AD Banker: NJ Life Comprehensive
Term Life insurance is designed to provide coverage for ___________. A For one year B An entire lifetime C A specified period of time D To age 65
A specified period of time Term Life Insurance is designed to provide coverage for a temporary period of time. The amount of time is specified in the policy acquired, for example, 10 year, 20 year, or 30 year term. Relevant content:3.3 Permanent Insurance - Traditional Whole Life
Insurable interest for life insurance is necessary only at the time of: A Policy renewal B Policy delivery C Death D Application
Application In Life and Health Insurance, insurable interest must exist at the time of application or policy issuance. It is not required at any later point in time.
Policy __________ are the net premiums paid plus interest earned and reflect potential insurance contract obligations. A Liabilities B Dividends C Assumptions D Reserves
D Reserves A reserve is maintained by an insurer in order to meet future potential obligations and is also required by State insurance laws. Relevant content:2.5 Premium Determination for Life Insurance
Withdrawals from a non-qualified annuity prior to annuitization are taxed on a ___________ basis. A Last-in, first out (LIFO) B Average cost basis (ACB) C First-in, first out (FIFO) D First in, last out (FILO)
Last-in, first out (LIFO) The first dollars out of the annuity in this scenario are considered gains (LIFO).
The surrender charge schedule for a variable universal life policy generally ________ over time. A Fluctuates B Remains the same C Increases D Decreases
Decreases Over time the surrender charge schedule decreases to 0% generally after 10-20 years from policy issue.
_________ refers to the jurisdiction where an insurer was formed or incorporated. A Admitted B Approved C Authorized D Domicile
Domicile Domicile refers to the jurisdiction either state or country where an insurer was formed or incorporated
To address adverse selection what can an insurer legally do? A Not offer policies to those over age 55 B Limit the amount of coverage issued C Establish and enforce sound underwriting practices D Raise the premium higher than most people can afford to pay
Establish and enforce sound underwriting practices Underwriting helps to protect the insurer against adverse selection and accepting risks that are more likely than average to suffer losses.
If life insurance proceeds are paid to the deceased's estate they may be subject to ________ taxes. A Probate B State Income C Federal Estate D Federal Income
Federal Estate While the death benefit is income tax free, the amount in the deceased's estate may be subject to Federal Estate taxes.
Legally speaking, a producer has a __________ duty when handling life insurance premiums and applications for an insurer. A Negotiated B Fiduciary C Undisputed D Professional
Fiduciary A fiduciary duty is where one party is acting in good faith on behalf of another party and will only act in the other party's best interest.
Which of the following scenarios will trigger an income tax due? A Taking out a policy loan in an amount greater than the total premiums paid in B Cancelling the policy during the free look period C Receiving a participating policy's cash dividend D Interest earned on dividends left on deposit with the insurer
Interest earned on dividends left on deposit with the insurer While the dividend is free from income tax the interest earned on the dividend is subject to tax.
An insured has paid $1,000 in annual premiums for her permanent life insurance policy for 12 years. Now upon surrendering the policy she is due to receive $15,000 of cash value. How much of this cash value is taxable? A $15,000 B $12,000 C Zero D $3,000
$3,000 The Cost Recovery Rule states that at surrender, cash values will be recovered tax-free to the extent of the cost basis of the policy. The cost basis is $12,000 (i.e. 12 years x $1,000 annual premium). The $3,000 excess over cost basis ($15,000 of CSV less $12,000 cost basis) is taxed as ordinary income.
A small business owner used her life insurance policy as collateral for a bank loan. The face amount of the whole life policy was $100,000 and the original amount of the loan was $20,000. If the outstanding loan balance at the time the small business owner died was $10,000, how much will the policy's named beneficiary receive? A $100,000 B $80,000 C $70,000 D $90,000
$90,000 The collateral assignee, the bank, will take a priority claim on the policy's death benefit limited to the amount of the loan outstanding at the time of death, the named beneficiary will receive the balance. In this case $90,000 ($100,000 - $10,000).
The insurance industry is primarily regulated at the _________ level. A Federal B County C Insurers D States
.States The states have primary responsibility for regulating the insurance industry.
