LIFE EXAM 2

What is the penalty for IRA distributions that are below the required minimum for the year? a) 10% b) 25% c) 50% d) 60%

c) 50% If there are no distributions at the required age, or if the distributions are not large enough, the penalty is 50% of the shortfall from the required annual amount.

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.

#92. If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this? a) Jumping juvenile policy b) Limited pay whole life policy c) Modified life insurance policy d) Single premium policy

a) Jumping juvenile policy While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21).

Which settlement option provides a single beneficiary with income for the rest of his/her life? a) Single Life b) Fixed Amount c) Lump Sum d) Retained Assets

a) Single Life The Single Life Option provides a single beneficiary with income for the rest of his/her life.

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? a) Unilateral b) Adhesion c) Conditional d) A legal (but unethical) contract

a) Unilateral In a unilateral contract, only one of the parties to the contract is legally bound to do anything.

#89. An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? a) Universal life b) Adjustable life c) Term life d) Limited pay

a) Universal life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

An intermediary must notify the Commissioner of a change of residence address within how many days of the change? a) 20 b) 30 c) 5 d) 10

b) 30 An intermediary must notify the Commissioner of a change of address, business or residence, within 30 days of the change.

All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT a) An offer to share in commissions generated by the sale. b) Dividends from a mutual insurer. c) An offer of employment. d) Stocks, securities, or bonds.

b) Dividends from a mutual insurer. Dividends paid to policyholders of a mutual insurer are not considered to be a rebate because the policy specifies that they might be paid.

Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid a) Until the policyowner's age 100, when the policy matures. b) For 20 years or until death, whichever occurs first. c) Until the policyowner reaches age 65. d) For 20 years.

b) For 20 years or until death, whichever occurs first. Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.

The responsibility of making certain that an application for insurance is filled out completely, correctly, and to the best of his or her knowledge is the responsibility of whom? a) The applicant b) The producer c) The beneficiary of the applicant d) The insurance company

b) The producer It is the responsibility of the producer (agent) to make sure an application for insurance is filled out correctly.

How are contributions to a tax-sheltered annuity treated with regards to taxation? a) They are taxed as income for the employee, but are tax free upon withdrawal. b) They are not included as income for the employee, but are taxable upon distribution. c) They are never taxed. d) They are taxed as income for the employee.

b) 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.

A claimant, who is totally and permanently disabled, is eligible for Social Security Disability benefits after an elimination period of a) 24 months. b) 0 months. c) 5 months. d) 12 months.

c) 5 months. Social Security applies a 5 month waiting period to claimants for disability benefits.

A tax-sheltered annuity is a special tax-favored retirement plan available to a) Certain age groups only. b) Certain groups depending on factors such as race, gender, and age. c) Certain groups of employees only. d) Anyone.

c) Certain groups of employees only. A tax-sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education).

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? a) Family policy b) Family protection plan c) Family maintenance d) Family income

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

Which of the following is an intermediary who acts in the procuring of insurance on behalf of an applicant for insurance or an insured? a) Managing general representative b) Insurance agent c) Insurance broker d) Managing general agent

c) Insurance broker An "insurance broker" is an intermediary who acts in the procuring of insurance on behalf of an applicant for insurance or an insured. A broker does not act on behalf of the insurer, except to collect premiums.

Which of the following best describes gross annual premium? a) Basic insurance rate plus commissions b) Expense premium c) Net premium plus expenses d) Annual loading

c) Net premium plus expenses Gross annual premium is net premium plus expenses (loading).

Which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting? a) Reciprocal b) Fraternal c) Stock d) Mutual

c) Stock Only stock insurance companies are owned and controlled by stockholders.

For how many years must an agent keep the original certificates of completion of CE hours? a) 1 year b) 2 years c) 3 years d) 4 years

d) 4 years Every agent must maintain a record of all courses attended by keeping the original certificates of completion for 4 years after the end of the year of attendance.

What documentation grants express authority to an agent? a) Agent's insurance license b) Fiduciary contract c) State provisions d) Agent's contract with the principal The principal grants authority to an agent through the agent's contract.

d) Agent's contract with the principal The principal grants authority to an agent through the agent's contract.

How is the Commissioner of Insurance placed in office? a) By NAIC nomination b) Through a bid process c) An election at the same time that other state officials are selected d) An appointment by the Governor

d) An appointment by the Governor The Commissioner is appointed by the governor.

If the annuitant dies during the accumulation period, who will receive the annuity benefits? a) Owner b) Insurance company c) Estate d) Beneficiary

d) Beneficiary If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.

Which of the following is NOT true regarding an annuity certain? a) It will pay until a fixed amount is liquidated. b) There are no life contingencies. c) It is a short-term annuity. d) Benefits stop at the annuitant's death.

d) Benefits stop at the annuitant's death. Annuities Certain are short-term annuities which limit the amount paid to a certain fixed period or until a certain fixed amount is liquidated. There are no life contingencies.

If an insured changes his payment plan from monthly to annually, what happens to the total premium? a) Stays the same b) Doubles c) Increases d) Decreases

d) Decreases Because the insurer would have the entire premium to invest for a full year, they would reduce the premium amount.

#17. An intermediary's license remains in effect for how long? a) 1 year b) 2 years c) 3 years d) Indefinitely

d) Indefinitely An intermediary's license remains in effect until it is revoked, suspended, or limited by the commissioner or when it is voluntarily surrendered by the agent.

Who does the Interstate Insurance Product Regulation Compact serve? a) Insureds b) Commissioner c) NAIC d) Insurers

d) Insurers The IIPRC provides insurers a single point of filing for the review and approval of insurance policy forms instead of submitting the forms to each individual state where the forms will be used.

Who does the Interstate Insurance Product Regulation Compact serve? a) NAIC b) Insurers c) Insureds d) Commissioner

b) Insurers The IIPRC provides insurers a single point of filing for the review and approval of insurance policy forms instead of submitting the forms to each individual state where the forms will be used.

Which nonforfeiture option provides coverage for the longest period of time? a) Paid-up option b) Accumulated at interest c) Reduced paid-up d) Extended term

c) Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

Which of the following is an intermediary who acts in the procuring of insurance on behalf of an applicant for insurance or an insured? a) Insurance broker b) Managing general agent c) Managing general intermediary d) Insurance agent

a) Insurance broker An "insurance broker" is an intermediary who acts in the procuring of insurance on behalf of an applicant for insurance or an insured. A broker does not act on behalf of the insurer, except to collect premiums.

Events in which a person has both the chance of winning or losing are classified as a) Speculative risk. b) Insurable. c) Pure risk. d) Retained risk.

a) Speculative risk . Speculative risk involves the chance of gain or loss and is not insurable.

