Life Ins Test Questions and Answers Study Guide

When must insurable interest exist in a life insurance policy?

At the time of the application ** In life ins, insurable interest must exist at the time of the application.

an underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require?

Attending Physician Statement ** the APS is used to obtain medical details about a specific condition which has shown up in the application; the insurance company orders the information directly from the physician, using a signed authorization which was part of the application.

Tradition IRA owners must begin to withdraw funds?

By April 1 following the year in which they turn 70 1/2 **Distribution of funds from a traditional IRA must begin by April 1 of the year following in which the policy owner turns 70 1/2.

Carol is insured under her employer's group life insurance plan at her place of employment. A of the following statements about her coverage are true EXCEPT?

Carol could choose what type of insurance her conversion policy provided (term or permanent) **When a group coverage is converted to an individual policy, the insurer will determine the type of coverage (usually perm. ins)

In reference to fixed annuities, what comprises most of a life insurance company's general account?

Conservation 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 a guarantee because the money of a fixed annuity is placed in the general account of the insurance company rate to the annuity owner.

Which of the following would be tax-free?

Death benefit received in a lump-sum settlement **Other than lump-sum settlement options, when the beneficiary receives payments consisting of both principal and interest, the interest portion of the payments received is taxable income.

Which of the following is NOT an example of insurable interest?

Debtor in creditor **the three recognized areas in which insurable interest exists are as follows: a policy owner insuring his/her life, the life of a family member, or the life of a business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor.

When a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount.

Equal to the original policy for as long a period of time that the cash values will purchase. **With this option, the cash value is used as a single premium to purchase the SAME face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.

What is the advantage of having a qualified annuity?

Favorable tax treatment **Those annuities meeting the IRS guideline receives favorable tax treatment for finding qualified retirement plans.

Which of the following is NOT a government insurance program?

Federal Deposit Insurance Corporation (FDIC) ** FDIC is funded by premiums aid on deposits in covered financial institutions. Th others are funded in whole of part by taxes.

The annuity purchased with multiple payments, whose benefit is paid more than one year after the purchase is known as which type of annuity?

Flexible Premium Deferred Annuity **The Flexible Premium Deferred Annuity (FPDA) is purchased with multiple payments, such as a portion of each paycheck. The benefit payments begin sometime after one year from the date of purchase.

Cameron is purchasing a permanent Life insurance policy with a face value of $25,000. While this is all the insurance he feels he can afford at this time, he wants to be sure that addition coverage will be available in the future. He should include in this policy a?

Guaranteed insurability option **the guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without providing insurability.

Annually renewable term policies provide a level death benefit for a premium that?

Increases annually **Annual renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.

Which of the following is TRUE of a qualified plan?

It has a tax benefit for both employer and employee **A qualified plan is approved by the IRS, which then gives both the employer and the employee benefits in deductibility of contributions and tax deferral of growth.

Which of the following is NOT true regarding the accumulation period of an annuity?

It would not occur in a deferred annuity **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 (which IS the case in an deferred annuity)

Which statement is NOT true regarding a Straight Life Policy?

Its premium steadily decreased over time, in response to its growth cash value **Straight Life Policy charge a level annual premium throughout the insurer's lifetime and povides a level, guaranteed death benefit.

The type of settlement option which pays throughout the lifetime of two or more beneficiaries is called?

Joint and survivor **A joint and survivor option pays while either beneficiary is still living.

What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military?

Military service or war **There are two types of exclusions that may be used by whole life insurers that limit the death benefit if the insured dies as a result of war or while in the military. the status clause excludes all clauses of death while the insured is on active duty in the military. the results clause only excludes the death benefit if the insured is killed as a result of an act of war.

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?

Participants debt **The following are considered exceptions to the early distribution rule; death of the participant, the participants disability, a divorce decree, as a series of equal payments over the participants life expectancy, a loan from the plan, as a part of a qualified rollover.

Which of the following Riders would NOT cause the Death Benefit to increase?

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 guarantees Insurability Rider, the policy owner can increas DB at speciified ages or events, IE Marriage, childern; cost of living rider increase 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.

Who can request change in premium payments, face value, loans and policy plans?

Policyowner ** Mandatory provisions give these rights to the policyowner

All of the following are the benefits of survivor ship life policy EXCEPT?

Protection from the policy owner's creditors. **survivorship life policies insure two or more lives for a premium that is based on a joint age, pay the death benefit on the last death, and can help offset the liability of the estate tax upon the death of a second spouse.

Which of the following factors is NOT considered by an underwriter when determining the premium rate for an individual seeking insurance.

Race **Age, medical Hx, and sex provide sound statistical data for determining the probability of loss. Race, religion, sexual orientation, etc. are some of the factors that cannot be used because there is not a sound statistical data to show that they effect the probability of a loss; therefore, they are considered to be discriminatory.

Adverse selection is a concept best described as?

Risks with higher probability of loss seeking insurance more often that other risks. **Adverse selection means that there are more risks with higher probability of loss seeking to purchase and maintain insurance than the risks who present lower probability. Underwriters must guard against this.

Equity indexed annuities

Seek higher returns **Equity indexed annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. like a fixed anniuty the equity indexed annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500

Which of the following best details the underwriting process for life insurance?

Selection, classification, and rating of risks. ** The underwriting process is accomplished by reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates.

An insurance policy that only requires a payment of premium at its inception and no further premium contributions, and in addition to providing insurance protection for the life of the insured, endows at the insured;s age 100, is called?

Single Premium Whole Life **Single premium whole life require the entire premium to be paid in a lump-sum at the policy inception.

Which of the following best describes taxation during the accumulation period of an annuity?