If funds are prematurely withdrawn from a Modified Endowment Contract (MEC) they are subject to a _____% penalty on any gains. A 20 B 6 C 10 D 15
10 For withdrawals of any gains from a MEC prior to age 59 1/2 there is a 10% tax penalty that applies.
To be fully insured for Social Security, generally a person must have worked and paid into the Social Security system for a minimum of ______ years. A 40 B 30 C 20 D 10
10 To be fully insured for Social Security, the requirement is to accumulate 40 credits or 10 years of work paying social security taxes. A maximum of four credits may be earned in one calendar year of employment.
There are ______ methods available to determine the income objective after the death of the client for planning purposes. A 4 B 3 C 5 D 2
2 The two methods are the capital liquidation and the capital retention/conservation approaches. Relevant content:2.8 Determining Amount of Personal Life Insurance Needed
A non-school employer can set up a TSA plan for their employees under which of the following IRC section? A 408(a) B 401(k) C 501(c)(3) D 403(b)
501(c)(3) A non-school employer that is a non-profit organization can set up a TSA for its employees under IRC 501(c)(3).
Distributions from a Modified Endowment Contract (MEC) made on or after age _____ are not subject to any tax penalties. A 70 1/2 B 59 1/2 C 62 D 65
59 1/2 For withdrawals of any gains from a MEC prior to age 59 1/2 there is a 10% tax penalty that applies.
An individual purchased a fixed annuity with flexible premiums. When she annuitized the policy, she chose the Life Income 10-Year Certain option. What would the beneficiary receive if the annuitant dies 4 years after the annuity payout began? A 6 more years of payments B The undistributed balance C Nothing D 10 more years of payments
6 more years of payments In any life annuitization option, distributions are made for as long as the annuitant lives. The period certain defines the minimum number of payments that will be made if the annuitant does not live as long as the guarantee period. Since the annuitant died 4 years following annuitization, 6 years of payments remain.
Which of the following interest rates credited to an annuity will provide the larger monthly income benefit payment amount all other factors remaining the same? A 6% B 4% C 3% D 5%
6% The higher the interest rate credited translates into the higher monthly income benefit payment.
Buying life insurance so that the death benefit will be available for paying estate taxes due upon the death of the insured is known as: A Estate conservation B Preneed planning C Survivor protection D Estate creation
A Estate conservation Estate taxes are due nine months after the insured's death. Life insurance can provide the proceeds in which to pay the tax thereby conserving the estate for the heirs. Relevant content:2.7 Personal Uses of Life Insurance
Which of the following could initiate the Accelerated Benefits Provision or Rider of a life policy? A Inability to perform some activities of daily living B A presumptive disability C A condition that is terminal D A total disability not reducing life expectancy
A condition that is terminal The qualifying event in the Living Needs rider is the terminal status of the insured (i.e. projected to die within 1 or 2 years).
A producer must include their name and address on which of the following? A Any policy amendment or rider B A buyer's guide C An insurance policy's cover page D A policy summary
A policy summary Only a policy summary requires that the producer disclose their name and address.
When the death of an insured occurs within a specified period, causing the policy to pay double or triple benefits, this policy must have which of the following riders? A Enhanced Settlement Rider B Accelerated Benefit Rider C Increased Death Benefit Rider D Accidental Death Rider
Accidental Death Rider Also known as the Double Indemnity Rider, the policy pays the stated multiple of the face amount should the insured die as the result of an accident.
A policy is issued with a rider. Years later the policyowner would like to drop the rider in order to save some money. Who has the authority to effect that policy change? A The insured B An executive officer of the insurer C The beneficiary D The producer
An executive officer of the insurer Any policy changes or modifications must be in writing and signed off at the home office by an executive officer. A producer cannot change, alter, modify, or waive any policy provisions.
For which of the following reasons may an insured return the policy for a full refund within the Free Look Period? A Any reason B Death of the agent C Increase in premium D Decline in financial rating of the insurance company
Any reason The insured/owner has the right to examine the policy for 10 days after delivery. If returned within that period, a full refund of premium is granted. It is the insurer's responsibility to prove the date of delivery.
When the owner of the policy and insurer must meet certain conditions in order for the health insurance policy to be enforceable, it is referred to as a(n): A Contract of adhesion B Aleatory contract C Conditional contract D Unilateral contract
Conditional contract A Conditional Contract is one in which both parties to a contract must perform certain duties to make the contract enforceable.
