Insurance

Variable insurance and variable annuities are regulated by a) SEC and FINRA only. b) SEC, FINRA and Departments of Insurance c) Departments of Insurance only d) NAIC

b) SEC, FINRA and Departments of Insurance Variable products are governed at the national level by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), and at the state level by the Department of Insurance (DOI).

Robert wants to insure his 4 year old son, Tyson. Robert currently has a policy on his own life for $400,00. He is getting ready to lower that amount to $100,000 next year. What is the maximum amount that he can purchase on Tyson? a) $100,000 b) $400,000 c) $25,000 d) $10,000

a) $100,000 Robert can purchase the greater of 25% (since Tyson is under 4 1/2) of the policy on his own life, or $50,000. Even if he drops the amount of coverage on his own life at a later date, as long as he does not purchase more than 25% white he still has the coverage, Tyson's policy will remain the same.

Mary, the primary beneficiary of her husband's policy, found that no settlement option was stated in the policy on the date of her husband's death. Who wills elect the settlement option to be used? a) Mary b) the court c) the benefit must be paid in a lump sum d) the insurance company

a) Mary

Agent A offers a prospective client two tickets to a Yankees baseball game with the condition that the client will purchase a family life insurance policy. This practice is known as a) Controlled business. b) Reciprocal insurance. c) Conditional marketing. d) Rebating.

d) Rebating. Offering any consideration not specified in the policy is an unfair trade practice of rebating.

All of the following statements are correct regarding Credit Life Insurance EXCEPT a) Benefits are paid to the borrower's beneficiary. b) The amount of insurance permissible is limited per borrower. c) Premiums are usually paid by the borrower. d) Benefits are paid to the creditor.

a) Benefits are paid to the borrower's beneficiary. In Credit Life Insurance, the creditor is the beneficiary for the amount of benefit equal to the outstanding balance of the loan.

When a whole life policy is surrendered for its nonforfeiture value, what is the automatic option? a) Extended term b) Paid up additions c) Cash surrender value d) Reduced paid up.

a) Extended term The automatic nonforfeiture is extended term.

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.

What happens to the face amount of a whole life policy if the insured reaches the age of 100? a) The face amount is paid to the insured. b) It is paid to the insured's estate and the policy is terminated. c) It is paid to the beneficiary in fully. d) The cash value and the face amount are paid to the insured.

a) The face amount is paid to the insured. Whole life insurance provides protection for the entire lifetime of the insured. If the insured live tot he age of 100, the company pays the face amount of the policy to the policy owner (usually the insured).

Carol is insured under her employer's group life insurance plan at her place of employment. All of the following statements about her coverage are true except which of the following? a) should Carol convert her coverage, the premium will be based upon her attained age. b) Carol could choose what type of insurance her conversion policy provided (term or permanent) c) Carol would not need to prove insurability for a conversion policy. d) if Carol quits she may, within 31 days, request that her coverage be converted to an individual policy.

b) Carol could choose what type of insurance her conversion policy provided (term or permanent)

An agent has recently changed his email address. What must the agent do to comply with the regulation for change of address? a) Report the address change to the NAIC b) Inform the Department within 30 days. c) Inform all his customers within 30 days d) Nothing; email addresses are not subject to regulations

b) Inform the Department within 30 days. The Department of Insurance must be notified within 30 days of any change of address: residence, business or email.

An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy? a) $0 b) $200 c) $9,800 d) $10,000

c) $9,800 In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.

The frequency and the amount of the premium payment are known as what? a) Level premium b) Plan mode c) Premium mode d) Net Premium

c) Premium mode Premium payment mode refers to the frequency the policy owner pays the premium.

In which of the following scenarios would a producer be allowed to obtain insurance through an unauthorized insurer? a) If the insurer needs to investigate insurance claims. b) Under no circumstances c) If the producer had no knowledge that the company is unauthorized. d) If there are no authorized insurers for a specific type of coverage in this state.

d) If there are no authorized insurers for a specific type of coverage in this state. Unauthorized insurers can only conduct business in a state through licenses excess and surplus lines brokers. It is the producer's responsibility to confirm, prior to translating insurance with an insurer, that the company is authorized.