Records of replacement suitability inquiries must be kept in the agent's file for at least a) 1 year. b) 3 years. c) 5 years. d) 7 years.

b) 3 years. Records of replacement suitability inquiries must be kept in the agent's file for at least 3 years.

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled? a) Payor Benefit b) Jumping Juvenile c) Juvenile Premium Provision d) Waiver of Premium

a) Payor Benefit 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.

An agent's advertisements for life insurance must be approved by a) The agent. b) The agent's company. c) The Commissioner. d) The Governor.

b) The agent's company. Any advertising by an agent must be approved by the agent's company.

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 losses c) The application given to a prospective insured d) Something of value exchanged between parties

c) The application given to a prospective insured Consideration is something of value that is transferred between the two parties to form a legal contract.

If reasonably possible, a notice of proof of loss claim must be provided to the insurer within what period of time after the time required by the policy? a) 3 months b) 6 months c) 9 months d) 12 months

d) 12 months A notice of proof of loss claim must be provided as soon as reasonably possible to the insurer and within 1 year after the time required by the policy.

#31. The Commissioner issues an order without having conducted a hearing. Within how many days of receiving the order can the person aggrieved by the order request a trial? a) 30 b) 60 c) 90 d) 15

a) 30 Before the Commissioner can issue an order, a hearing must be held. If an order is issued without a hearing, any person aggrieved by the order may demand a hearing, in writing, within 30 days after the date on which the order was mailed.

All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT A) An offer of employment. B) Stocks, securities, or bonds. C) An offer to share in commissions generated by the sale. D) Dividends from a mutual insurer.

D) Dividends from a mutual insurer. Dividends paid to policyholders of a mutual insurer are not considered to be a rebate because the policy specifies that they might be paid

Which type of retirement account allows contributions to continue beyond age 70½ and does not force distributions to start at age 70½? a) Roth IRA b) Flexible IRA c) Standard IRA d) Traditional IRA

a) Roth IRA A Roth IRA allows contributions to continue beyond age 70½ and does not force distributions to start at age 70½.

If an insured receives accelerated death benefits, what is the least amount of the original death benefit that the beneficiary would receive after the insured's death? a) 0% b) 50% c) 25% d) 10%

a) 0% If an insured accepts an accelerated death benefit, the death benefit received by the beneficiary will be reduced by the amount paid by the accelerated death benefit, as well as the amount of earnings lost by the insurance company in interest income. Because it is legal for an insurer to pay 100% of the death benefit before an insured dies, it is possible that the beneficiary of a policy would not receive any benefits after the insured's death.

A claim is considered overdue if NOT paid within how many days after the insurer receives written notice? a) 30 days b) 60 days c) 90 days d) 180 days

a) 30 days Unless otherwise provided by law, every insurer must promptly pay every insurance claim. A claim is considered overdue if not paid within 30 days after the insurer received full or partial written notice. If the insurer can provide reasonable proof that the claim is not their responsibility, payment is not required.

#75. To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters? a) 4 credits b) 6 credits c) 10 credits d) 40 credits

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

In forming an insurance contract, when does acceptance usually occur? a) When an insured submits an application b) When an insurer's underwriter approves coverage c) When an insurer delivers the policy d) When an insurer receives an application

b) When an insurer's underwriter approves coverage In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

A Buyer's Guide must be presented a) When a potential applicant inquires about a policy. b) When the application is taken. c) Anytime before the policy is delivered. d) At the time of policy delivery.

b) When the application is taken. The insurer must also provide a copy of the life insurance buyer's guide to all prospective buyers, at the time the application is taken.

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to a) The state. b) The beneficiary's estate. c) The insured's estate. d) Probate

c) The insured's estate. In the absence of a viable beneficiary, proceeds will be paid to the estate of the insured.

What is the benefit of choosing extended term as a nonforfeiture option? a) It matures at age 100. b) It allows for coverage to continue beyond maturity date. c) It can be converted to a fixed annuity. d) It has the highest amount of insurance protection.

d) It has the highest amount of insurance protection. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

#16. What documentation grants express authority to an agent? a) Agent's contract with the principal b) Agent's insurance license c) Fiduciary contract d) State provisions

a) Agent's contract with the principal The principal grants authority to an agent through the agent's contract.

Rebating is an unfair trade practice and is regulated by law. All of the following would be considered to be rebating EXCEPT a) An agent misrepresents policy benefits to convince a policyowner to replace policies. b) An agent offers the use of his lake house to person as an inducement to buy. c) An agent offers to share his commission with a policyholder. d) An agent offers tickets to a baseball game as an inducement to buy insurance.

a) An agent misrepresents policy benefits to convince a policyowner to replace policies. Using misrepresentation to convince a person to cancel an existing policy and buy a new one is called "twisting."

In order for an intermediary to sell or offer to sell a variable contract he/she must have which of the following types of licenses? a) Life and Variable contract license b) Variable contracts and Series 7 c) Life and Series 6 d) Life and Series 7

c) Life and Series 6 In order for an intermediary to sell or offer to sell a variable contract he/she must have both a valid life insurance license and a securities license (Series 6).

Which of the following best defines the "owner" as it pertains to life settlement contracts? a) A financial entity that sponsors the transaction b) A fiduciary for the contract c) The insurance provider d) The policyowner of the life insurance policy

d) The policyowner of the life insurance policy The term owner refers to the owner of the policy who may seek to enter into a life settlement contract. The term does not include an insurance provider, a qualified institutional buyer, a financing entity, a special purpose entity, or a related provider trust.

Which of the following would be considered an unfair insurance practice in this state? a) Using testimonials in advertising b) Providing disclosures with annuities c) Backdating a policy d) Using unclear or confusing language in promotional material

d) Using unclear or confusing language in promotional material Advertising cannot be done in a manner which is unclear, misleading or deceptive. All the other practices above are permissible.

Any person who violates an insurance statute or rule of Wisconsin can be fined up to a) $5,000. b) $10,000. c) $20,000. d) $50,000.

a) $5,000. Any person who violates an insurance statute or rule of Wisconsin can be fined up to $5,000 or imprisoned for up to 3 years or both. A corporation can be fined up to $10,000. These penalties apply unless a specific penalty is provided elsewhere in the statutes.

Which of the following documents must be provided to the policyowner or applicant during policy replacement? a) Notice Regarding Replacement b) Disclosure Authorization Form c) Buyer's Guide and Policy Summary d) Policy illustrations

a) Notice Regarding Replacement During policy replacement, the replacing producer must present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer.

