LIFE INSURANCE

Which scenario would most life insurance policies exclude coverage for? A tourist traveling abroad on a major airline carrier An individual who has a hobby racing cars once a month An airline pilot who flies for a commercial carrier A soldier on leave at home

An individual who has a hobby racing cars once a month

An applicant intentionally lying to an insurance company on an application in order to obtain a cheaper premium is an example of rebating coercion fraud twisting

fraud

Underwriters can acquire information from all of the following sources EXCEPT Medical Information Bureau (MIB) consumer reports attending physician's statements genetic testing

genetic testing

An insurer's ability to make unpredictable payouts to policyowners is called investment values liquidity assets capital

liquidity

An insurance applicant with a below-average likelihood of loss is typically considered to be a preferred risk subpar risk declined risk standard risk

preferred risk

A life insurance company has transferred some of its risk to another insurer. The insurer assuming the risk is called the mutual insurer reinsurer reciprocal insurer participating insurer

reinsurer

An example of naming a beneficiary by class would be "To the children born of my union with Ned Jackson: David Jackson, Jennifer Jackson, and Scott Jackson" "To the child born of my union with Ned Jackson: Scott Jackson" "To the children born of my union with Ned Jackson" "To Ned Jackson"

"To the children born of my union with Ned Jackson"

Jan, a single, working mother, dies at age 40. Dave, her only son, would receive a one-time lump-sum benefit of $255 $500 $1,000 $2,555

$255 (The maximum lump-sum death benefit to a deceased worker's surviving spouse or children is $255.)

Ron has a life insurance policy with a face value of $100,000 and a cost of living rider. If the consumer price index has gone up 4%, how much may Ron increase the face value of the policy? $400 $800 $2,000 $4,000

$4,000

Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be $250,000 $750,000 $375,000 $500,000

$500,000

An immediate annuity has been purchased with a single premium. When does the annuitant typically begin receiving benefit payments? 1 month 6 months 12 months 24 months

1 month

Under Social Security, in order to be considered fully insured, the worker must have worked how many years and received how many quarters? 40 years and 10 full quarters 10 years and 40 full quarters (Workers are fully insured if they have accumulated the required number of credits based on their age. For most people, the required number of credits is 40 (representing approximately 10 years of work).) 20 years or less and 40 full quarters 40 years or less than 10 quarters

10 years and 40 full quarters (Workers are fully insured if they have accumulated the required number of credits based on their age. For most people, the required number of credits is 40 (representing approximately 10 years of work).)

The penalty tax incurred for premature distributions from an IRA is: 5% 10% 20% 50%

10%

To be eligible to establish a SIMPLE retirement plan, an employer can have a maximum of how many employees earning at least $5,000? 25 50 100 250

100

If group life insurance premiums are paid totally by the employer, the minimum percent of eligible employees required to be covered is 25% 50% 75% 100%

100%

Under a partnership cross-purchase plan, when there are 4 partners, how many policies are needed? 4 12 16 20

12 (With a partnership cross-purchase plan, each partner owns, is the beneficiary of, and pays the premiums for life insurance on the other partner or partners in an amount equal to his or her share of the purchase price.)

How long must an individual be unable to engage in any gainful activity due to physical or mental disability in order to qualify for Social Security Total Disability? 3 months 6 months 12 months 18 months

12 months

Under Social Security disability requirements, a worker is fully insured on a permanent basis after having worked in a covered occupation for: 10 quarters 20 quarters 30 quarters 40 quarters

40 quarters (To obtain fully insured status, a covered worker must accrue a total of 40 quarters of credit, which is about 10 years of work.)

How long does the elimination period last for a Social Security Disability claimant? 12 months 5 months 0 months 6 months

5 months (Social Security Disability benefits are subject to rigid requirements. Disability benefits begin after the worker has satisfied a waiting period of 5 consecutive months, during which the worker must be disabled. The disability must be expected to last a minimum of 12 months.)

The IRS levies an excise tax on retired individuals over a certain age who do not take the required minimum distribution from a qualified retirement plan. What is the excise tax rate? 20% 30% 50% 60%

50% (Distributions must be made by April 1 following the year the participant turns age 70 1/2, or a 50% excise tax will be assessed on the amount that should have been withdrawn.)

A Roth IRA owner must be at least what age in order to make tax-free withdrawals? 59 1/2 and owned account for a minimum of 10 years 59 1/2 and owned account for a minimum of 5 years 70 1/2 and owned account for a minimum of 10 years 70 1/2 and owned account for a minimum of 5 years

59 1/2 and owned account for a minimum of 5 years

With three partners in a business, how many life insurance policies would be required to insure a cross-purchase buy-sell plan? 3 6 9 12

6 (Each partner owns, pays for, and is the beneficiary of an insurance policy on each of the other two partners in a cross-purchase buy-sell agreement.)