The two types of assignments are a) Complete and partial. b) Complete and proportionate. c) Absolute and collateral d) Absolute and partial.

c) Absolute and collateral. Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.

An applicant for property insurance owns a building in which combustible materials are store din the furnace room. From an underwriting standpoint, this risk would likely be considered a a) Morale hazard b) Speculative risk c) Moral hazard d) Physical hazard

a) Morale hazard This insured's lack of caution in storing combustible materials increases the likelihood of fire or exploding. This careless attitude is an example of a morale hazard.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called a) Waiver of premium. b) Guaranteed insurability. c) Waiver of cost of insurance. d) Payor benefit.

a) Waiver of premium. Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

The insurer must send an annual update to their policy owners for each illustration that it uses how often? a) Once a month b) twice a year c) annually d) never

c) annually

In a defined benefit plan a) The contribution and the benefit are unknown. b) The contribution and the benefit are known. c) The contribution is known and the benefit is unknown. d) The benefit is known and the contribution is unknown.

d) The benefit is known and the contribution is unknown. In a defined benefit plan the benefit is defined (known) and the contribution is undefined (unknown).

Which of the following will NOT be an appropriate use of a deferred annuity? a) Creating an estate b) Accumulating retirement funds c) Accumulating funds in an IRA d) Funding a child's college education

a) 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.

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? a) Inspection Report b) Medical Information Bureau's report c) Agent's Report d) Underwriter's Report

a) Inspection Report Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act.

What does "liquidity" refer to in a life insurance policy? a) The death benefit replaces the assets that would have accumulated if the insured had not died. b) The policyowner receives dividend checks each year. c) The insured is receiving payments each month in retirement. d) Cash values can be borrowed at any time.

d) Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values.

Which is true of a Renewable Term policy? a) the insurers has the right to renew the policy. b) the policy owner has the right to renew. c) the insured has the right to renew. d) policy ca only be renewed with insured's proof of insurability.

b) the policy owner has the right to renew. c) the insured has the right to renew.

A projection of insurance needs that is based upon the capitalization of an applicant's future earnings is: a) blackout approach b) lump sum- approach c) human life value approach d) needs approach

d) needs approach

Which of the following is true regarding a single life settlement option? a) It provides income the beneficiary cannot outlive. b) Payments continue until the entire principal is exhausted. c) Proceeds are paid out in a lump sum. d) It provides income for a specified period of time.

a) It provides income the beneficiary cannot outlive. The Single Life Option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop.

A life insurance policy does not have a war clause. If the insured is killed during a time of war, what will the beneficiary receive from the policy? a) The policy's cash value b) A refund of premiums c) Nothing, since the insured was killed as a result of a war d) The full death benefit

d) The full death benefit War or Military Service Clause specifically excludes or limits the insurer's liability for losses caused by war or active military service. If a life insurance policy does not have that exclusion, the benefits are paid to the beneficiary, as if the insured died of any other cause.

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a a) Nonforfeiture option. b) Rollover. c) Settlement option. d) Nontaxable exchange.

c) Settlement option. A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums? a) The insured's premiums will be waived until she is 21. b) The premiums will become tax deductible until the insured's 18th birthday. c) Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected. d) The insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums.

a) The insured's premiums will be waived until she is 21. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

A life producer applying for a life settlement broker license may be exempt from the relicensing education and examination requirement if the producer has held an active life license for at least how many years? a) 1 year b) 2 years c) 3 years d) 5 years

a) 1 year If a life producer has maintained an active license for one year, the relicensing class and exam, as well as fingerprinting, may be waived when applying for a life settlement broker license.