Which of the following statements is INCORRECT? a) Discrimination in rates, premiums, policy benefits, etc. for persons within the same class or with the same life expectancy is illegal. b) Replacing insurance policies for the purpose of making commissions is legal. c) Misrepresenting the true nature or facts of a policy or its benefit in order to induce a policyholder to surrender one policy and replace it with another is illegal. d) It is illegal to be involved in any activity of boycott, coercion, or intimidation that is intended to restrict fair trade or to create a monopoly.

b) Replacing insurance policies for the purpose of making commissions is legal. Churning is defined as replacing insurance policies for the sole purpose of making commissions, and it is illegal.

An applicant wants to buy a life insurance policy in which he can count on receiving the same benefits as stated in the contract. Which type should he buy? a) Permanent b) Variable c) Any type of annuity d) Fixed

d) Fixed Fixed life insurance policies offer minimum guaranteed or fixed benefits stated in the contract. Variable life insurance or annuities are contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance.

Which two terms are associated directly with the way an annuity is funded? a) Renewable or convertible b) Single payment or periodic payments c) Increasing or decreasing d) Immediate or deferred

b) Single payment or periodic payments Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installment varies.

Your client is planning to retire. She has accumulated $100,000 in a retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for as long as she lives. As her agent, you should recommend a) Joint and survivor. b) Straight life. c) Life income with period certain. d) Installment refund.

b) Straight life. With the straight life option, the annuity payments cease at death. However, because there are no other guarantees that might incur additional charges, this option provides the highest monthly benefits for an individual annuitant.

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

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

#3. A person that markets insurance but does not include an insurer is called a a) Solicitor. b) Conglomerate. c) Firm. d) Broker.

c) Firm. A "firm" means a person that markets insurance but does not include an insurer.

Life income joint and survivor settlement option guarantees a) Payout of the entire death benefit. b) Equal payments to all recipients. c) Income for 2 or more recipients until they die. d) Payment of interest on death proceeds.

c) Income for 2 or more recipients until they die. The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.

Under which of the following annuity options does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be? a) Installment refund b) Cash refund c) Installments for a fixed period d) Installments for a fixed amount

c) Installments for a fixed period Under the "installments for a fixed period" option, the annuitant selects the time period for the benefits, and the insurer determines how much each payment will be. This option pays for a specific period of time only, and there are no life contingencies.

Which of the following is true regarding state regulations for record maintenance? a) Any records except for checks may be maintained electronically. b) Insurer's records must be maintained both electronically and in paper form. c) Insurer's records may be maintained electronically. d) Insurer's records must be maintained as hard copies of original records.

c) Insurer's records may be maintained electronically Laws that require that a record be retained may be satisfied by retaining the information as an electronic record (that includes retention of checks).

Which of the following statements is TRUE concerning the Accidental Death Rider? a) This rider is only available to insureds over the age of 65. b) It is only available in group insurance. c) It will pay double or triple the face amount. d) It is also known as a triple indemnity rider.

c) It will pay double or triple the face amount. The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.

Which of the following are generally NOT considered when underwriting group insurance? a) The group's past claim experience b) The size of the group c) The insureds' medical history d) The nature of the group

c) The insureds' medical history Group life insurance is written on a group, not individual basis. Each individual completes an application that identifies the participant and beneficiary. Then, the group is judged based on its nature and past claim experience. Generally, medical questions are not necessary.

All of the following are true regarding a decreasing term policy EXCEPT a) The contract pays only in the event of death during the term and there is no cash value. b) The face amount steadily declines throughout the duration of the contract. c) The payable premium amount steadily declines throughout the duration of the contract. d) The death benefit is $0 at the end of the policy term.

c) The payable premium amount steadily declines throughout the duration of the contract. Premiums remain level with a decreasing term policy; only the face amount decreases.

All of the following are requirements for life insurance illustrations EXCEPT a) They must identify nonguaranteed values. b) They must differentiate between guaranteed and projected amounts. c) They must be part of the contract. d) They may only be used as approved.

c) They must be part of the contract An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? a) Equity Indexed Universal Life b) Variable Universal Life c) Universal Life - Option A d) Universal Life - Option B

c) Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called a) Qualified distribution. b) Premature distribution. c) Rollover. d) 1035 exchange.

d) 1035 exchange. In accordance with Section 1035 of the Internal Revenue Code, certain exchanges of life insurance policies and annuities may occur as nontaxable exchanges.

#29. If the Commissioner issues an order without having conducted a hearing, the person aggrieved by the order may demand a hearing within how many days after the order was mailed? a) 10 b) 15 c) 20 d) 30

d) 30 Before the Commissioner can issue an order, a hearing must be held. If an order is issued without a hearing, any person aggrieved by the order may demand a hearing, in writing, within 30 days after the date on which the order was mailed. If a hearing is not demanded within the specified time frame, the person waived his/her opportunity for a hearing.

When the Commissioner revokes an intermediary's license for any reason other than nonpayment of fees, the intermediary may NOT apply for a new license for how many years? a) 1 year b) 3 years c) 4 years d) 5 years

d) 5 years When the Commissioner revokes an intermediary's license for any reason other than nonpayment of fees, he/she may specify a time period of 5 years or less during which the intermediary may not apply for a new license. If the commissioner does not specify a time period, the intermediary may not apply for 5 years.

All of the following statements are true regarding tax-qualified annuities EXCEPT a) Annuity earnings are tax deferred. b) They must be approved by the IRS. c) Withdrawals are taxed. d) Employer contributions are not tax deductible.

d) Employer contributions are not tax deductible. Tax-qualified annuities must be approved by the IRS and allow for tax deductible employer contributions. All withdrawals are taxed and earnings grow tax deferred.

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select? a) Life with period certain b) Fixed amount c) Interest only d) Fixed period

d) Fixed period Under the fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period.

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) Accumulation at Interest b) Paid-up additions c) Dividend Accumulation option d) Paid-up option

d) 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.

#11. Which of the following is not a purpose of insurance? a) To protect the best interests of the public b) To limit the adverse effects of competition on the cost of insurance c) To regulate insurance marketing practices d) To earn commissions

d) To earn commissions The purpose of insurance is to protect the public and to limit the high cost due to market competition.

Both Universal Life and Variable Universal Life have a a) Decreasing premium. b) Increasing premium. c) Flexible premium. d) Level fixed premium.

c) Flexible premium. Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, so long as there is enough value in the policy to fund the death benefit.

How long will the beneficiary receive payments under the single life settlement option? a) Until the insured's age 100 b) Until the beneficiary's death c) Until the insured's death d) For a specified period of time

b) Until the beneficiary's death 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.