Jessica, a widow, stopped receiving survivor Social Security benefits when her son turned 16. At what age will she be eligible to start receiving benefits again? 65 59 1/2 60 62

60

Within how many days must a Traditional IRA be rolled over to another IRA in order to avoid tax consequences? 30 45 60 90

60

Within how many days must a rollover be completed in order to avoid being taxed as current income? 30 60 90 120

60

If Martha would like to receive Social Security retirement benefits prior to age 65, at what age can she do this? 60 62 She cannot receive benefits prior to age 65 Whenever she has accumulated the required work credits

62

Which statement about traditional individual retirement accounts is true? Funds withdrawn from an IRA after age 60 are not subject to income tax Only workers covered by other pension plans are eligible for IRAs A 10% penalty generally must be paid on funds withdrawn prior to age 59 1/2 The minimum amount that can be deposited into an IRA each year is $2,000

A 10% penalty generally must be paid on funds withdrawn prior to age 59 1/2

Which is true about the income tax withholding requirements for eligible rollover funds received personally by a participant in a profit-sharing plan? A 10% mandatory withholding rate applies A 20% mandatory withholding rate applies A 50% mandatory withholding rate applies The participant may elect to have nothing withheld

A 20% mandatory withholding rate applies (A plan sponsor must withhold 20% of the distribution in federal taxes on a rollover. Once the rollover takes place to a new custodian, the remainder of the distribution is made.)

Which policy feature makes a universal life policy different from a whole life policy? A fixed cash value A flexible premium schedule A fixed death benefit The ability to take out a policy loan

A flexible premium schedule

All of the following employees would normally be excluded from a group term life plan EXCEPT A full-time employee who has been on the job 2 years Employee who works part time each week Employee who works less than 3 months a year Employee with less than 3 months of employment

A full-time employee who has been on the job 2 years

A Modified Endowment Contract (MEC) is best described as A life insurance contract which accumulates cash values higher than the IRS will allow An annuity contract which was converted from a life insurance contract A modified life contract which enjoys all the tax advantages of whole life insurance A life insurance contract where all withdrawals prior to age 65 are subject to a 10% penalty

A life insurance contract which accumulates cash values higher than the IRS will allow

Which of the following employers is required to follow ERISA regulations? A local government with 150 employees A church with 30 employees A local electrical supply company with 12 employees A Canadian company with 300 employees working in the United States

A local electrical supply company with 12 employees

How soon can the benefit payments begin with a deferred annuity? Anytime after date of purchase Anytime within 12 months after date of purchase A minimum of 6 months after date of purchase A minimum of 12 months after date of purchase

A minimum of 12 months after date of purchase

All of these are valid options for an Adjustable Life Policy EXCEPT The policy's premium can be increased or decreased The policy's death benefit can be increased or decreased A nonforfeiture option can be used to increase the death benefit The policy's protection period can be modified

A nonforfeiture option can be used to increase the death benefit

If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies? No death benefit is owed because of the misstatement of age The full original death benefit listed on the policy A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age The original death benefit listed on the policy minus any outstanding loans and interest

A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age

Which of the following is NOT considered advertising? A rating from a rating service company, such as A.M. Best An illustration A sales presentation Direct mailing from an agency

A rating from a rating service company, such as A.M. Best

A plan in which an employer pays insurance benefits from a fund derived from the employer's current revenues is called A self-derived plan A multiple-employer plan A blanket plan A self-funded plan

A self-funded plan

State insurance laws generally allow a number of groups to hold blanket life insurance policies. All of the following are examples of groups eligible for blanket life insurance EXCEPT A school covering students, teachers, or employees. Members of a sports team while they are participating on the team. Religious organization covering its members while on a church sponsored trip. A start up company to cover the health insurance needs of its employees

A start up company to cover the health insurance needs of its employees (Blanket life insurance policies cover eligible groups for blanket LIFE insurance , not health insurance.)