All of the following are characteristics of a Universal Life policy EXCEPT a) The planned premium pays for mortality charges and expenses and any excess is returned to the policyowner. b) The insurance company reserves the right to adjust the mortality charges and/or interest rate. c) The cash account accumulates on a tax-deferred basis. d) Universal Life is a combination of term insurance and a separate savings account joined in a single contract.

a) The planned premium pays for mortality charges and expenses and any excess is returned to the policyowner. Any premium amounts not required to pay for mortality and expenses, create the cash account.

All of the following would be different between qualified and nonqualified retirement plans EXCEPT a) Taxation of withdrawals b) Taxation of contributions c) IRS approval requirements d) Taxation on accumulation

d) Taxation on accumulation Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.

An insured brought an insurance policy that requires him to pay $150 in premiums on the 15th of each month. He then takes an extended vacation and forgets to pay the premium. Ten days later, his policy is still in effect and has not lapsed. Which policy provision allowed for this? a) Waiver of premium b) Automatic premium loan c) Incontestability d) Grace Period

d) Grace Period Grace period is a mandatory provision found in all life insurance policies that provides coverage for a period of time after the premium becomes past due.

Which of the following is NOT true regarding policy loans? a) Policy loans can be repaid at death. b) An insurer can charge interest on outstanding policy loans. c) A policy loan may be repaid after the policy is surrendered. d) Money borrowed from the cash value is taxable.

d) Money borrowed from the cash value is taxable. Money borrowed from the cash value is not taxable. Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.

Which of the following statements is correct regarding a whole life policy? a) Cash values are not guaranteed. b) The policy premium is based on the attained age. c) The death benefit may increase or decrease during the policy period. d) The policyowner is entitled to policy loans.

d) The policyowner is entitled to policy loans. Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans.

What does "level" refer to in level term insurance? a) Face amount b) Premium c) Cash value d) Interest rate

a) Face amount Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages.

Which of the following is NOT true about a group annuity? a) It can be owned by individual employees. b) It can be noncontributory. c) It can be qualified. d) It can be tax deferred.

a) It can be owned by individual employees. Group annuity contracts can be obtained through an employer. Group annuities can be qualified, where an employer provides retirement benefits for employees through a tax-deferred annuity.

Which of the following is NOT true regarding the Needs Approach method of determining the value of an individual's life? a) Need is predicted using the number of years until the insured's retirement. b) Coverage is based on the predicted needs of that family. c) The death of an insured must be premature. d) It must be assumed that the death of the insured will occur immediately.

a) Need is predicted using the number of years until the insured's retirement. In the Needs Approach method, need is determined by the predicted needs of the family after the premature death of the insured, which must be assumed will happen immediately. The policy allows for benefits to be collected upon the insured's death.

Which settlement option allows the insurer to retain the face amount but pay some income based on gain on the proceeds to the beneficiary at regular intervals? a) Fixed amount b) Fixed period c) Interest only d) Life income

c) Interest only With the "interest only" option, the insurer retains policy proceeds and pays interest on the proceeds to the beneficiary at regular intervals. The insurer will usually guarantee an interest rate and even pay in excess of the rate quoted.

An employee quits her job where she has a balance of $10,000 in her qualified plan. The balances was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover? a) $10,000, 30 days. b) $8,000, 60 days. c) $8,000, 30 days. d) $10,000, 60 days.

b) $8,000, 60 days. Generally, IRA rollover must be completed within 60 days from the time the money is taken out of the first plan. IF the distribution form the first plan is paid directly to the participant, 20% of the distribution must be withheld by the payor.

If a certificate of appointment is terminated, a statement must be filed with the Superintendent within a) 20 days. b) 30 days. c) 45 days. d) 15 days.

b) 30 days. When an agent's certificate of appointment is terminated, the insurer or HMO must file the statement within 30 days, and must explain the cause of the termination and surrounding facts.

Which of the following includes information regarding a person's credit, character, reputation, and habits? a) Agent's Report b) Consumer Report c) Consumer History d) Insurability Report

b) Consumer Report Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources.

