LIFE EXAM
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 part of the cost, and the state government will absorb the rest of the cost. b) The costs will be reduced to the amount that the examinee can reasonably pay; the rest will be paid by the federal government. c) The Commissioner's office may pay all or part of the costs. d) The federal government will absorb the full cost.
C) 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.
A resident agent must pay a biennial regulation fee of a) $35. b) $50. c) $70. d) $100.
a) $35 Each licensed individual agent must pay a biennial (every 2 years) regulation fee of $35 if a resident and $70 if a nonresident.
Children's riders attached to whole life policies are usually issued as what type of insurance? a) Term b) Variable life c) Adjustable life d) Whole life
a) Term Children's term riders provide term insurance with coverage expiring when the minor reaches a certain age.
Variable Life insurance is based on what kind of premium? a) Graded b) Level fixed c) Increasing d) Decreasing
b) Level fixed Variable Life insurance is a level fixed premium investment based product.
Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance? a) Reinstatement rule b) Conversion rule c) Disclosure rule d) Replacement rule
d) Replacement rule Anytime a new policy is issued that replaces or modifies existing insurance, a replacement form must be submitted to the ceding company.
The Commissioner obtains a restraining order against a person who has violated an insurance law. The person continues the violation for 10 days. The person will have to pay a fine of a) $0. b) $5,000. c) $10,000. d) $50,000.
a) $0. 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.
An intermediary must maintain records for how long? a) 3 years b) 5 years c) 10 years d) Permanently
a) 3 years Each intermediary must maintain records for a 3 year period.
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? a) 5 days b) 7 days c) 10 days d) 3 days
a) 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
Which of the following produces evaluations of insurers' financial status often used by state departments of insurance? a) AM Best b) NAIC c) Consumer's guide d) SEC
a) AM Best AM Best & Company assigns ratings to life, property and casualty insurance companies based upon the financial stability of the insurer
Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as a) Coercion. b) Rebating. c) Misleading advertising. d) Defamation.
a) Coercion These are all considered to be Unfair Trade Practices, which are major violations that can lead to heavy penalties. Coercion, for example, is when the bank won't give you an auto loan unless you agree to buy auto insurance from them.
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? a) Premiums are not tax deductible as a business expense. b) Premiums are tax deductible by the key employee. c) Premiums are tax deductible as a business expense. d) Premiums are taxable to the employee.
a) Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.
Which of the following is a person, other than an officer or employee of the ceding insurer, who solicits, negotiates, or places reinsurance cessions on behalf of a ceding insurer? a) Reinsurance broker b) Managing general agent c) Ceding agent d) Reinsurance agent
a) Reinsurance broker A "reinsurance broker" is a person, other than an officer or employee of the ceding insurer, who solicits, negotiates, or places reinsurance cessions (a portion of insurance) or retro-cessions (take back the portion of insurance) on behalf of a ceding insurer.
All of the following are general requirements of a qualified plan EXCEPT a) The plan must provide an offset for social security benefits. b) The plan must be communicated to all employees. c) The plan must be for the exclusive benefits of the employees and their beneficiaries. d) The plan must be permanent, written and legally binding.
a) The plan must provide an offset for social security benefits. Plans must meet the general requirements established by IRS.
The insurer must maintain copies of all signed illustrations for a minimum of how many years after the policy is no longer in force? a) 1 b) 3 c) 5 d) 10
b) 3 The insurer must maintain copies of all signed illustrations for a minimum of 3 years after the policy is no longer in force.
The minimum number of credits required for partially insured status for Social Security disability benefits is a) 4 credits. b) 6 credits. c) 10 credits. d) 40 credits.
b) 6 credits. To be considered partially insured, an individual must have earned 6 credits during the last 13-quarter period.
