company can take which course of action? a. The company may rescind the policy b. The company may demand the applicant answer the questions and there would be no coverage during this period c. The company can take no action, as it was the agent's responsibility to complete the application d. The company can contest the validity of the policy
a
If an error is discovered while the insured is living and the insured is older than the policy states, the insurance company can a. increase the premium b. reduce the premium c. waive the difference d. increase the benefits
a
Which of the following statements pertaining to a life insurance policy application is CORRECT? a. The names of both the insured and the beneficiary are indicated on the application. b. If an applicant's age is shown erroneously on a life insurance application as 28 instead of 29, the result may be a premium quote that is higher than it should be. c. The size of the policy being applied for does not affect the underwriting process. d. The agent's report in the application must be signed by the agent and the applicant.
a
Which of the following statements regarding the Fair Credit Reporting Act (FCRA) is CORRECT? a. Applicants must be notified within a short period of time that their credit report has been requested. b. If an applicant for insurance is rejected based on a consumer report, the name of the reporting agency must be kept confidential. c. If requested to do so, the insurance company must provide the actual consumer report to the applicant. d. Consumer reports are final in nature and cannot be disputed by an applicant.
a
All of the following statements concerning a common disaster provision are correct EXCEPT a. the provision activates when the insured and primary beneficiary die as a result of the same accident b. the provision stipulates that if the insured and the primary beneficiary die in the same accident, it is presumed that the insured died last c. the provision gives a policy owner assurance that proceeds will be distributed according to his or her wishes d. the provision stipulates that if the primary beneficiary outlives the insured by more than 48 hours, then the proceeds will be paid to the primary beneficiary's estate
b
All of the following statements regarding assignment of a life insurance policy are correct EXCEPT a. to secure a loan, the policy can be transferred temporarily to the lender as security for the loan b. the policy owner must obtain approval from the insurance company before a policy can be assigned c. the life insurance company assumes no responsibility for the validity of an assignment d. the life insurance company must be notified in writing by the policy owner of any assignment
b
All of the following statements regarding term life insurance are correct EXCEPT a. a three-year renewable policy allows a term policy owner to renew the same coverage for another three years b. a three-year renewable policy allows a term policy owner to increase coverage for the next three years c. an option to convert provides that a term life insurance policy can be exchanged for a permanent one d. both the option to renew and the option to convert relieve the insured from furnishing evidence of insurability
b
Elaine signs an application for a $50,000 non medical life policy, pays the first premium and receives a conditional insurability receipt. If Elaine were killed in an auto accident two days later a. the company would reject the application on the basis that death was accidental b. her beneficiary would receive $50,000, if Elaine qualified for the policy as applied for c. the premium would be returned to Elaine's family because the policy had not been issued d. the company could reject the death claim because the underwriting process was never completed
b
Kevin, the insured under a $200,000 life insurance policy, and his sole beneficiary, Lynda, are killed instantly in a car accident. Under the Uniform Simultaneous Death Act, to whose estate will the policy proceeds be paid? a. Lynda's estate b. Kevin's estate c. Both Kevin's and Lynda's estate, equally d. The proceeds will escheat to the state
b
Mrs. Williamson purchases a five-year $50,000 level term policy with an option to renew. At the end of the five-year term, she renews the policy. Which of the following statements is CORRECT? a. The premium for the renewal period will be the same as the initial period. b. The premium for the renewal period will be higher than the initial period. c. The premium for the renewal period will be the same as the initial period, but a one-time service charge will be assessed upon renewal. d. The premium for the renewal period will be lower than the initial period.
b
Ron, the insured under a $100,000 life insurance policy, dies during the grace period. What happens, considering that the premium on the policy had not been paid? a. The premium is cancelled because the insured died during the grace period. b. The amount of the premium is deducted from the policy proceeds paid to the beneficiary. c. The premium due, plus a 10 percent penalty, is charged against the policy. d. The beneficiary must pay the premium after the death claim is paid.
b
Sarah, age 65, owner of a $150,000 whole life policy, decides to surrender the policy and take the $90,000 cash value in a lump sum. Over the years she has paid a total of $54,000 in premiums. How much, if any, of the payment will be taxed? a. $0 b. $36,000 c. $54,000 d. $90,000
b
The beneficiary on Walter`s life insurance reads, "Children of the Insured." Which of the following phrases best describes this type of beneficiary designation? a. Juvenile beneficiaries b. Class beneficiaries c. Generational beneficiaries d. Attractive nuisance beneficiaries
b
The primary distinction between the insurability and approval types of conditional receipts is when the a. applicant pays the initial premium b. coverage goes into effect c. medical exam is given d. applicant proves insurable
b
The rider that provides for a waiver of premiums on a juvenile policy if the adult payor dies or becomes disabled is a a. guaranteed insurability rider b. payor rider c. waiver of premium rider d. automatic premium loan rider
b
Under which option does the in insurer hold the death proceeds for a specified period of time and, at regular intervals, pay the beneficiary interest on the proceeds? a. Fixed-period b. Interest-only c. Fixed-amount d. Life-income
b
Which of the following statements about a life insurance policy's cash value is CORRECT? a. In many states (but not all), policy owners are entitled to the accrued cash values of their whole life policies. b. When a whole life insurance policy is active, the owner can borrow against the cash value. c. Owners of both term and whole life insurance are entitled to the cash surrender value when a policy is lapsed or surrendered. d. If a policy owner lets his or her whole life policy lapse, the beneficiary will be entitled to part of the policy's cash value.