Under the 401(k) bonus or thrift plan, the employer will contribute a) An undetermined percentage for each dollar contributed by the employee. b) All of the money to the plan. c) 30% of what the employee contributes. d) 75% of what the employee contributes.

a) An undetermined percentage for each dollar contributed by the employee. Under the bonus or thrift plan, the employer will contribute certain amount or percentage for each dollar contributed by the employee. There is no specific rule as to how much the employer must contribute.

W owns a policy in which she is covered as the bread-winner with permanent insurance and with decreasing term insurance in the form of a rider. What type of policy is this? a) Family Income Policy b) Family Policy c) Family Maintenance Policy d) Family Protection Policy

a) Family Income Policy If the insured dies during the income period of a family income policy, monthly benefits are paid to the survivors for the balance of the income phase. The death benefit is then paid to the beneficiary. During the income phase, the insurer retains the cash value and death benefit to invest and generate interest.

All of the following types of distributions are considered exceptions to the early distribution rule and, therefore, are not subject to the penalty tax EXCEPT a) Participant's debt. b) Participant's disability. c) Death of participant. d) A loan from the plan.

a) Participant's debt. The following are considered exceptions to the early distribution rule: death of the participant, the participant's disability, a divorce decree, as a series of equal payments (at least annually) over the participant's life expectancy, a loan from the plan, as part of a qualified rollover

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

b) $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.

If a person does not comply with an order issued within 2 weeks after the Commissioner has given notice, for each day that the violation continues, the Commissioner may issue a fine of up to a) $3,000. b) $5,000. c) $1,500. d) $2,000.

b) $5,000. The Commissioner may obtain a temporary or permanent injunction or restraining order for any violations of insurance laws. If a person does not comply with an order issued within 2 weeks after the Commissioner has given notice, the Commissioner may issue a forfeiture of up to $5,000 for each day that the violation continues.

Units with the same or similar exposure to loss are referred to as a) Law of large numbers. b) Homogeneous. c) Catastrophic loss exposure. d) Insurable risks.

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

The Gramm-Leach-Bliley Act was passed to a) Allow insurance companies access to medical information for underwriting purposes. b) Protect private customer information filed with a financial institution. c) Define insurance as interstate commerce. d) Allow consumers access to credit and private consumer reports.

b) Protect private customer information filed with a financial institution. The Gramm-Leach-Bliley Act was passed to protect private customer information that is filed with a financial institution. Customers must be given two disclosure notices (one at the onset of business and one before information is disclosed), as well as a yearly updated disclosure notice.

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) Rollover. b) Settlement option. c) Nontaxable exchange. d) Nonforfeiture option.

b) 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.

J transferred his life insurance policy to his son two years before his death. Which of the following is true? a) Because the policy has been transferred, it will not be included in J's taxable estate. b) The entire face value of the policy will be included in J's taxable estate. c) The interest portion of the policy will be included in J's taxable estate. d) The unpaid premiums on the policy will be deducted from J's taxable estate.

b) The entire face value of the policy will be included in J's taxable estate. If a policyowner transfers or gives away a life insurance policy within 3 years prior to his/her death, the entire face amount of the policy will be included in his or her taxable estate.

All of the following are true about variable products EXCEPT a) Policyowners bear the investment risk. b) The premiums are invested in the insurer's general account. c) The minimum death benefit is guaranteed. d) The cash value is not guaranteed.

b) The premiums are invested in the insurer's general account. Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk.

An insurer decides to renew a policy but at a higher premium rate, starting on the renewal date. How many days in advance must the insured be notified? a) 90 b) 100 c) 30 d) 60

d) 60 The insurer may offer to renew the policy on less favorable terms or at higher premiums, only if the insurer notifies the policyholder at least 60 days prior to the renewal date, the terms and premiums take effect on the renewal date and within 60 days prior to the renewal date, the terms and premiums take effect 60 days after the renewal date.

The term "illustration" in a life insurance policy refers to a) A depiction of policy benefits and guarantees. b) Pictures accompanying a policy. c) Charts and graphs. d) A presentation of nonguaranteed elements of a policy.

d) A presentation of nonguaranteed elements of a policy. The term "illustration" means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.

Which of the following can surrender a deferred annuity contract? a) Only the insurance company for nonpayment of premiums b) The beneficiary after the owner's death c) A deferred annuity cannot be surrendered. d) Only the annuity owner

d) Only the annuity owner If the need arises, a deferred annuity contract may be surrendered only by the annuity owner. At surrender the owner receives the value of the annuity minus a surrender charge

What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? a) Life with guaranteed minimum b) Installment refund c) Joint and survivor d) Pure life

d) Pure life A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors.

Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages? a) 10 b) 3 c) 5 d) 7

b) 3 Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer can then contribute up to an amount equal to 3% of the employees' annual compensation. Contributions and earnings are both tax-deferred until funds are withdrawn.

If the Commissioner issues an order and the person who is the object of the order demands a hearing within 30 days, within how many days must the hearing be held? a) 30 b) 60 c) 90 d) 120

b) 60 Before the Commissioner can issue an order, a hearing must be held. If an order is issued without a hearing, any person aggrieved by the order may demand a hearing, in writing, within 30 days after the date on which the order was mailed. If a hearing is not demanded within the specified time frame, the person waived his/her opportunity for a hearing. The Commissioner must conduct a hearing within 10 to 60 days after service of the demand.

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? a) Assignment b) Automatic premium loan c) Waiver of premium d) Incontestability period

b) Automatic premium loan This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

All of the following are requirements of eligibility for Social Security disability income benefits EXCEPT a) Fully insured status. b) Waiting period of 5 months. c) Being age 65. d) Inability to perform any gainful work.

c) Being age 65. The term fully insured refers to someone who has earned 40 quarters of coverage (the equivalent of 10 years of work), and is therefore entitled to receive Social Security retirement, Medicare, and survivor benefits. The waiting, or elimination period for Social Security disability benefits is 5 months.

Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? a) The Guaranty Association b) Consumer Privacy Act c) The Fair Credit Reporting Act d) Unfair Trade Practices Law

c) The Fair Credit Reporting Act The purpose of the Fair Credit Reporting Act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers.

A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this? a) Level term b) Term to specified age c) Ordinary life policy d) Limited pay whole life

a) Level term A 20-year term policy is written to provide a level death benefit for 20 years.

In Modified Life policies, what happens to the premium? a) It is higher during the first policy years. b) It varies at the beginning, but levels out by the end of the third year. c) It is level at the beginning and increases after the first few years. d) It always remains level.

c) It is level at the beginning and increases after the first few years. Modified Life policies charge lower premiums (similar to term rates) during the first few policy years, usually the first 3 to 5 years, and then higher level premiums for the remainder of the insured's life. The higher subsequent premiums are typically higher than straight life premiums would be for the same age and amount of coverage.