When must agents submit license renewal applications to the Superintendent? a) At least 60 days before the license expires. b) By the last day of February of every year c) At least 30 days before the anniversary of the day they received their licenses d) Within 10 business days of their birthdays

a) At least 60 days before the license expires. Agents must file applications for renewal of their licenses with the Superintendent at least 60 days before the expiration of the license.

Which of the following is NOT true regarding the Life with Guaranteed Minimum annuity settlement option? a) It provides a higher monthly benefit than a pure life annuity. b) It is a life contingency option. c) The beneficiary received the remainder of the principle amount upon the death of the annuitant. d) Payments can made in installments and as a single cash refund.

a) It provides a higher monthly benefit than a pure life annuity. With the Life with Guaranteed Minimum annuity settlement option, if the annuitant dies before the principle amount (the amount he paid for the annuity) has been paid out, the remainder of the principle amount will be refunded to his/her beneficiary. Pure life provides the highest monthly benefits for an individual annuitant.

All off the following statements are true regarding installments for a fixed amount EXCEPT a) The payments will stop when the annuitant dies. b) Value of the account and future earnings will determine the time period for the benefits. c) This option pays specific amount until the funds are exhausted. d) The annuitant may select how big the payments will be.

a) The payments will stop when the annuitant dies. Installments for a fixed amount option has no life contingencies. A specific amount of benefits will be paid until funds are exhausted whether or not the annuitants is living.

An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover? a) $10,000, 30 days b) $8,000, 60 days c) $8,000, 30 days d) $10,000, 60 days

b) $8,000, 60 days Generally, IRA rollovers must be completed within 60 days from the time the money is taken out of the first plan. If the distribution from the first plan is paid directly to the participant, 20% of the distribution must be withheld by the payor.

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.

Employer contributions made to a qualified plan a) Are taxed annually as salary. b) Are subject to vesting requirements. c) May discriminate in favor of highly paid employees. d) Are after-tax contributions.

b) Are subject to vesting requirements. Qualified plans must have a vesting requirement.

When a policy is surrendered for its cash value, a) It can only be reinstated as a term policy. b) Coverage ends and the policy cannot be reinstated. c) Coverage ends but the policy can be reinstated at any time. d) It can be reinstated by paying back all policy loans and premiums.

b) Coverage ends and the policy cannot be reinstated. - Correct Answer Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT a) The insurer determines the amount for each payment. b) It is a life contingency option. c) It will pay the benefit only for a designated period of time. d) The payments are not guaranteed for life.

b) It is a life contingency option. Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only, and there are no life contingencies.

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT a) The insurer determines the amount for each payment. b) It is a life contingency option. c) It will pay the benefit only for a designated period of time. d) The payments are not guaranteed for life.

b) It is a life contingency option. Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only, and there are no life contingencies.

Which of the following statements is true regarding advertising that the Insurance Guaranty Association would assure payment of benefits in the event of insurer solvency? a) All advertisements of an insurer must mention coverage by the association. b) It is illegal to mention the Association in advertisements. c) Insurers may choose whether to mention the association but is so must first pay a fee to the Department of Insurance. d) If insureds join the association, they will be protected financially if their insurers become insolvent.

b) It is illegal to mention the Association in advertisements. 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.

An insured falls down a flight of stairs and sustains a neck injury that render hims severely disabled. The insured owns a Whole Life policy. Is it possible for the policy to include a Waiver of Cost of insurance rider, and if so, what insurance costs would be waived? a) Yes; the cost of insurance and premiums used to accumulate cash value. b) No; it is not possible for this waiver to be included in a whole life policy. c) Yes; the cost of premium used to accumulate case value. d) No; it is not possible to waive the cost of insurance.

b) No; it is not possible for this waiver to be included in a whole life policy. The Waiver of Cost of Insurance rider is found in Universal Life policies. In this example, the insured has a Whole Life policy, making him ineligible.

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early? a) Dividend Accumulation option b) Paid-up option c) Accumulation at Interest d) Paid-up additions

b) 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.

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe? a) Retention b) Reduction c) Transfer d) Avoidance

b) Reduction The insured's change in lifestyle and habits would likely reduce the chances of health problems.

