LIFE

A life insurance policy has a legal purpose if both of which of the following elements exist?

Insurable interest and consent To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.

Which of the following is TRUE regarding the annuity period?

It may last for the lifetime of the annuitant

Which of the following is NOT the consideration in a policy?

The application given to a prospective insured

If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE?

The policy will be interpreted as if the insurer waived its right to have an answer on the application. Any unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage later because of unanswered questions.

What is the minimum fine for acting as an agent for a nonadmitted insurer in the transaction of insurance business?

$500 In addition to any penalty given for committing a misdemeanor, a person violating any provision of the Insurance Code pertaining to Certificates of Authority will be fined $500, along with a $100 fine for each month or part of a month during which the person continues the violation.

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

) It is reduced to the amount of what the cash value would buy as a single premium. In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.

If a policyholder contacts an insurance company about a claim and expects a response to the inquiry, within what span of time must the agent respond?

15 days Upon receiving any communication from a claimant (regarding a claim) that reasonably suggests that a response is expected, every licensee must furnish the claimant with a complete response within 15 days.

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

5 days Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

The minimum number of credits required for partially insured status for Social Security disability benefits is

6 credits To be considered partially insured, an individual must have earned 6 credits during the last 13-quarter period.

Which of the following is NOT a "person" for legal purposes?

A family The individuals within a family are each a "person," but the family as a unit is not.

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

An insurance agent explains to his client the difference between two disability income insurance policies and then offers to fill out an application with the client's personal information and history. Upon completion of the application, the agent informs his client that he will "shop around" to find the company with the most favorable rates. If the agent presents the client's application to an insurer, he will be acting in which of the following capacities?

An insurance broker By definition, a broker represents the client's interest in a contract of insurance. A broker may not be, at the same time, appointed as an agent with the same company.

All other factors being equal, the least expensive first-year premium payment is found in

Annually Renewable Term. Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.

Which of the following is a short-term annuity that limits the amounts paid to a certain fixed period or until a certain fixed amount is liquidated?

Annuity certain Annuity Certain option allows the annuitant to select the time period or the amount of the benefits to be paid out. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date.

Any insurer who engages in the insurance business and violates the Code with respect to insurance replacement shall on the first violation

Be fined a sum of $10,000. An insurance company that violates the replacement provision of the Code will be fined $10,000 for the first offense.

Every expressed warranty made at or before the execution of a policy must be

Contained in and referred to in the policy or other document and signed by the insured. According to CIC 443, every express warranty made at or before the execution of a policy must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy.

A key person insurance policy can pay for which of the following?

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

Your client owns a Market Value Adjusted Annuity. In order to pay for a series of large, unexpected medical bills, he decides to surrender his policy prematurely. Which of the following will determine the penalty that the annuity owner will have to pay?

Current interest rate at the time of surrender If a Market Value Adjusted Annuity owner surrenders his/her policy prematurely, a penalty is imposed, the amount of which depends directly upon the current interest rates at the time of surrender. The market value adjustment is calculated as a percentage of the difference between the contracted rate of interest in the annuity and the current interest rate at the time of the annuity's surrender.

Which of the following is NOT typically excluded from life policies?

Death due to plane crash for a fare-paying passenger Generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline.

Which of the following is considered to be a morale hazard?

Driving recklessly Morale hazards arise from a state of mind that causes indifference to loss, such as carelessness.

A policy which pays monthly income upon the death of the breadwinner for a predetermined number of years after death, plus a lump sum at death, and combines level term and whole life is known as which policy?

Family maintenance Whole life pays a lump sum, and level term pays monthly benefits for the predetermined years of the policy.

Units with the same or similar exposure to loss are referred to as

Homogeneous The basis of insurance is sharing risk between a large homogeneous group with similar exposure to loss.

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Which of the following is NOT true regarding a Certificate of Authority?

It is issued to group insurance participants. Before insurers may transact business in a specific state, they must apply for a license or Certificate of Authority from the state department of insurance and meet any financial (capital and surplus) requirements set down by the state.

Which of the following statements best describes the effect the Accelerated Benefit provision would have on the benefits paid to the beneficiary?

It will decrease the benefits paid to the beneficiary. Accelerated Benefit provision allows the early payment of some portion of the death benefit if the insured becomes terminally ill or is confined to a long-term care facility. The face amount of insurance is therefore reduced, which will decrease the benefits paid to the beneficiary.

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT

Other insurance coverages. Part 2 of the application contains questions regarding the applicants' health history. Part I of the application includes questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers.

Which of the following will be included in a policy summary?

Premium amounts and surrender values A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.

A situation in which a person can only lose or have no change represents

Pure risk. Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type insurance companies are willing to accept.

In case of a loss, the indemnity provision in insurance policies

Restores an insured person to the same financial state as before the loss. Indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract.

A domestic insurer issuing variable contracts must establish one or more

Separate accounts. Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT

Signed waiver of premium. The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.

During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal?

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½. When money is withdrawn from the annuity during the accumulation phase, the amounts are taxed on a last in first out basis (LIFO). Therefore, all withdrawals will be taxable until the owner's cost basis is reached.

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then

The benefit is received tax free. Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.

. 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?

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.

The importance of a misrepresentation is determined by

The materiality of a given concealment. The materiality of a given concealment determines the importance of a misrepresentation

How are contributions to a tax-sheltered annuity treated with regards to taxation?

They are not included as income for the employee, but are taxable upon distribution. Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal.

Which of the following is TRUE for both equity indexed annuities and fixed annuities?

They have a guaranteed minimum interest rate.

What is the purpose of key person insurance?

To lessen the risk of financial loss because of the death of a key employee A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills or business contacts. A business can lessen the risk of such loss by the use of key person insurance.

Which of the following is NOT a goal of risk retention?

To minimize the insured's level of liability in the event of loss Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called

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.