Which of the following is NOT considered one of the essential elements of a contract? A Legal Purpose B Offer and Acceptance C Conditions D Competent Parties
Conditions The essential elements of a contract are offer and acceptance, consideration, competent parties, and legal purpose. Remember the acronym: CLOC.
Which of the following provisions commence at the time of the delivery of the policy to the insured? A Suicide Clause B Insuring Clause C Free Look Period D Misstatement of Age or Gender
Free Look Period The insured/owner has the right to examine the policy for 10 days (this may vary by state) after receipt of delivery. If returned within that period, a full refund of premium is granted. It is the insurer's responsibility to prove date of receipt.
When an underwriter evaluates the risks presented with a particular group life application, which of the following is considered the most important? A The overall health of the group B Group size, turnover, average age and purpose of the group C The plan sponsor's credit rating D The sales volume of the employer
Group size, turnover, average age and purpose of the group The cost of a typical group plan is a function of a number of variables, most notably average age and size of the group, industrial classification, financial stability of the sponsor, and claims experience if the group is of sufficient size.
When an insured decides to change her mode of premium payment from annually to monthly, the total premium due would: A Increase B Fluctuate C Decrease D Remains the same
Increase Additional charges are included in modes other than annual to offset the lost interest earnings and increased administration costs. Relevant content:2.5 Premium Determination for Life Insurance
Which type of term protection has an increasing face value as the insured gets older? A Convertible Term B Renewable Term C Increasing Term D Level Term
Increasing Term Increasing Term, as its name implies, increases the death benefit on an annual basis. Used primarily as a rider attached to a permanent policy, the annual premium typically stays level. Relevant content:3.2 Term Insurance
With health and life insurance a/an _________ is required at the time of the application. A Beneficiary status B Ownership right C Insurable interest D Indemnity interest
Insurable interest Insurable interest must exist at the time of application, or policy effective date.
When an applicant for life insurance faces potential financial loss in the event of injury or sickness of an insured, it is said the applicant has: A Incidents of ownership B Indemnity rights C Beneficiary status D Insurable interest
Insurable interest When an applicant for life insurance faces potential financial loss in the event of injury or sickness of an insured, it is said the applicant has:
What is the easiest and best way to assure that the life insurance policy's death proceeds don't end up in probate court process? A Name the estate as beneficiary B List a primary and contingent beneficiary by their full name and relationship to the insured C Make sure the client has a will that is current and in an easily accessible location D Ascertain that the client has a trust that is filed with the County court
List a primary and contingent beneficiary by their full name and relationship to the insured So long as the named beneficiaries are alive at the time of death of the insured, the proceeds bypass the probate process.
Instead of waiting to receive her payments over time Jeanne decides to obtain the greatest amount of money out of her annuity immediately. Which option did she choose? A Straight Life Option (Life Income) B Life Income with Refund C Lump Sum D Life Income Period Certain
Lump Sum The annuity policyowner is not required to elect a settlement option. Instead they have the right to surrender the policy just like a cash value life insurance policy to receive the policy's cash surrender value.
M purchased a traditional permanent life insurance plan many years ago. What happens when he attains age 100? A M receives nothing from the insurer because the traditional permanent insurance plan expires B M gets a refund of all premiums paid C M gets a dividend check from the insurer D M gets a check for the face amount of the policy
M gets a check for the face amount of the policy At age 100 of a traditional permanent life insurance policy purchased many years ago, when the cash values reach the policy's face amount the policy is said to endow, and M would receive a check in the amount of the face value of the contract.
Loading includes all of the following, except: A Mortality B Producer commissions C Medical exam costs D Operating expenses
Mortality The mortality rate is used to determine net premium. Loading are additional charges to net premium to derive gross premium. Relevant content:2.5 Premium Determination for Life Insurance
Under an annuity with a Joint Life Payment Option, what will the survivor receive upon the death of the first annuitant? A Nothing B The same amount they were receiving together C The undistributed balance D The remaining period certain
Nothing The Joint Life Payment Option ceases all distributions at the first death of any of the annuitants. This would not be the case if a Life Income Joint and Survivor Option were chosen.