b
Which of the following statements about the Fair Credit Reporting Act is CORRECT? a. It prohibits insurance companies from obtaining reports on applicants from outside investigative agencies. b. It provides that consumers have the right to question reports made about them by investigating agencies. c. It applies to reports about applicants that are made by insurance agents to their companies. d. It prohibits insurance companies from rejecting an application based on a credit report.
b
Which of the following statements pertaining to life insurance premiums is CORRECT? a. Premium rates usually are lower for men than women. b. Harold and Billy, both age 25, each buy a whole life policy from the same company. However, Harold has a participating policy, while Billy's policy is nonparticipating. Harold will pay a higher premium. c. The most significant factor in premium rate calculation is interest. d. Lucy, who is substantially overweight, has applied for a life insurance policy. Her weight may affect her insurability, but not the amount of premium on her policy.
b
Which of the following statements regarding a cost of living (COL) rider on a life insurance policy is CORRECT? a. A cost of living rider provides for a level premium even if the cost of living increases. b. An inflation index, usually the Consumer Price Index, determines the amount of inflation adjustment that is made to the policy up to a maximum percentage increase. c. To require additional amounts of life insurance under a COL rider, evidence of insurability must be provided. d. Declines in the CPI cause corresponding declines in the amount of insurance coverage.
b
Bob purchases a $50,000 five-year level term policy. All of the following statements about Bob's coverage are correct EXCEPT a. the policy provides a straight, level $50,000 of coverage for five years b. if the insured dies at any time during the five years, his beneficiary will receive the policy's face value c. if the insured dies beyond the specified five years, only the policies cash value will be paid d. if the insured lives beyond the five years, the policy expires and no benefits are payable
c
If an irrevocable beneficiary dies before the policy owner, who of the following gains control of a life insurance policy with a reversionary irrevocable clause? a. Insured b. Irrevocable beneficiary's children c. Policy owner d. Insurer
c
Mary names her husband, Rick, as primary beneficiary of her life insurance policy and her two children, Pam and Matt, as contingent beneficiaries. Rick dies in March. Pam and Matt are killed simultaneously in a car accident later that month. Hearing the news, Mary has a fatal heart attack. In this case, Mary's life insurance will be paid a. one-half to Rick's estate and on-quarter each to Pam and Matt's estates b. to Rick's estate c. to Mary's estate d. in equal shares to Rick, Pam and Matt's estates
c
Mr. Williams names his son John a beneficiary of his life insurance policy. What designation should he use if he wants to make sure that John's children would receive John's share of the life insurance policy proceeds should John predecease his father? a. Per capita b. All my children c. Per stirpes d. Grandchildren
c
The most common guaranteed insurability riders allow additional life insurance to be purchased on the insured within a range of ages. The common age range in which guaranteed insurability is available is from a. age 16 to age 65 b. age 21 to age 59 1/2 c. age 25 to age 40 d. age 30 to age 70 1/2
c
Which of the following factors is most important when computing basic premiums for life insurance? a. Expense b. Interest c. Mortality d. Reserves
c
Which of the following statements best describes life insurance policy dividends? a. Policy dividends represent earnings to shareowners who hold stock in insurance companies. b. Policy dividends affect the cost of virtually all insurance policies issued today. c. Policy dividends are an intentional return of a portion of the premiums paid. d. Policy dividends provide policy owners with a level, known as annual cash inflow.
c
Which of the following statements describing whole life insurance is CORRECT? a. The face amount of the policy gradually increases the longer the policy remains in force. b. The shorter the premium period, the slower the cash value will grow. c. Whole life insurance is designed to mature at age 100. d. The policy's cash value decreases each year the policy is in force.
c
Which of the following statements is CORRECT? a. A per capita distribution is the most common method of distributing proceeds to beneficiaries. b. If the policy owner designates a per stirpes distribution of the proceeds, the designation becomes irrevocable once a beneficiary predeceases the policy owner. c. A per stirpes distribution means that a beneficiary's share of a policy's proceeds will be passed down to his or her living child or children if the named beneficiary predeceases the insured. d. A per capita distribution ensures that an insured's surviving family will share in the insurance proceeds.