What limits the amount that a policy owner may borrow form a whole life insurance policy? a) cash value b) cash value plus the loan interest c) the amount is not limited d) face amount

b) cash value plus the loan interest

Tripton, falls from his roof and damages his spinal column enough to render him disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive? a) yearly premium waiver and income. b) monthly premium waiver and monthly income. c) percentage of medical costs paid by the insurer. d) payments for life.

b) monthly premium waiver and monthly income.

An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequences of a direct transfer? a) $8,000, tax on growth only. b) $10,000, tax on growth only. c) $10,000, no tax consequence. d) $8,000, no tax consequence.

c) $10,000, no tax consequence. During an IRA direct transfer (or direct rollover), the full amount gets reinvested from one plan to the other.

If a person, firm, association, or corporation conducts insurance business in New York without a Certificate of Authority the penalty for the first violation is a) $2000 b) $500 c) $1000 d) $2500

c) $1000 First-time violation of conducting insurance business without a Certificate of Authority is $1,000; subsequent violations are $2,500 each.

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? a) $100 per violation b) Revocation of license c) $2,500 d) $1,000

c) $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.

An insurance policy specifies that it will pay $600 for a specific loss. The policyowner suffers a loss of $535. How much will the policy pay? a) $300 b) $500 c) $535 d) $600

c) $535 Applying the principle of indemnity, the insurer will pay the actual cost of the loss, up to the limit stated in the policy. In this case, the insurer will pay $535.

An insurance broker's license may be issued to a) Persons age 17 or older. b) Only an individual or a corporation with officers named as sublicensees. c) A person, firm or corporation. d) Anyone who can pass the written examination.

c) A person, firm or corporation. An insurance broker is any person, firm, association or corporation who solicits, negotiates or obtains insurance for an insured (other than him/herself) in exchange for a commission.

All of the following statements about indexed whole life insurance are correct EXCEPT a) There is a guaranteed minimum interest rate. b) The cash value depends on the performance of the equity index. c) The death benefit is not guaranteed. d) The premium is fixed.

c) The death benefit is not guaranteed. Under this type of policy, the premium is fixed, and the death benefit is guaranteed.

According to the life insurance replacement regulations, which of the following would be an example of policy replacement? a) Term insurance is changed to a Whole Life policy. b) A lapsed policy is reinstate within a specific timeframe. c) A policy is reissued with a reduction in cash value. d) A term policy expires, and the insured buys another term life policy.

c) A policy is reissued with a reduction in cash value. Replacement means any transaction in which new life insurance or a new annuity is to be purchased and it is known or should be known to the proposing producer that by reason of the transaction, existing life insurance or annuities shave been or will be converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.

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".

Your client plans to retire at age 50. He would like to purchase an annuity that would provide income from the time he retires to the age when social security and other pension funds become available. What settlement option should he consider? a) Refund Life b) Variable annuity c) Annuity Certain D) Fixed Annuity

c) Annuity Certain Annuity Certain option allows the annuitants to select the time period or the amount for the benefits. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date.

Which of the following is NOT true of Section 1035 Policy Exchanges? a) It is an IRS Code which permits like kind exchanges of property. b) It is typically used then exchanging or replacing a less competitive live policy with a more competitive life policy. c) Any exchange made under Section 1035 of the IRS code mist be completed within 30 days. d) It requires an absolute assignment of the existing policy to the replacing company who surrenders the contract and issues a replacement policy.

c) Any exchange made under Section 1035 of the IRS code mist be completed within 30 days. Section 1035 of the Internal Revenue Code does not give a specific time limit to complete such an exchange.

Which statement below is INCORRECT regarding the type of term insurance that fits best with the applicants needs? a) Applicants wishing to pay off a mortgage should they suffer a premature death might buy a decreasing term plan. b) Employers looking to provide cost effective group life insurance for their employees may choose annual renewable term. c) Applicants who may require a larger death benefit in the future should buy convertible term insurance. d) Applicants concerned with the increasing cost of living should purchase increasing term.

c) Applicants who may require a larger death benefit in the future should buy convertible term insurance. Convertible term converts to a cash value policy with the same death benefit but at a high premium.