The purpose of the Re-Entry Term option is to: A Continue on with the existing policy but with a larger face amount B Extend the length of time the original policy can be in effect C Obtain a permanent plan of insurance that builds cash value D Obtain a new term policy at a lower rate
Obtain a new term policy at a lower rate The main purpose of a Re-Entry Term option is to allow a healthy insured to acquire a new term life insurance policy at a rate lower than what is currently being charged on the existing policy.
All of the following are producer responsibilities to the applicant, except: A Reviewing and evaluating the applicant's current insurance coverage, limits, and risks B Offering and selling only the lowest premium policy C Seeking and gaining knowledge of the applicant's insurance needs D Forwarding premium on to the insurer on a timely basis
Offering and selling only the lowest premium policy The lowest premium policy may not necessarily meet the applicant's true need for coverage.
The name of the beneficiary designation that will pay a deceased beneficiary's share to the heirs of that beneficiary who predeceases the insured is called: A Per individual B Per class C Per capita D Per stirpes
Per stirpes Per stirpes is known as through the roots so the heirs of a deceased beneficiary will stand in for them and collect the deceased beneficiary's share of the proceeds.
Whole Life is also known as ________ protection. A Permanent B Temporary C Absolute D Periodic
Permanent Whole Life is designed to provide the insured protection throughout his or her life. Other types of permanent protection are Indeterminate Premium and if designed properly Adjustable Life.
The ___________ decides which dividend option is in effect and can change their election at any time. A Board of Directors B Beneficiary C Policyowner D Insurer
Policyowner The policyowner has all rights in the policy including the naming and changing of dividend options.
All of the following are correct regarding Key Employee Life Insurance, except: A Premiums are deducted from the employee's salary B The employer has an insurable interest in the key employee C The employer is the owner/applicant of the policy D The beneficiary (the employer) typically receives the death benefit free of federal income tax
Premiums are deducted from the employee's salary Key Employee Life Insurance is designed to indemnify a company against the loss of a key employee. The employer has an insurable interest in the key employee, and is the owner, premium payor and beneficiary. The premiums are not tax deductible, and the death benefit is federal income tax free.
With a life insurance policy, in the event of the premature death of the insured, who has first claim to the policy benefits? A Per stirpes beneficiary B Primary beneficiary C Estate of the insured D The probate court
Primary beneficiary The purpose of designating a beneficiary is to bypass the probate process. Assets pass directly to the beneficiary per the terms of the policy (i.e. contract).
The field underwriter is the _________ and is not a determiner of insurability. A Paramedical examiner B Medical doctor C Producer D Actuary
Producer The producer is in the field soliciting applications for insurance and in effect is another pair of eyes and ears for the insurer in helping to issue policies to insurable prospects.
A producer submits a completed application to the insurer along with the premium check after giving the applicant a conditional receipt. If the applicant completes the required medical exam, but dies prior to the insurer declining the application based upon the results of the medical exam, what is the insurer's responsibility? A Refund the premiums paid in excess of any medical exam costs incurred by the insurer B Pay a death claim less the premiums paid and costs for the medical exam C Refund any and all premiums paid with the application D Pay the claim in full since the death occurred prior to denial of the application
Refund any and all premiums paid with the application Since the producer issued a conditional receipt and all of the conditions were not satisfied (issuance of a policy as applied for) then the insurer must refund all premiums paid. Relevant content:2.3 Completing the Application
To make insurance more affordable and protect the insurance company from paying out too much in claims, insurers will: A Deny the risk B Reserve the risk C Reinsure the risk D Retain the risk
Reinsure the risk Reinsurance is what makes insurance affordable. Reinsurance companies are insurance companies that accept all or a portion of the financial risk of loss from the insurance company.
The ____________ market is a private source of coverage of last resort for individuals or businesses that have been rejected by voluntary market insurers. A Residual B Reciprocal C Self-insured D Reinsurance
Residual The residual marketplace is a source of coverage of last resort for those who have been rejected by the voluntary marketplace insurers.
Social Security Benefits provided are: A Retirement, Disability, and Unemployment B Retirement, Death, and Dependent Care C Retirement, Survivors, and FICA D Retirement, Death, and Survivor
Retirement, Death, and Survivor The Social Security System provides Retirement, Death, and Survivor benefits.
Most often, life policies pay death claims in a single lump sum. The options that allow benefits to be paid other than lump sum are called _____________. A Mandatory Options B Settlement Options C Statutory Options D Distribution Options
Settlement Options Settlement Options allow for life insurance proceeds to be distributed in a manner other than lump sum.