Which of the following riders would NOT cause the Death Benefit to increase? a) Cost of Living Rider b) Accidental Death Rider c) Payor Benefit Rider d) Guaranteed Insurability Rider

c) Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

Which of the following best describes the aleatory nature of an insurance contract? a) Ambiguities are interpreted in favor of the insured b) Policies are submitted to the insurer on a take-it-or-leave-it basis c) Exchange of unequal values d) Only one of the parties being legally bound by the contract

C) Exchange of unequal values An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.

Anytime a life insurance transaction accompanies a securities transaction, which rule must be followed? a) Policy summary rule b) Proposal rule c) Policy Guide rule d) Replacement rule

b) Proposal rule The proposal rule must be followed anytime a life insurance transaction accompanies a securities transaction.

The advantage of qualified plans to employers is a) Taxable contributions. b) Tax-deductible contributions. c) Tax-free earnings. d) No lump-sum payments.

b) Tax-deductible contributions. Qualified plans have these tax advantages: employer contributions are tax deductible and are not taxed as income to the employee; the earnings in the plan accumulate tax deferred; lump-sum distributions to employees are eligible for favorable tax treatment.

If a policy is marketed with an illustration, who must sign the illustration? a) The agent and the Commissioner b) The applicant and the agent c) Only the agent d) Only the applicant

b) The applicant and the agent If a policy is marketed with an illustration, the applicant and agent must sign the illustration

When an insurer is given an order of liquidation, who will protect the insureds' unpaid claims? a) The Wisconsin Insurers Association b) A reinsurance company c) The Insurance Security Fund d) The Office of the Commissioner of Insurance

c) The Insurance Security Fund The Insurance Security Fund was created to provide insureds with protection against an insurer's liquidation. The Fund's money is generated by assessments against all insurers licensed to do business in Wisconsin, with limited exceptions. The Fund is administered by a board of directors that includes the Attorney General, the State Treasurer, and the Commissioner.

Which of the following methods to designate a beneficiary literally means "by the head?" a) Per stirpes b) Tertiary c) Contingent d) Per capita

d) Per capita Per Capita means "by the head." Each person named as beneficiaries would receive equal portions.

All of the following are true about variable products EXCEPT a) The minimum death benefit is guaranteed. b) The cash value is not guaranteed. c) Policyowners bear the investment risk. d) The premiums are invested in the insurer's general account.

d) The premiums are invested in the insurer's general account. Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk.

The Ownership provision entitles the policyowner to do all of the following EXCEPT a) Set premium rates. b) Receive a policy loan. c) Assign the policy. d) Designate a beneficiary.

a) Set premium rates. The insurer sets premium rates based upon underwriting considerations.

All of the following are true of key person insurance EXCEPT a) The plan is funded by permanent insurance only. b) There is no limitation on the number of key employee plans in force at any one time. c) The employer is the owner, payor and beneficiary of the policy. d) The key employee is the insured.

a) The plan is funded by permanent insurance only. Key Person coverage may be funded by any type of life insurance.

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) Nothing, since the insured was killed as a result of a war b) The full death benefit c) The policy's cash value d) A refund of premiums

b) 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.

Which of the following best describes the difference between Pure Life and Life with Guaranteed Minimum settlement options? a) Life with Guaranteed Minimum will pay the remaining principal to the beneficiary. b) In Life with Guaranteed Minimum, payments can be made in installments. c) Pure Life guarantees to pay out all the proceeds. d) Pure Life is not a life contingency option.

a) Life with Guaranteed Minimum will pay the remaining principal to the beneficiary. With the Life with Guaranteed Minimum, if the annuitant dies before the principal amount (the amount he paid for the annuity) has been paid out, the remainder of the principal amount will be refunded to his/her beneficiary. Under the Pure Life option, the payments cease upon the annuitant's death regardless of the amount of the principal paid out.

Under what circumstance may an insurer cancel or refuse to renew an insurance policy based upon the past criminal record of the insured? a) Only upon conviction of an offense directly related to the risk insured b) Only upon conviction of an offense for which the insured had been previously convicted in the past 5 years c) By giving the insured 45 days prior written notice of the refusal or cancellation along with the specific reason d) Only with the written consent of the Commissioner

a) Only upon conviction of an offense directly related to the risk insured An insurer may cancel or refuse to renew a policy of a person convicted of an offense directly related to the risk insured.

Which of the following is an example of a producer being involved in an unfair trade practice of rebating? a) Telling a client that his first premium will be waived if he purchased the insurance policy today b) Inducing the insured to drop a policy in favor of another one when it's not in the insured's best interest c) Charging a client a higher premium for the same policy as another client in the same insuring class d) Making deceptive statements about a competitor

a) Telling a client that his first premium will be waived if he purchased the insurance policy today Rebating is defined as offering any inducement in the sale of insurance products that is not specified in the policy, including money, reductions in commissions, promises, and personal services. Both the offer and acceptance of a rebate are illegal.

Which of the following may NOT be included in an insurance company's advertisement? a) That its policies are covered by a state Insurance Security Fund b) The policies' limitations or exclusions c) The name of a specific agent d) An identification of a limited policy as a limited policy

a) That its policies are covered by a state Insurance Security Fund It is illegal for insurers to state that their policies are guaranteed by the existence of Wisconsin Insurance Security Fund.

If the owner prematurely surrenders his deferred annuity before the annuitization period begins, which of the following is most likely to occur? a) The owner will receive the premium payments that have been paid into the annuity, plus any interest, minus a surrender charge. b) A surrender charge will be imposed that is equal to 3 of the owner's monthly annuity payments. c) A surrender charge will not be imposed because the account has been open for at least 1 year. d) The owner will forfeit any premiums he has paid into the account, but will receive any interest earned on the account.

a) The owner will receive the premium payments that have been paid into the annuity, plus any interest, minus a surrender charge. If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.

Which of the following is true about a defined benefit plan? a) Contributions are made in regular fixed amounts. b) High-salaried employees with only a few years until retirement receive the highest contribution. c) Low-salaried employees are excluded from the plan. d) All participating employees are vested immediately following a contribution to the plan.

b) High-salaried employees with only a few years until retirement receive the highest contribution. Defined benefit plans favor owners and key employees nearing retirement. The contribution formula is weighted toward these employees.

#42. All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy? a) Half the amount b) Lower c) Higher d) As high

b) Lower Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.

Insurance companies may be classified according to the legal form of their ownership. The type of company organized to return any surplus money to their policyholders is a) A fraternal insurer. b) A stock company. c) A mutual insurer. d) A reciprocal company.

c) A mutual insurer. Mutual companies are owned and controlled by their policyholders. Any surplus money is returned to the policyholders as dividends.