c
Which of the following statements pertaining to the Medical Information Bureau (MIB) is CORRECT? a. The MIB is operated by a national network of hospitals. b. Information obtained by the MIB is available to all physicians. c. The MIB provides assistance in the underwriting of life insurance. d. Applicants may request that MIB reports be attached to their policies.
c
Which of the following statements regarding modified endowment contracts (MECs) is CORRECT? a. A 1988 revenue act, commonly known as TAMRA, greatly increased the popularity of MECs. b. Congress has granted the MEC the most favorable tax status among all life insurance policies. c. To avoid being classified as an MEC, a life insurance policy must satisfy the "7-pay test". d. According to the "7-pay test", if the total amount a policy owner pays into a life contract during the first seven years is less than the sum of the net level premiums that would have provided paid-up future benefits in seven years, the policy is an MEC.
c
Which of the following terms best describes a life insurance policy that provides a straight $100,000 of coverage for a period of five years? a. Permanent level b. Whole term c. Level term d. Variable term
c
Which of the following whole life insurance policies attempts to make insurance premiums more manageable by offering lower premiums during the first few years following issue? a. Minimal deposit whole life b. Indexed whole life c. Modified whole life d. Indeterminate premium whole life
c
Which provision of a life insurance policy states that the application is part of the contract? a. Consideration clause b. Insuring clause c. Entire contract clause d. Incontestable clause
c
Christine's policy has a clause that reads as follows, "Should the primary beneficiary and the insured die in the same accident and the primary beneficiary fails to survive the insured by 14 days, it will be assumed that the beneficiary predeceased the insured." Which of the following phrases best describes this clause? a. Secondary beneficiary provision b. Facility-of-payment provision c. Uniform Simultaneous Death Act d. Common disaster provision
d
Each of the following statements about the incontestable clause in a life insurance policy is correct EXCEPT a. the clause gives people assurance that when their policies become claims, they will be paid without delays or protests b. the incontestable clause means that after a certain period, an insurer cannot refuse to pay the proceeds of a policy or void the contract c. incontestable clauses usually become effective two years from the issue date of the policy d. insurers can void a contract even after the specified period, provided they can prove the policy was purchased fraudulently
d
If an error is discovered after an insured dies and the insured was younger than the insurance policy stated, the insurance company will a. reduce the death benefits b. reduce premiums c. waive the difference d. increase the death benefits
d
Sandra has a life insurance policy that states that her husband, Gerald, is to receive the full death benefit. If he predeceases her, their three children are to share the benefit equally. If her husband and all three children predecease her, the benefit is payable to the First Community Church. All of the following statements are correct EXCEPT a. Gerald is the primary beneficiary b. the three children are all secondary beneficiaries c. the First Community Church is the tertiary beneficiary d. the designation of the First Community Church can be contested by any of Sandra's relatives who survive the children
d
Which of the following provides level premiums for the life of the contract? a. annual renewable term b. modified whole life c. indeterminate whole life d. A 30 year decreasing term policy
d
Which of the following statements pertaining to life insurance policy settlement options is NOT correct? a. By using the interest-only option, two or more settlement options can be combined for added flexibility. b. Payments under the interest-only option may be made at a rate higher than the guaranteed minimum. c. Diane and Rhonda each are receiving monthly income from their deceased husbands' identical life policies under the fixed-period option. Diane's payments are to be made for 15 years and Rhonda's for 20 years. Diane receives the larger monthly payments. d. Under the fixed-period option, the payment of excess interest will lengthen the payment period.
d
Which of the following statements regarding the assignment of a life insurance policy is NOT correct? a. Absolute assignment involves a complete transfer, giving the assignee full control over the policy. b. Under a collateral assignment, a creditor is entitled to be reimbursed out of the policy's proceeds only for the amount of the outstanding credit balance. c. Under a collateral assignment, policy proceeds in excess of the collateral amount pass to the insured's beneficiary. d. All beneficiaries must expressively approve any assignments of life insurance policies.
d
Which type of policy allows for flexible premiums and an adjustable death benefit while allowing the policy owner to choose the investments of the cash values? a. variable whole life b. universal life c. indexed whole life d. variable universal life
d
Who regulates a variable universal life policy? a. The Office of Insurance Regulation & FINRA b. The Department of Insurance & the SEC c. The Department of Insurance & FINRA d. The Office of Insurance Regulation & The SEC
d
With an irrevocable beneficiary named, a policy owner may do which of the following without the beneficiary's permission? a. take a loan b. increase the amount c. reduce the amount d. change the premium mode
d