At the time of her retirement at age 62, Jolene chose a Life Income Payment Option to have her annuity distributed. Five years later, when her health declines, she needs the distribution to be increased. How is this accomplished? A By adding a disability income rider B By adding an increase of benefits rider C By adding a Cost of Living Rider D She cannot change the distribution once commenced
She cannot change the distribution once commenced The selection of a lifetime annuity payment option is critical because once chosen it typically may not be changed. An alternative to annuitization is a 'systematic withdrawal plan' that allows the amount of withdrawal to be changed in the future. It is not a lifetime income guarantee, and the payments will end when the last dollar of cash value is taken.
It is the _________ who issues a Certificate of Authority enabling an insurer to conduct insurance business within a particular state. A State Insurance Commissioner B State Senate C Secretary of State D State Congress
State Insurance Commissioner In order for an insurer to operate as an admitted or authorized insurer, the insurer must hold a Certificate of Authority issued by the State Insurance Commissioner, Superintendent, or Director.
Who or what restricts the insurer's underwriting criteria for group policies? A The National Association of Insurance Commissioners (NAIC) B State and Federal Laws C The employees union D The Federal Insurance Office (FIO)
State and Federal Laws State and Federal law is what restricts the underwriting criteria an insurer can use for group policies.
Which of the following is designed for someone with a large insurance need but with limited cash flow? A Term Life Insurance B Home Service Life Insurance C Whole Life Insurance D Variable Life Insurance
Term Life Insurance Term Insurance is pure protection (i.e. no cash value develops.) Its cost per thousand dollars of coverage is significantly lower initially than Permanent Insurance.
What portion of an employee's pension plan withdrawal is subject to tax? A The employer's contribution B The earnings on the contributions C The employee's contribution D The entire withdrawal
The entire withdrawal Since the contributions were pre-tax and all earnings were tax deferred, then the entire withdrawal would be subject to taxation unless one of the exceptions apply.
A is the insured under a $100,000 10 year term life insurance policy with her spouse named as her beneficiary. If she dies in year 9, what will her spouse receive? A The policy's cash values B The face amount of the policy C A refund of all premiums paid D Nothing since this is term insurance
The face amount of the policy Since the policy was in force when Angie died, Richard will receive a claim payment equal to the face amount of the policy.
All of the following statements are true of a juvenile policy, except: A The insured is the premium payor B The death benefit can increase at a specified age usually 21 or 25 without proof of insurability C The premiums remain level D The death benefit increase is typically 5 times the original issue amount
The insured is the premium payor The premium payor is an adult typically the parent of the minor insured.
Ultimately, who will be responsible for proving that a policy was delivered, if not accomplished through reasonable means? A The producer's agency B The producer C The client D The insurer
The insurer If an insurer does not deliver the policy by reasonable means, the burden of proof will be on the insurer to establish that the policy was delivered.
The relationship of a person who acts on behalf of a company whereby the person's actions can bind the company is known as: A The law of agency B Surplus lines or excess insurance C Brokerage business D The law of large numbers
The law of agency The law of agency states the principal is responsible for acts of their agents.
Equity Universal, Variable, and Variable Universal all have which of the following characteristics in common? A A securities license is required to sell each policy B The owner chooses the separate account(s) to invest the cash values in C All have a guaranteed death benefit D The overall policy performance has something to do with the stock market in general
The overall policy performance has something to do with the stock market in general All of these policies do not have a guaranteed death benefit, and the Equity Universal life policy does not require a securities registration. However, all of them have a death benefit that is somehow tied to the stock market.
A policyowner has chosen the Fixed Amount Settlement Option. Which of the following best describes this option? A The death benefit is paid in lump sum fashion B The insurer determines the number of periods that payments are made C Only the death benefit with no interest is paid D The owner specifies the amount of each periodic payment and the insurer pays that amount until the funds plus interest are depleted
The owner specifies the amount of each periodic payment and the insurer pays that amount until the funds plus interest are depleted In the Fixed Amount Settlement Option, the policyowner or beneficiary states the amount to be paid periodically. This amount will include interest and is paid until the death benefit has been fully distributed. The number of periodic payments is affected by the interest rate payable.