If an insurer develops a new policy form, which authority must approve it? a) Department of Insurance b) Federal Board of Insurance Regulation c) Commissioner d) None

c) Commissioner Unless specifically exempt under the statutes, no policy form may be used in Wisconsin unless it has been filed with and approved by the commissioner.

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit? a) The insured's estate b) The primary beneficiary's estate c) The insured's contingent beneficiary d) The insurance company

c) The insured's contingent beneficiary Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated.

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? a) Apparent b) Assumed c) Express d) Implied

d) Implied Implied authority is not written in the agent's contract but is required in order for the agent to conduct business. Implied authority exists because not every single detail of an agent's authority can be written in a contract.

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 paid out as dividends. b) It is used to fund executive bonuses c) It is used to increase the death benefit. d) It is used to lower premiums.

d) 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.

Which of the following is TRUE for both equity indexed annuities and fixed annuities? a) They are both tied to an equity index. b) Both are considered to be more risky than variable annuities. c) They invest on a conservative basis. d) They have a guaranteed minimum interest rate.

d) They have a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

All of the following statements are true regarding tax-qualified annuities EXCEPT a) Employer contributions are not tax deductible. b) Annuity earnings are tax deferred. c) They must be approved by the IRS. d) Withdrawals are taxed.

a) Employer contributions are not tax deductible Tax-qualified annuities must be approved by the IRS and allow for tax deductible employer contributions. All withdrawals are taxed and earnings grow tax deferred.

Which statement is NOT true regarding a Straight Life policy? a) Its premium steadily decreases over time, in response to its growing cash value. b) The face value of the policy is paid to the insured at age 100. c) It usually develops cash value by the end of the third policy year. d) It has the lowest annual premium of the three types of Whole Life policies.

a) Its premium steadily decreases over time, in response to its growing cash value. Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.

Which of the following are generally NOT considered when underwriting group insurance? a) The size of the group b) The insureds' medical history c) The nature of the group d) The group's past claim experience

b) The insureds' medical history Group life insurance is written on a group, not individual basis. Each individual completes an application that identifies the participant and beneficiary. Then, the group is judged based on its nature and past claim experience. Generally, medical questions are not necessary.

#12. After the original hearing and a final order is issued, an aggrieved person may request a re-hearing within a) 30 days. b) 40 days. c) 15 days. d) 20 days.

d) 20 days. An aggrieved person may request a re-hearing within 20 days after the original hearing and a final order is issued. This petition does not suspend or delay the effective date of the order unless the petition is granted or the order is superseded, modified, or set aside.

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? a) The insured may choose to convert to term or permanent individual coverage. b) The insured would not need to prove insurability for a conversion policy. c) The insured may convert coverage to an individual policy within 31 days. d) The premium for individual coverage will be based upon the insured's attained age.

a) The insured may choose to convert to term or permanent individual coverage. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance.

An insured innocently omitted a health problem in her life insurance application that would have influenced her premium amounts. The policy is issued, and the insurer discovers the error 3 years later. Which of the following will most likely happen? a) The premium amounts will remain unchanged. b) The policy will be cancelled. c) The premium will be adjusted, and it will apply retroactively, meaning that she will have to pay the difference in premium amounts for the last 3 years. d) The policy will be changed, and although she will not have to pay any extra retroactive premium fees, she will have to pay a penalty.

a) The premium amounts will remain unchanged. No individual life insurance policy may be contested after it has been in force for 2 years from the date of issue, except for non-payment of premiums and misstatement of age. Misstatement of age applies only if the insured's age was beyond the maximum age limit designated by the insurer.

An IRA purchased by a small employer to cover employees is known as a a) 403(b) plan. b) Simplified Employee Pension plan. c) 401(k) plan. d) Defined contribution plan.

b) Simplified Employee Pension plan. A Simplified Employee Pension (SEP) is an employer sponsored IRA. Contributions to the plan are not included in the employee's taxable income for the year, to the extent that they do not exceed the maximums allowed. Distributions from a SEP are taxable as ordinary income when received at retirement.

Which of the following Life Insurance policies would be considered interest sensitive? a) Increasing term b) Universal life c) Adjustable life d) Whole life

b) Universal life As well as being a flexible premium policy, universal life is also an interest-sensitive policy. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest.

An insurance policy is considered a "new policy" if it has been in effect for what maximum time period? a) 10 days b) 30 days c) 60 days d) 90 days

c) 60 days A new insurance policy is one that has been in effect for less than 60 days since the issue.

Which policy component decreases in decreasing term insurance? a) Cash value b) Dividend c) Premium d) Face amount

d) Face amount Decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.

At age 30, an applicant wants to start an insurance program, but realizing that his insurance needs will likely change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs? a) Adjustable Life b) Single Premium Whole Life c) Interest-sensitive Whole Life d) Decreasing Term

a) Adjustable Life Adjustable life policies allow for increases or decreases in the face amount or premium, so long as the premium is sufficient to pay for the mortality. Any increase in face amount requires proof of insurability.

The type of term insurance that provides increasing death benefits as the insured ages is called a) Increasing term. b) Flexible term. c) Interest-sensitive term. d) Age-sensitive term.

a) Increasing term. Increasing term insurance provides an increase in the death benefit each year. The coverage is usually structured to provide a death benefit equal to the amount of premium paid on a permanent life insurance policy, or to provide a death benefit equal to the cash value accumulation in a permanent policy; however, it can be written as a stand-alone policy for the individual that has a need for increasing amounts of insurance.

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.

Under an extended term nonforfeiture option, the policy cash value is converted to a) The same face amount as in the whole life policy. b) The face amount equal to the cash value. c) A lower face amount than the whole life policy. d) A higher face amount than the whole life policy.

a) The same face amount as in the whole life policy. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.

What is the purpose of the Wisconsin State Life Insurance Fund? a) To offer low-cost life insurance to the state residents b) To protect insured against insolvent insurers c) To advertise different types of life insurance policies available in the state d) To provide life insurance through licensed intermediaries

a) To offer low-cost life insurance to the state residents The Wisconsin State Life Insurance Fund offers low-cost life insurance to residents of the state. The Fund is a state-sponsored, nonprofit, mutual program that does not use licensed intermediaries, does not advertise, and is exempt from federal income tax.