AA

AA

AAA

AAA

Which of these is considered to be a Living Benefit option in a life insurance policy? Reinstatement Waiver of premium Accelerated death benefit Payor benefit

Accelerated death benefit

Which of the following is considered to be an alternative to a life settlement? Accelerated death benefit rider Waiver of premium rider Extended term option Decreasing term insurance

Accelerated death benefit rider

Which dividend option would an insurer invest the policyowner's money and add any interest earnings as the dividends accrue? Accumulation at Interest Option Cash Dividend Option Paid-Up Additions Option One-Year Term Dividend Option

Accumulation at Interest Option

Of the following dividend options, which of these is taxable? Reduction of premium One year term Paid-up additions Accumulation at interest

Accumulation at interest

Kathy's annuity is currently experiencing tax-deferred growth until she retires. Which phase is this annuity in? Payout period Accumulation period Deferred period Growth period

Accumulation period

A policyowner may change two policy features on what type of life insurance? Modified Whole Life Decreasing Term Life Adjustable Life Whole Life

Adjustable Life

What does the Group Life underwriting risk selection process help protect insurance companies from? Risk aversion Natural selection Adverse selection Risk management

Adverse selection

How does life insurance create an immediate estate? Cash value may be borrowed upon at any time Nonforfeiture options are immediately available The insured's estate receives the death benefit After first premium is paid, the face amount may be available to the beneficiary

After first premium is paid, the face amount may be available to the beneficiary

When does an immediate annuity begin making payments? After multiple premiums have been paid After the first premium has been paid After policy has been active for one year After the incontestable period

After the first premium has been paid

An error was made on Mary's life insurance application. Which of the following areas are errors commonly made on applications for which the incontestable clause does NOT apply? Marital status Age Address Income

Age

Most employers will establish benefit schedules according to all of the following EXCEPT Earnings Age Employment Positions Flat Benefit

Age (Most employers will establish benefit schedules based on an employee's earnings or position within the company. A flat benefit to each employee may also be an option. An employee's age is not taken into account.)

What is the nonforfeiture value of an annuity before annuitization? All premiums paid All premiums paid plus interest All premiums paid minus any withdrawals and surrender charges All premiums paid, plus interest, minus any withdrawals and surrender charges

All premiums paid, plus interest, minus any withdrawals and surrender charges

If a corporation collects the policy benefit on a key person life policy, which of the following is correct? Amount received is taxable Amount received is non-taxable Amount received is partially taxable Amount received is subject to exclusionary rule

Amount received is non-taxable (Key person life insurance receives favorable tax treatment. The death proceeds received by the business are not taxable. Premiums, of course, are not deductible for income purposes.)

All of the following statements pertaining to the conversion privilege of group term life insurance are correct EXCEPT An insured employee typically has 31 days following termination of employment in which to convert the group insurance. An insured employee must convert to the same type of coverage that was provided under the group plan (that is, term). Insureds who convert their coverage to individual plans pay a premium rate according to their attained age. An insured employee may exercise the conversion privilege regardless of that employee's insurability.

An insured employee must convert to the same type of coverage that was provided under the group plan (that is, term). (Most group conversion provisions require the individual to convert the coverage under a group term plan to a whole life policy.)

Which of these is NOT considered to be a purpose of an annuity? Annuities are intended to create an estate Annuities are intended to liquidate an estate Annuities are intended for the tax-free growth of principal Annuities are intended to distribute accumulated principal

Annuities are intended to create an estate

Which of the following is considered to be the period when the accumulated value in an annuity is paid out? Annuitization phase Accumulation phase Principal phase Period certain phase

Annuitization phase

Distributions from a traditional individual retirement annuity (IRA) must begin by The participant's 65th birthday The participant's 70th birthday December 31st of the year the participant turns 70 1/2 April 1st of the year following the year the participant attains age 70 ½

April 1st of the year following the year the participant attains age 70 ½

Jackie has just signed up to participate in her employer's franchise life insurance program. Which of the following statements is CORRECT? She may not continue the policy if she terminates employment. As the "sponsor" of the program, her employer collects premiums from her and remits them to the insurance company. The employer is given a certificate of insurance. Jackie is allowed to select the type and amount of insurance coverage.

As the "sponsor" of the program, her employer collects premiums from her and remits them to the insurance company. (Franchise life insurance is a form of group insurance covering employees of a common employer or are members of a common association. The employer or association is not the master policyholder but simply a "sponsor". Each insured is given an individual policy.)