Taxes are deferred **The interest accumulated in an annuity is the tax base but the taxes are deferred during the accumulation period. The cost base is the premium dollars that have already been taxed and will not be taxed gain when withdrawn from the contract.

Which of the following types of insurance policies would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources?

Term **Term ins provides a death benefit only; Cost per $1,000 of coverage is less than other types of policies that create cash value.

Which of the following is guarantees to the policy owner through non-forfeiture values?

The cash value in a policy belongs to the insured even if the policy lapses or is surrendered. **Because permanent life ins policies have cash values, there are certain guarantees built into the policy that can not be forfeited by the policy owner. Non-Forfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional payor benefit rider. If the father becomes disabled, what will happen to the life insurance premium?

The insured's premiums will be waived until she is 21. ** Under the payor benefit, if the guardian of a child dies or becomes diabled, the child will be exempt from the premium payments until a certain age, usually 21.

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 n June 1. Which of the following statements best describes what will happen?

The insurer will pay the full death benefit 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.

Which of the following best describes what the "annuity period" is?

The period of time during the accumulation of money is converted into income payments. **The "annuity period" is the time during which the accumulated money is converted into an income stream.

Which of the following statements is true concerning the Accidental Death Rider?

The policy may pay a benefit 2-3 times the face amount **The ADR pays 2 to 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.

If an insurance premium is paid by the policy owner to the agent, and the agent fails to remit that premium to the insurer, which of the following statements are true?

The policy owner will not lapse since the payment to the agent is the same as the payment to the insurer. ** Since the agent is a representative of the insurer, payments to the agent represents payment to the company. After a hearing, the agent's license could be revoked for engaging in such acts.

An Insured stops making payments in a loan taken from his cash value policy. What will most likely happen?

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 maned beneficiaries would not be able to receive the death benefit directly from the insurer in the event of the insured's death?

William, Jr., Minor son of the insured **Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee.

An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value. What would be the face value of the new term policy?

$50,000 ** the face value of the term policy would be the same face value amount provided under the whole life.

An annuitant died after receiving $200 monthly for 10 years ($24,000 total) from a $30,000 installment refund annuity. His wife, beneficiary, will now receive the same monthly benefit until her payments total

$6,000 ** With the installment refund annuity option, when the annuitant dies the beneficiary continues to receive guaranteed installments until the entire premium amount has been paid out.

What is the minimum age requirement for an insurance producer in this state?

18 years of age **a person applying for a resident insurance producer license must be at least 18 years old.

If a life insurance policy develops cash value faster than a seven-pay whole life contract it is?

A modified Endowment Contract **Any cash value life ins policy that develops ash value faster than a 7-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract.

With a single premium deferred annuity (SPDA), when are the benefits paid?

After more than 1 year **The benefits from a Single Premium Deferred Annuity are not paid until after one year or more has elapsed.

Who can make changes to the policy once is it in effect?

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.

Which of the following annuity features makes it a suitable source of retirement income?

Annuities provide income that the annuitant cannot live without. **Annuities are a popular means of providing retirement income because they can provide income that cannot be outlived.

Who is eligible to purchase an IRA?

Anyone under the age of 70.5 who has earned income.

All of the following are true of the federal tax advantages of a qualified plan, EXCEPT?

At distribution, all amounts received by the employee are free of taxes. **Funds in a qualified plan accumulate on a tax- deferred basis; however , at distribution any amount received by the employee will be treated as ordinary income for tax purposes.

Social Security benefits are available for surviving spouses until the youngest child reaches 16. benefits are later resumed when the surviving spouse reaches the retirement age. What is the time period calling during the time which the surviving spouse does not receive the benefit?

Black out period ** This begins then the youngest child reaches the age of 16 and does not resume until the surviving spouse reaches age of retirement (as early as 60). No benefits are paid during this time.

What qualifications must an agent hold in order to sell variable life insurance policies?

Both state and federal licensing ** Agents selling variable life products must be registered with the Financial Industry Regulatory Authority (FINRA) and must be licensed within the state they sell the life insurance and variable products.

Which rider , when attached to a permanent life ins policy, provides an amount of ins. on every family member?

Family term rider ** a single rider that provides coverage on every family member is called a "family rider"

Mortality - interest + expense=

Gross premium

In comparison with the other primary types of term insurance sold, what kind of premium does level term have?

Highest ** All other things being equal, of the three primary types of term insurance sold, level term has the highest of premiums.

What is the main purpose of the Seven-Pay Test?

It determines if the Insurance policy is an MEC **The Seven-pay test determined whether an insurance policy is "over-funded" or if it's a Modified Endowment Contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.

A rider attached to a life ins. policy that provides coverage on the insured's family member is called?

Other-Insured Rider ** The Other-insured rider is useful in providing ins for more than one family member.The type of ins. offered by the rider is usually term ins, with the right to convert to a permanent insurance.

Which of the following factors determines the amount of each installment paid in a Life Income Option arrangement?

Recipients life expectancy and amount of principal **The recipients life expectancy and amount of principal determines the amount of each installment paid in the Life Income Arrangment.

an applicant signs an application for a $25,000 life in policy, pays the initial premium, and receives a conditional receipt. If the applicant is killed in an automobile accident the next day,

The applicant would receive $25,000 if it was determined that the insured qualified for the policy applied for. **The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the applicant was signed or the date of the medical examination, if one is required.

Which of the following would provide an underwriter with information concerning an applicant's health history

The medical Information Bureau **an agents report and inspection report provides personal information. Medical exams provide information on current health. Only the MIB will provide information about an applicants medical history.

Under a SIMPLE plan, which of the following is true regarding taxation on both contributions and earnings?

They are tax deferred until withdrawn. **Taxation is deferred on both contributions and earnings until funds are withdrawn.