A key person insurance policy can pay for which of the following? a) Workers compensation b) Hospital bills of the key employee c) Costs of training a replacement d) Loss of personal income

c) Costs of training a replacement. A key person insurance policy will pay for costs of running the business and replacing the employee.

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.

In insurance transactions, fiduciary responsibility means a) Being liable with respect to payment of claims. b) Commingling premiums with agent's personal funds. c) Handling insurer funds in a trust capacity. d) Maintaining a good credit record.

c) Handling insurer funds in a trust capacity. An agent's fiduciary responsibility includes handling insurer funds in a trust capacity.

Which of the following is NOT true about a group annuity? a) It can be qualified. b) It can be tax deferred. c) It can be owned by individual employees. d) It can be noncontributory.

c) It can be owned by individual employees. Group annuity contracts can be obtained through an employer. Group annuities can be qualified, where an employer provides retirement benefits for employees through a tax-deferred annuity.

An insurer invests the money it receives from premiums paid by its insureds. Which of the following is TRUE regarding the interest earned on these investments? a) It is used to fund executive bonuses b) It is used to increase the death benefit. c) It is used to lower premiums. d) It is paid out as dividends.

c) It is used to lower premiums. Because insurers receive premiums before they must pay out benefits, they can invest the premium money and use the interest to lower premium amounts charged to insureds.

The Human Life Value approach to determining Life Insurance needs is based upon which of the following ideas? a) Specific needs for college education. b) Retirement needs. c) Loss of the breadwinner's income. d) Replacement of assets.

c) Loss of the breadwinner's income. The Human Life Value approach is based upon loss of income.

What type of insurer uses a formal sharing agreement? a) Mutual insurers b) Fraternal Benefit Societies c) Reciprocal insurers d) Stock insurers

c) Reciprocal insurers Sharing is a method o dealing with risk for a group of individual persons or businesses with he same or similar exposure to loss to share the losses that occur within that group. A reciprocal insurance exchange is a formal risk-sharing arrangement. When insurance is obtained through a reciprocal insures, the insured are sharing the risk of loss with other subscribers of that reciprocal.

In the state of New York, investors can contribute up to a lifetime maximum for the college expenses of a designated beneficiary. What is the name of this plan? a) Educational Expense Fund b) Roth IRA c) Section 529 Plan d) Scholarship Fund

c) Section 529 Plan In the state of New York, investors can contribute up to a lifetime maximum for the college expenses of a designated beneficiary. This is called the 529 Plan because it was created by Section 529 of the Federal Tax Code. All of the money invested accumulates on a tax-free basis, and the distributions are also tax-free. Investment decisions rest entirely in the hands of the selected Fund Manager.

All of the following are general requirements of a qualified plan EXCEPT a) The plan must have a vesting requirement. b) The plan's benefit cannot discriminate in favor of the "prohibited group." c) The plan must be temporary. d) The plan mist be approved by the IRS.

c) The plan must be temporary. Qualified plan must be permanent. All the other characteristics above are also true.

The Waiver of Cost of Insurance rider is found in what type of insurance? a) Joint and Survivor b) Juvenile Life c) Universal Life d) Whole Life

c) Universal Life The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.

Bill just brought a new car, which he anticipates will be paid in full four years from now. He also wants to buy a life insurance policy but will be financially limited until he has paid for the car. Which of the following types of policies would be best for Bill? a) limited pay b) interest sensitive whole life c) modified life d) limited term

c) modified life

A rider attached to a life insurance policy that provided coverage on a spouse or other family members is called the a) juvenile rider b) comprehensive family rider c) other insured rider d) change of insured rider

c) other insured rider

Which of the following is not the consideration in a policy? a) the premium amount paid at the time of application. b) the promise to pay covered loses. c) the application given to a prospective insured. d Something of value exchanged between parties.

c) the application given to a prospective insured.