In forming an insurance contract, when does acceptance usually occur? a) When an insurer's underwriter approves coverage b) When an insurer delivers the policy c) When an insurer receives an application d) When an insured submits an application

a) When an insurer's underwriter approves coverage In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

The Commissioner may issue a temporary license for an intermediary for a period of up to a) 6 months. b) 12 months. c) 24 months. d) 3 months.

b) 12 months. The Commissioner may issue a temporary license for an intermediary for a period of up to 12 months to the personal representative of a deceased, mentally or physically disabled intermediary, or a person who has entered active military duty.

Which of the following would NOT be a violation of state insurance regulations? a) Agent B charges his clients a consulting fee, in addition to the premium for placing a policy. b) Agent C uses her license to write only business other than controlled. c) Agent D collects premiums due on policies and deposits the funds in his own personal account. d) Agent A uses her license to write only insurance for herself and her immediate family.

b) Agent C uses her license to write only business other than controlled. The purpose of a license is to primarily write business other than controlled business.

Who can make changes to the policy once it is in effect? a) The agent b) An executive officer of the insurer c) The insured d) The policyowner

b) An executive officer of the insurer Any changes made to a policy must be endorsed and attached to the policy over the signature of an authorized officer of that insurer. No other individual has the authority to make changes or waive policy provisions.

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

b) 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 a presentation that includes nonguaranteed elements of a policy over a period of years? a) Agent's report b) Illustration c) Prospectus d) Policy summary

b) Illustration An illustration is a presentation that includes nonguaranteed elements of a policy over a period of years. A basic illustration means a ledger or proposal used to show both guaranteed and nonguaranteed elements of the policy.

An insured has a life insurance policy with a face amount of $500. He pays a premium each week to the agent who sold him the policy. What kind of policy does the insured have? a) Franchise life b) Industrial life c) Credit life d) Ordinary life

b) Industrial life Industrial life insurance is written on an individual basis in small amounts, usually with a face amount of less than $1,000, with premium payable weekly or monthly. As a general rule, these policies are written nonmedically.

State law specifically prohibits using illegal inducements in the marketing of insurance. All of the following would be considered illegal inducements EXCEPT a) Offering benefit certificates or securities in return for purchasing insurance. b) Inviting prospective clients to the grand opening of the company's new office. c) Issuing or delivering insurance company stock in return for purchasing insurance. d) Promising returns and profits from the purchase of insurance.

b) Inviting prospective clients to the grand opening of the company's new office. Inducement is an illegal practice. It involves offering anything of value to a prospective client that is not specified in the policy as an incentive to buy insurance. Stock, bonds, benefit certificates, dividends or profits could be used as inducement.

What is the benefit of choosing extended term as a nonforfeiture option? a) It can be converted to a fixed annuity. b) It has the highest amount of insurance protection. c) It matures at age 100. d) It allows for coverage to continue beyond maturity date.

b) It has the highest amount of insurance protection. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

Which of the following is usually true of a participating life insurance policy? a) Assesses premiums against stockholders. b) Pays dividends to policyowners. c) May be converted to a term life policy. d) Pays dividends to stockholders.

b) Pays dividends to policyowners. Participating is a term used to refer to any insurance policy that distributes its dividends by cash payments, reduced premiums, units of paid-up life insurance, a savings program, or by the purchase of term insurance.

All of the following are examples of risk retention EXCEPT a) Self-insurance. b) Premiums. c) Deductibles. d) Copayments.

b) Premiums. Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance.

Which of the following characteristics applies to defined benefit plans but not defined contribution plans? a) They are subject to the rules of ERISA. b) The amount of contributions made by the employer is determined by an actuarial formula. c) They are qualified plans. d) Employers can choose not to make contributions for a particular year.

b) The amount of contributions made by the employer is determined by an actuarial formula. Defined benefit plans offer benefits that are based on a definite contribution formula. Defined contribution plans may specify that contributions are made based on corporate profits, so contributions may not be made when that corporation is not profitable. Both are qualified plans subject to the rules of ERISA.

If an IRA annuitant dies after the annuity has been paid up, what effect will this have on the annuitant's estate? a) The IRA must be converted to an annuity policy for the listed beneficiary. b) The entire value of the contributions and benefits will be included. c) Only partial value of the contributions will be included. d) IRA funds will be redirected to the federal government.

b) The entire value of the contributions and benefits will be included. If a person dies after paying all IRA contributions, the entire value of the contributions and benefits would be included in the gross estate. If only part of the contributions were paid, the partially paid amount would be directed to the gross estate.

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen? a) The insurer will pay nothing because the employee has terminated his group insurance and hasn't started the individual one. b) The insurer will pay the full death benefit from the group policy to the beneficiary. c) The insurer will pay a reduced death benefit to the beneficiary. d) The insurer will pay the death benefit minus one month's premium.

b) The insurer will pay the full death benefit from the group policy to the beneficiary. The employee usually has a period of 31 days after terminating from the group in order to exercise the conversion option. During this time, the employee is still covered under the original group policy.

If the owner prematurely surrenders his deferred annuity before the annuitization period begins, which of the following is most likely to occur? a) The owner will forfeit any premiums he has paid into the account, but will receive any interest earned on the account. b) The owner will receive the premium payments that have been paid into the annuity, plus any interest, minus a surrender charge. c) A surrender charge will be imposed that is equal to 3 of the owner's monthly annuity payments. d) A surrender charge will not be imposed because the account has been open for at least 1 year.

b) The owner will receive the premium payments that have been paid into the annuity, plus any interest, minus a surrender charge. If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.

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.

Any licensed person whose activities affect interstate commerce and who knowingly makes false material statements related to the business of insurance may be imprisoned for up to a) 3 years. b) 5 years. c) 10 years. d) 12 years.

c) 10 years. Anyone engaged in the business of insurance whose activities affect interstate commerce, and who knowingly makes false material statements may be fined, imprisoned for up to 10 years or both. If the activity jeopardized the security of the accompanied insurer, the punishment can be up to 15 years.

According to the rule of readability of insurance policies in this state, what is a required minimum score on the Flesch reading ease test for Medicare supplement policies? a) 30 b) 40 c) 50 d) 60

c) 50 Minimum standards for policy readability approval is a minimum score of 40 on the Flesch (a formula used to determine the ease of reading) reading ease test or equivalent. The minimum score for Medicare supplement policies is 50.

All of the following are examples of third-party ownership of a life insurance policy EXCEPT a) A company purchases a life insurance policy on their manager, who is an important part of the operation. b) When an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company. c) An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. d) An insured couple purchases a life insurance policy insuring the life of their grandson.

c) An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.

If the annuitant dies during the accumulation period, who will receive the annuity benefits? a) Insurance company b) Estate c) Beneficiary d) Owner

c) Beneficiary If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.

Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount? a) Key person agreement b) Split dollar agreement c) Buy-sell agreement d) Profit and loss agreement

c) Buy-sell agreement A Buy-Sell agreement (also referred to as a business continuation agreement) is a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? a) Representation b) Adhesion c) Consideration d) Good faith

c) Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

Which of the following scenarios will incur a 10% tax penalty on distributions? a) Distributions are made to the beneficiary. b) Distributions are made as part of a qualified rollover. c) Distributions are made on a policy before age 59½. d) Distributions are made prior to the age of 70½.

c) Distributions are made on a policy before age 59½. If distributions are made before age 59½, a 10% penalty is imposed, unless the circumstances qualify as exceptions to the early distribution rule, such as disability, divorce, or a qualified rollover among others.

All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT a) Stocks, securities, or bonds. b) An offer to share in commissions generated by the sale. c) Dividends from a mutual insurer. d) An offer of employment.

c) Dividends from a mutual insurer. Dividends paid to policyholders of a mutual insurer are not considered to be a rebate because the policy specifies that they might be paid.

A Universal Life insurance policy has two types of interest rates that are called a) Fixed and Variable. b) Minimum and Target. c) Guaranteed and Current. d) Option A and Option B.

c) Guaranteed and Current. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest

Which of the following is TRUE regarding the annuity period? a) It is also referred to as the accumulation period. b) It is the period of time during which the annuitant makes premium payments into the annuity. c) It may last for the lifetime of the annuitant. d) During this period of time the annuity payments grow interest tax deferred.

c) It may last for the lifetime of the annuitant. The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments? a) Accelerated benefit provision b) Loan provision c) Spendthrift provision d) Settlement option

c) Spendthrift provision When a life insurance policy contains a spendthrift provision, all rights of the beneficiary to change time of payment or amount of installments, surrender for cash, borrow against, or assign for any purpose, are withdrawn and those parts of the policy that may give the beneficiary such rights are declared inoperative and void.

Which of the following is TRUE regarding variable annuities? a) The company guarantees a minimum interest rate. b) A person selling variable annuities is required to have only a life agent's license. c) The annuitant assumes the risks on investment. d) The funds are invested in the company's general account.

c) The annuitant assumes the risks on investment. The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds". Therefore, the annuitant assumes the risk of the investment.

#67. A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then a) IRS has no jurisdiction. b) The benefit is received as taxable income. c) The benefit is received tax free. d) The benefit is subject to the exclusionary rule.

c) 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.

The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT a) Projected interest rates. b) Face amount of the policy. c) The insured's age at death. d) The beneficiary's life expectancy.

c) The insured's age at death. The insured's age at death will not be considered, but the longer the life expectancy of the recipient, the lower the payments will be.

If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined? a) The surrender charge is a flat fee determined by the annuity owner when the annuity is purchased. b) The surrender charge will increase as the accumulation period increases. c) The surrender charge is a percentage of the cash value and decreases over time. d) The surrender charge is always 7% of the cash value.

c) The surrender charge is a percentage of the cash value and decreases over time. If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.

When would life insurance policy proceeds be included in the insured's taxable estate? a) If the insured transfers ownership of the policy or makes a gift of the policy 5 years prior to his or her death b) When the beneficiary is named in the policy c) When there are any incidents of ownership at the time of death d) If the insured's spouse is the policyowner

c) When there are any incidents of ownership at the time of death If the insured were the owner of the policy at the time of death or possessed any incidents of ownership at the time of death, the value of the policy will be included in the insured's taxable estate. If the insured, as policyowner, assigns or transfers ownership of the policy or makes a gift of the policy within 3 years prior to his or her death, the entire face amount of the policy will be included in his or her taxable estate.

Who is a third-party owner? a) An insurer who issues a policy for two people b) An employee in a group policy c) An irrevocable beneficiary d) A policyowner who is not the insured

d) A policyowner who is not the insured Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.

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

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

What describes a ledger or proposal used to show both guaranteed and non-guaranteed elements of the policy? a) Ledger proposal b) Outline of coverage c) Portioning illustration d) Basic illustration

d) Basic illustration An illustration is a presentation that includes non-guaranteed elements of a policy over a period of years. A basic illustration is a ledger or proposal used to show both guaranteed and non-guaranteed elements of the policy.

In reference to fixed annuities, what comprises most of a life insurance company's general account? a) Aggressive stocks and bonds b) Company stock c) S&P 500 index d) Conservative investments like bonds

d) Conservative investments like bonds Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which makes conservative enough investments (like bonds) to ensure a guaranteed rate to the annuity owners.

Which of the following reports will provide the underwriter with the information about an insurance applicant's credit? a) Inspection report b) Agent's report c) Any federal report d) Consumer report

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

According to the entire contract provision, what document must be made part of the insurance policy? a) Buyer's Guide b) Agent's report c) Outline of coverage d) Copy of the original application

d) Copy of the original application An insurance contract must contain a copy of the original application.

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? a) Value Adjustment Rider b) Return of Premium Rider c) Inflation Rider d) Cost of Living Rider

d) Cost of Living Rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.

Which of the following are NOT fundable by annuities? a) Cash accumulation for any reason b) A person's retirement c) Estate liquidation d) Death benefits

d) Death benefits Annuities are most commonly used to fund a person's retirement, but they can technically be used to accumulate cash for any reason. Annuities can also be used to liquidate an estate. Annuities do not provide death benefits; those are provided by life insurance.

Your client's employer does not offer a company-wide annuity contract. What type of annuity contract could your client obtain? a) Independent Group Contract b) Single c) Nonqualified d) Individual

d) Individual There are two main types of annuities arrangements: group and individual. Group contracts can be obtained through an employer. If that option is not available, individuals could obtain an individual annuity, which, as the name implies, is available for purchase and ownership solely by individuals.

A domestic insurer issuing variable contracts must establish one or more a) Liability accounts. b) Annuity accounts. c) General accounts. d) Separate accounts.

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

The Commissioner conducts an examination of a domestic insurer and believes that the costs of examination places an unreasonable financial burden on the insurer. Which of the following will happen? a) The federal government will absorb the full cost. b) The federal government will absorb part of the cost, and the state government will absorb the rest of the cost. c) The costs will be reduced to the amount that the examinee can reasonably pay; the rest will be paid by the federal government. d) The Commissioner's office may pay all or part of the costs.

d) The Commissioner's office may pay all or part of the costs. If the Commissioner finds that the costs of an examination places an unreasonable burden on the examinee, the Commissioner's office may pay all or part of the costs.

An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have? a) Term b) Securities c) Stock d) Variable

d) Variable Variable life policies vary in value, as the name suggests, because the value is based on the stocks that support the policy. If a policyholder wants a more stable, reliable value, he/she should invest in a fixed policy.