With a Current Assumption Whole life policy, what can happen if the cash values increase too quickly? A The policy will lapse B The face amount of the policy will decrease C The policy could mature sooner than expected D The insurer will be forced to pay out the excess to the policyowner
The policy could mature sooner than expected If the cash values grow too quickly then the policy may have its cash values equal the policy's face amount prior to age 100 or 121 thereby causing the policy to mature (or endow).
All of the following are correct pertaining to Decreasing Term, except: A Its most common use is in credit life insurance B The premium declines throughout the term of the policy C The premium stays level D The death benefit decreases
The premium declines throughout the term of the policy A decreasing term policy has a death benefit that reduces over a defined number of years, but the premium remains the same in all years.
All of the following are situations in which the insurer is obligated to pay out a death benefit after the insured has died, except: A The premiums have not been paid and have been overdue for 3 years B The insured was an experienced pilot who died in a plane crash but had a policy issued with an aviation rider for an additional premium C An insured commits suicide 7 years after the policy was issued D The insurer discovers the gender of the insured was misstated
The premiums have not been paid and have been overdue for 3 years The insuring clause states that the policy must be in force. A policy that has overdue premiums unpaid will cause the policy to lapse which means no coverage was in effect.
A mother with a teenage son purchases a life policy on his life. The policy includes an optional rider called the Payor Benefit. What will happen to the policy if the mother dies or is disabled before her son reaches age of majority? A The premiums on the son's policy would be waived until the son reaches a specified age B The premiums would be suspended and later paid back by the son C The policy would pay out a modest lump sum to the beneficiary D The amount of coverage is reduced as the policy is paid up
The premiums on the son's policy would be waived until the son reaches a specified age The Payor Benefit Rider is used in third-party policies in which the insured and owner are not the same. The insurer continues the policy as if the owner were still making premium payments.
On a variable universal life policy what is the difference between the cash value and the cash surrender values? A The amount of any outstanding policy loan B The interest earned C The investment performance D The surrender charge
The surrender charge The difference between the cash values and the cash surrender values is the surrender charge which provides an incentive for the policyowner to maintain the policy and allows for the insurer to recoup any policy issuance costs.
If a corporation owns an annuity, what is the tax ramifications? A The premiums are tax deductible as an ordinary and necessary business expense B Since the corporation is a non-natural person there is no tax penalty for early withdrawal C There is no tax deferral benefit on any earnings D Any withdrawals are taxed at the favorable corporate tax rate
There is no tax deferral benefit on any earnings Any annuity policy earnings are not tax deferred rather they are taxed each and every year.
Which of the following annuities requires the producer to hold a securities registration (license) in order to sell it? A Variable B Indexed C Fixed D Market Value Adjustment
Variable With Variable Annuities, a securities registration (license) is required to be held by the producer in order to sell it.
Which of the following policies must be sold by prospectus? A Ordinary Whole Life B Variable Whole Life C Universal Life D Equity Indexed Whole Life
Variable Whole Life Variable Whole Life is a security. It is required that the producer have a securities registration in order to sell it and the policy must be sold with a prospectus detailing all fees, charges, risks, and expenses.
In a viatical settlement transaction, the life insurance policyowner is referred to as the _________. A Provider B Viator C Third party D Viatee
Viator In a viatical settlement the life insurance policyowner is referred to as a viator.
All of the following are life insurance policy prohibited provisions, except: A Limiting the time to bring legal action against an insurer to less than 1 year B Voiding a policy for failing to repay any policy loan or loan interest when the total outstanding policy debt is greater than the policy's cash value C Backdating a policy more than 6 months to save age in order to lower the policy premium D Settlements for less than the face amount plus dividends minus the sum of outstanding policy loans, loan interest, and unpaid premium
Voiding a policy for failing to repay any policy loan or loan interest when the total outstanding policy debt is greater than the policy's cash value If the policy no longer has sufficient collateral to sustain the total outstanding policy debt then the insurer can require that the outstanding debt be reduced or the policy can be cancelled.
An insured forgets to pay his insurance premium. Instead of the policy lapsing, the premium is paid by the company. This would suggest that a __________ policy was purchased. A Decreasing term B Whole Life C Level term D Renewable term
Whole Life Only cash value policies can provide for missed premium payments to be paid with the policy's cash value through an automatic premium loan.