Which of the following persons is not required to complete CE? a) Any licensee over 65 with more than 25 years of continuous licensure b) A limited lines intermediary with 40 years of continuous licensure c) A life insurance intermediary with 18 years of continuous licensure d) A property insurance intermediary with 40 years of continuous licensure
b) A- limited lines intermediary with 40 years of continuous licensure Agents who hold ONLY a limited line insurance license are exempt from CE, including credit insurance, legal expense, managing general agent, title insurance, any resident agent that has completed the original pre-licensing requirement (not additional lines), and a non-resident agent who furnishes an original letter of certification not more than 90 days old, which provides evidence of compliance of CE requirements
When an agent makes a life insurance proposal in connection with the sale of a security, he must do all of the following EXCEPT a) Show the portion of premium charged for the life insurance separate from the other charges. b) Disclose the full financial history of the insurer that is providing the life insurance. c) Clearly indicate the name of the insurer and address. d) Show the life insurance value separate from the other values.
b) Disclose the full financial history of the insurer that is providing the life insurance. When an agent makes a life insurance proposal in connection with the sale of a security the agent is not required to disclose the full financial history of the insurer that is providing the life insurance.
In a direct rollover, how is the money transferred from one plan to the new one? a) From the original plan to the original custodian b) From trustee to trustee c) From trustee to the participant d) From the participant to the new plan
b) From trustee to trustee In a direct rollover, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan.
Which of the following is TRUE regarding the accumulation period of an annuity? a) It is limited to 10 years. b) It is a period during which the payments into the annuity grow tax deferred. c) It is also referred to as the annuity period. d) It is a period of time during which the beneficiary receives income
b) It is a period during which the payments into the annuity grow tax deferred. The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.
An illustration used to sell a life insurance policy must be labeled as a) Illustrations do not need labels. b) Life Insurance Illustration. c) General Insurance Illustration. d) Example Illustration.
b) Life Insurance Illustration. An illustration must be clearly labeled "life insurance illustration".
Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors? a) Morbidity b) Life expectancy c) Mortality rate d) Risk exposure
b) Life expectancy Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).
Which of the following is NOT true regarding policy loans? a) A policy loan may be repaid after the policy is surrendered. b) Money borrowed from the cash value is taxable. c) Policy loans can be repaid at death. d) An insurer can charge interest on outstanding policy loans.
b) Money borrowed from the cash value is taxable. Money borrowed from the cash value is not taxable. Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.
All of the following would be different between qualified and nonqualified retirement plans EXCEPT a) IRS approval requirements b) Taxation on accumulation c) Taxation of withdrawals d) Taxation of contributions
b) Taxation on accumulation Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.
All of the following entities regulate variable life policies EXCEPT a) The Insurance Department. b) The Guaranty Association. c) Federal government. d) The SEC.
b) The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.
The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true? a) The contract can be issued without an annuitant. b) The annuitant must be a natural person. c) A corporation can be an annuitant as long as it is also the owner. d) A corporation can be an annuitant as long as the beneficiary is a natural person.
b) The annuitant must be a natural person. Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.
Under an extended term nonforfeiture option, the policy cash value is converted to a) A higher face amount than the whole life policy. b) The same face amount as in the whole life policy. c) The face amount equal to the cash value. d) A lower face amount than the whole life policy.
b) 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.
Which of the following is NOT a goal of risk retention? a) To fund losses that cannot be insured b) To minimize the insured's level of liability in the event of loss c) To reduce expenses and improve cash flow d) To increase control of claim reserving and claims settlements
b) 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 paid-up addition option uses the dividend a) To accumulate additional savings for retirement. b) To purchase a smaller amount of the same type of insurance as the original policy. c) To purchase a one-year term insurance in the amount of the cash value. d) To reduce the next year's premium.
b) To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.
What is the name of the insured who enters into a viatical settlement? a) Viatical broker b) Viator c) Third party d) Contingent
b) Viator Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.
An insurance company receives an application with some information missing and issues the policy anyway. What is this called? a) Aleatory b) Waiver c) Estoppel d) Subrogation
b) Waiver In insurance policies, a waiver is giving up one's known right or privilege.
When must an insurer provide a policy summary? a) When the application is taken b) When the policy is delivered c) Within 10 days of policy delivery d) Within 30 days of policy delivery
b) When the policy is delivered The insurer must provide a policy summary at the time of delivery of the policy only if the insurer does not provide a basic illustration
Under what circumstances may an irrevocable beneficiary be changed? a) With written consent of the policyowner b) With written consent of the beneficiary c) With written consent of the insurer d) None of the above
b) With written consent of the beneficiary The Designation of Beneficiary provision gives the policyholder the right to name a beneficiary. The beneficiary may be a revocable designation, where the policyholder can change the beneficiary at any time; or an irrevocable designation, where the beneficiary may not be changed without the written consent of the beneficiary.