All of the following attributes are found in stock insurance companies except a) earnings from operations may be kept as retained earnings. b) the stockholders may receive a dividend at the end of the year. c) the board of directors is chosen by state- based election board. d) the company is owned by stockholders.

c) the board of directors is chosen by state- based election board.

An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer? a) $8,000, tax on growth only b) $10,000, tax on growth only c) $10,000, no tax consequence d) $8,000, no tax consequence

c)$10,000, no tax consequence During an IRA direct transfer (or direct rollover), the full amount gets reinvested from one plan to the other.

What type of life insurance is most commonly used for group plans? a) Whole life b) Flexible premium whole life c) Decreasing term d) Annually renewable term

d) Annually renewable term Group insurance is usually written for employee-employer groups as annually renewable term insurance.

Which of the following would be TRUE of both the fixed-period and fixed-amount settlement options? a) The amount of payments is based on the recipients life expectancy. b) The size of installments decreases after certain period of time. c) Both guarantee payments for the life of the beneficiary. d) Both guarantee that the principle and interest will be fully paid out.

d) Both guarantee that the principle and interest will be fully paid out. Neither the fixed-period nor fixed-amount settlement options guarantee income for the life of the beneficiary; however, they both guarantee that the entire principle and interest will be distributed.

What is a 529 plan? a) Business continuation plan b) Retirement plan c) Medical savings plan d) College savings plan

d) College savings plan College Savings Plans were created by Section 529 of the Federal Tax Code.

When comparing a Joint Life Policy to two individual life policies of the same amount on the same insured, which condition is true? a) Joint Life has a premium that is identical to the sum of the two individual policies. b) The Joint Life premium can only be paid monthly. c) Joint Life has a higher premium than the total of the two individual policies. d) Joint Life has a lower premium that then total of the two individual policies.

d) Joint Life has a lower premium that then total of the two individual policies. Since Joint Life only pays one death benefit (at the first death) its premium is less than the total of two individual policies.

Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors? a) Mortality rate b) Risk exposure c) Morbidity d) Life expectancy

d) Life expectancy Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).

Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? a) Corridor option b) Variable option c) Option A d) Option B

d) Option B 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. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.

The needs approach to calculating the amount of life insurance needed is based on a) Whether or not the family is in the blackout period. b) Whether or not the insured has dependents. c)The estimate of what would be lost to the family in the event of the premature death of the insured. d) Predicated needs of a family after the premature death of the insured.

d) Predicated needs of a family after the premature death of the insured. The needs approach is based on the predicted needs of a family after the premature death of the insured.

In a deferred annuity, the difference between the accumulation value and the surrender value is the a) Mortality charge b) Interested credit c) Front end load d) Surrender charge

d) Surrender charge When a deferred annuity is surrendered the surrender charge is deducted fro the accumulated value to produce the surrender value.

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date? a) The date of policy delivery b) The date of issue c) The date of application d) The date of medical exam

d) The date of medical exam If the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of the medical exam (whichever is later), provided that the applicant is found insurable at the rate applied for.

All of the following statements are true regarding installments for a fixed amount EXCEPT a) Value of the account and future earnings will determine the time period for the benefits. b) This option pays specific amount until the funds are exhausted. c) The annuitant may select how big the payments will be. d) The payments will stop when the annuitant dies.

d) The payments will stop when the annuitant dies. Installments for a fixed amount option has no life contingencies. A specific amount of benefits will be paid until funds are exhausted whether or not the annuitant is living.

When a life insurance policy is cancelled and the insured has selected the extended term insurance option, the case value will be sued to purchase term insurance that has a face value a) in lesser amounts for the remaining policy term of age 100. b) equal to the cash value surrendered from the policy. c) the same as the original policy minus the cash value. d) equal to the original policy for as long a period if time that the cash values will purchase.

d) equal to the original policy for as long a period if time that the cash values will purchase.