What is the maximum annual billing for an insurer? a) 3% of interest b) 5% interest c) 1% of net premiums earned d) 2% of gross premium
c) 1% of net premiums earned All domestic insurers subject to this rule will be billed an amount equivalent to the insurer's share of the estimated cost of conducting the examination during that year. This amount is determined by a formula related to premiums written in the state. The maximum annual billing for any insurer cannot exceed 1% of net premiums earned.
If an annuitant dies during the accumulation period, what benefit (if any) will be included in the annuitant's estate? a) No benefits b) Premiums paid c) Accumulated cash value d) Full annuity benefit
c) Accumulated cash value If the annuitant died during the accumulation period, the insurer is obligated to return all or a portion of the annuity cash value (values accumulated in the annuity in accordance with contract terms), which will be included in the deceased annuitant's estate.
Who can make a fully deductible contribution to a traditional IRA? a) Someone making contributions to an educational IRA b) A person whose contributions are funded by a return on investment c) An individual not covered by an employer-sponsored plan who has earned income d) Anybody: all IRA contributions are fully deductible regardless of income level
c) An individual not covered by an employer-sponsored plan who has earned income Individuals who are not covered by an employer-sponsored plan may deduct the amount of their IRA contributions regardless of their income level.
Which of the following is used to compare the cost of one life insurance policy against another in order to guide prospective purchasers to policies that are competitively priced? a) Consumer price indices b) Policy cost indices c) Cost comparison methods d) Policy cost guides
c) Cost comparison methods Cost comparison methods are used to compare the cost of one life insurance policy against another in order to guide prospective purchasers to policies that are competitively priced.
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? a) Board of directors is the owner, and the board of directors pays the premium. b) Company is the owner, and the company pays the premium. c) Executive is the owner, and the executive pays the premium. d) Company is the owner, but the executive pays the premium.
c) Executive is the owner, and the executive pays the premium. Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.
All of the following violations may result in an agent's imprisonment EXCEPT a) Knowingly obtaining information about a consumer under false pretenses. b) Engaging in the business of insurance after being convicted of breach of trust. c) Failing to report to the department a criminal prosecution taken against the agent in another jurisdiction. d) Embezzling funds from the insurer.
c) Failing to report to the department a criminal prosecution taken against the agent in another jurisdiction While the agents are required to notify the department about any administrative action or criminal prosecution taken against them, that act alone will not result in imprisonment. All the others are violations that may be punished by imprisonment.
What type of insurance would be used for a Return of Premium rider? a) Decreasing Term b) Annually Renewable Term c) Increasing Term d) Level Term
c) Increasing Term The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.
A person who assists another in soliciting, negotiating, or placing insurance or annuities on behalf of an insurer or a person seeking insurance or annuities is called a(n) a) Representative. b) Middleman. c) Intermediary. d) Mediator.
c) Intermediary An intermediary is a person who assists another in soliciting, negotiating, or placing insurance or annuities on behalf of an insurer or a person seeking insurance or annuities
The Interstate Insurance Product Regulation Compact is a contract between a) Reciprocal states. b) Insurers and insureds. c) Member states. d) Commissioners of Insurance in different states.
c) Member states. The Interstate Insurance Product Regulation Compact us a contract between member states that established the Interstate Insurance Product Regulation Commission (IIPRC).
The advantage of qualified plans to employers is a) No lump-sum payments. b) Taxable contributions. c) Tax-deductible contributions. d) Tax-free earnings.
c) 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 beneficiary is NOT named for annuity benefits, to which entity will the benefit be paid? a) The state government b) The insurance company c) The annuitant's estate d) The next of kin
c) The annuitant's estate If an annuitant dies during the accumulation period, the beneficiary is paid either the cash value of the policy or the amount of premiums paid, whichever is the larger amount. If a beneficiary is not named, the money will be paid to the annuitant's estate.
In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? a) They provide information about a customer's character and reputation. b) The customer has no knowledge of this action. c) The customer's associates, friends, and neighbors provide the report's data. d) They provide additional information from an outside source about a particular risk.
c) The customer's associates, friends, and neighbors provide the report's data Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.
An insured stops making payments on a loan taken from his cash value policy. What will most likely happen? a) The insurer will not permit the policyowner to take out any more loans. b) The policy will be reduced to an extended term option. c) The policy will terminate when the loan amount with interest equals or exceeds the cash value. d) The insurer will increase the interest rate on the loan and charge a penalty.
c) The policy will terminate when the loan amount with interest equals or exceeds the cash value. In most policies, failure to pay back a loan will result in termination of the policy if the total amount of the loan and accrued interest equals the cash value.
Which of the following describes the taxation of an annuity when money is withdrawn during the accumulation phase? a) Taxes are deferred on withdrawn amounts, but a flat penalty is charged. b) Taxes are deferred on withdrawn amounts. c) Withdrawn amounts are taxed on a last in, first out basis. d) Withdrawn amounts are taxed on a first in, last out basis.
c) Withdrawn amounts are taxed on a last in, first out basis. 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. After all of the interest is received and taxed the principal will be received with no additional tax consequences.
An intermediary holding a Wisconsin insurance license in any major line of insurance must complete how many credit hours of continuing education every 2 years? a) 12 b) 20 c) 22 d) 24
d) 24 All intermediaries holding a Wisconsin insurance license in any major lines of life, accident and health, property, casualty, personal lines P&C, surplus lines, or limited line of automobile must complete 24 credit hours of continuing education every 2 years.
How long are oral contracts valid in Wisconsin? a) Oral contracts are not valid. b) 48 hours c) 3 business days d) 30 days
d) 30 days Binders and oral contracts are valid in Wisconsin for up to 30 days.
The two types of assignments are a) Absolute and partial. b) Complete and partial. c) Complete and proportionate. d) Absolute and collateral.
d) Absolute and collateral. Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.
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
d) Agent's contract with the principal The principal grants authority to an agent through the agent's contract.
Which component increases in the increasing term insurance? a) Cash value b) Interest on the proceeds c) Premium d) Death benefit
d) Death benefit Increasing term features level annual premiums and a death benefit that increases each year over the duration of the policy term.
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.
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? a) It is increased when extra premiums are paid. b) It decreases over the term of the policy. c) It remains the same as the original policy, regardless of any differences in value. d) It is reduced to the amount of what the cash value would buy as a single premium.
d) 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.
Which correctly describes the facility of payment clause that is found in group life insurance policies? a) It can only be paid to immediate family members. b) It does not apply to all group policies, only cash value policies. c) It must be a minimum of $5,000 payable to any person to cover funeral expenses. d) It must be a benefit of up to $1,000 payable to any person to cover funeral expenses or medical expenses.
d) It must be a benefit of up to $1,000 payable to any person to cover funeral expenses or medical expenses. Facility of payment applies on a group life policy when there is no listed beneficiary. This provision allows up to $1,000 to be paid to any person to cover funeral expenses.
Which of the following statements is TRUE about a policy assignment? a) It is the same as a beneficiary designation. b) It permits the beneficiary to designate the person to receive the benefits. c) It authorizes an agent to modify the policy. d) It transfers rights of ownership from the owner to another person.
d) It transfers rights of ownership from the owner to another person. The policyowner may assign a part of the policy (collateral assignment) or the entire policy (absolute assignment).
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report a) Are entitled to obtain a copy of the report from the party who ordered it. b) Must be advised that a copy of the report is available to anyone who requests it. c) May sue the reporting agency in order to get inaccurate data corrected. d) Must be informed of the source of the report.
d) Must be informed of the source of the report. Under the Fair Credit Reporting Act, if an insurance policy is declined or modified because of information contained in a consumer report, the consumer must be advised and provided with the name and address of the reporting agency.
Which of the following is a licensee able to place insurance with unauthorized insurers? a) Reinsurance intermediary b) Reinsurance broker c) Managing general agent d) Surplus lines agent
d) Surplus lines agent A surplus lines agent or broker is a licensee able to place insurance with unauthorized insurers.