An attending physician's statement would be appropriate for which life insurance purpose? Attending physician's statements are mandatory during the application process At the request of the applicant to assist in the underwriting decision At the request of the producer to assist in the underwriting decision At the request of the insurer to assist in the underwriting decision

At the request of the insurer to assist in the underwriting decision

Which of these factors would an insurer consider when determining whether to accept a group life plan? Number of dependents Incontestable period Average age Grace period

Average age

A qualified plan participant elected a trustee-to-trustee transfer of rollover funds instead of personally receiving the funds and then rolling them over. The election permits the participant to Avoid mandatory income tax withholding on the amount transferred Eliminate the possibility of funds being lost in the mail Significantly reduce the amount of time required for the transaction Eliminate the penalty tax that normally applies to rollover funds

Avoid mandatory income tax withholding on the amount transferred (There is no federal tax withholding involved in a transfer of funds from one qualified plan into another. Rollovers, however, involve a 20% withholding. Once the rollover takes place to the new custodian, the remainder of the distribution is made.)

All of the following conditions are included in group credit life programs EXCEPT Premiums are usually paid by the borrower The amount of insurance per borrower is limited Benefits are paid to the borrower's beneficiary Benefits are paid to the creditor

Benefits are paid to the borrower's beneficiary (Benefits in a credit life policy are normally paid to the creditor.)

Which of these premium payment frequencies is not typically available to a policyowner? Bi-weekly Monthly Quarterly Semi-annual

Bi-weekly

What is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called? Accumulation period Nonpayment period Blackout interval Blackout period

Blackout period (The blackout period begins when the youngest child turns 16 and continues until the spouse reaches age 60, at the earliest. If there are no eligible children with the surviving spouse when the breadwinner dies, the blackout period starts immediately.)

All of the following are considered to be costs associated with an individual's death EXCEPT Estate taxes Probate costs Business expenses Burial expenses

Business expenses

Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider? Can be converted to permanent coverage without evidence of insurability Coverage can be different for each child Premiums on this rider are not required until the limiting age is reached Increases the policy's overall cash value

Can be converted to permanent coverage without evidence of insurability

The insured is which one of these in group life insurance? Applicant Policyowner Beneficiary Certificate holder

Certificate holder (Each employee eligible to participate in the plan fills out an enrollment card and is given a certificate of insurance, which summarizes the coverage terms and explains the employee's rights under the group contract.)

The coverage, conditions, and limitations in the master policy of a group contract can be found in which document? Certificate of Authority Consumer report Coverage document Certificate of coverage and benefits

Certificate of coverage and benefits

Which of the following types of employee welfare plans is specifically exempt from regulation under ERISA? Church plans Blue Cross-Blue Shield plans Hospital benefit plans Accidental plans

Church plans

What would happen if a life insurance applicant is given a conditional receipt from an insurance agent and then dies the next day? Claim will be denied by insurer Claim will be paid if money was received by the insurance company Claim will be paid if underwriter has received the application Claim will be paid if application is approved

Claim will be paid if application is approved

Naming a contingent beneficiary as "all surviving children" is described by which term? Contingent designation Primary designation Class designation Tertiary designation

Class designation

Pat is insured with a life insurance policy and Karen is his primary beneficiary. They are both involved in an automobile accident where Pat dies instantly and Karen dies 5 days later. Which policy provision will protect the rights of the contingent beneficiary to receive the policy benefits? Nonforfeiture clause Common disaster clause Spendthrift clause Accident indemnity clause

Common disaster clause

Tim is covered under a group plan and would like to change his group coverage to an individual policy with the same insurer because of employment termination. Which of these describes the change that will take place? Coordination of benefits Conversion Extension of benefits Rollover

Conversion

Which of these is affected by the frequency of an insurance policy's premium payments? Settlement options Cash value Death benefit Cost

Cost

What happens to the coverage under a children's term rider when that child reaches a certain specified age? Coverage decreases automatically Coverage increases automatically Coverage remains as long as proof of insurability is provided Coverage is eliminated

Coverage is eliminated

In which business plan do the partners agree to buy the interest of the deceased partner? Entity Cross purchase Stock purchase Business insurance plan

Cross purchase (Under the cross-purchase buy-sell plan (the more common approach to a buyout), the partners individually agree to purchase the interest of a deceased partner. The executor of the deceased partner's estate is then directed to sell the interest to the surviving partners. The partnership itself is not a party to the agreement.)

Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)? Loan against the cash value Policy withdrawal Policy dividend Death benefit

Death benefit

What is the tax advantage of key-person life insurance? Premiums are tax deductible Death proceeds are nontaxable Proceeds are deferred Cash value increase is taxed at a low rate

Death proceeds are nontaxable

In what part of an insurance policy are policy benefits found? Declarations Entire contract Waivers Conditions

Declarations

Julie has a $100,000 30-year mortgage on her new home. What type of life insurance could she purchase that is designed to pay off the loan balance if she dies within the 30-year period? Adjustable life insurance Decreasing term insurance Increasing term insurance Modified life insurance

Decreasing term insurance

Rob has a benefit at work which enables him to defer his current receipt of income and have it paid at a later date, when he will probably be in a lower tax bracket. Which benefit fits this description? Key person IRA Period certain annuity Deferred compensation option Income deferral option

Deferred compensation option

What is the primary purpose of a rating service company such as A.M Best? Determine which insurer offers the best rates Determine which insurer offers the best policies Determine financial strength of an insurance company Determine which agent to use locally

Determine financial strength of an insurance company

All of these are typically sources of underwriting information for life or health insurance EXCEPT * Consumer reports * Medical Information Bureau (MIB) reports * Disclosure authorization response * Attending physician's statement (APS)

Disclosure authorization response

One of the purposes of a qualified profit-sharing plan is to Motivate management to achieve a 25% profit margin Distribute a portion of company earnings to employees Liquidate the assets of a corporation Reward the stockholders of a corporation

Distribute a portion of company earnings to employees

Mutual insurers pay dividends to participating policyowners if the insurer has which of the following? Divisible surplus Reciprocal Dividend Agreement Certificate of Authority Participating clause

Divisible surplus (By issuing participating policies that pay policy dividends, mutual insurers allow their policyowners to share in any company earnings.)

Lisa has recently bought a fixed annuity. Which of these is considered to be a disadvantage of owning this type of annuity? Payments cease 5 years after the annuitant's death During periods of inflation, annuitants will experience an increase in purchasing power of their payments During periods of inflation, annuitants will experience a decrease in purchasing power of their payments Payment amounts can be unpredictable from month to month

During periods of inflation, annuitants will experience a decrease in purchasing power of their payments

In group life policies, individual certificates are given to Each policyholder Each insured Each applicant The insurance agent

Each insured (Each employee eligible to participate in a group plan fills out an enrollment card and is given a certificate of coverage. This certificate summarizes the coverage terms and explains the employee's rights under the group contract.)

Which of these statements concerning Traditional IRAs is CORRECT? Earnings are not taxable when withdrawn Earnings are taxable when withdrawn Contributions are never tax-deductible Contributions are always made by the employer

Earnings are taxable when withdrawn

Which of the following is NOT a federal requirement of a qualified plan? Must benefit a broad cross-section of employees Employee must be able to make unlimited contributions Vesting schedule must be defined Employer establishes the plan

Employee must be able to make unlimited contributions

A group life insurance plan must insure all eligible employees if the Group was formed for the express purpose of obtaining insurance Employer pays the entire premium Employees are covered under a retirement plan Employer pays for a group health insurance plan

Employer pays the entire premium

Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive? Adjustable life policy Modified life policy Endowment policy Universal life policy

Endowment policy

What is the name of the provision which states that a copy of the application must be attached to the policy when issued? Policy Summary Buyer's Guide Entire Contract Entire Policy

Entire Contract

Peter has a policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index. What kind of policy is this? Modified Endowment Contract Current assumptive whole life Credit life insurance Equity index whole life

Equity index whole life

What is created after policy proceeds are obtained in a lump sum and then immediately invested? Viatical Settlement Emergency Fund Lump Sum Fund Estate

Estate

Craig purchased a life insurance policy to enable his heirs to pay estate taxes. What is this called? Estate conservation Liquidity maintenance Survivor fund Human value protection

Estate conservation

All of the following statements about group life insurance for employees are true EXCEPT The policy is issued to the employer Evidence of insurability is normally required of each participant Premiums may be paid jointly by the employer and the employees Eligible groups may be required to meet minimum size standards

Evidence of insurability is normally required of each participant

Which of these would limit a company's liability to provide insurance coverage? Waiver Exclusion Rider Provision

Exclusion

The taxable portion of each annuity payment is calculated using which method? Exclusion Ratio Taxable Ratio Cost Basis Tax Basis

Exclusion Ratio

Which law requires fair and accurate reporting of information about consumers? Financial Services Modernization Act Fair Credit Reporting Act McCarran-Ferguson Act Unfair Trade Practices Act

Fair Credit Reporting Act

A spouse and child can be added to the primary insured's coverage as what kind of rider? Dependent term Guaranteed insurability Primary term Family term

Family term

Which of these riders will pay a death benefit if the insured's spouse dies? Guaranteed Insurability rider Family term insurance rider Family whole insurance rider Payor benefit rider

Family term insurance rider

All of these are characteristics of a universal life insurance policy EXCEPT Flexible death benefit All of these are characteristics of a universal life insurance policy EXCEPT Flexible death benefit Fixed surrender value Flexible premiums Builds cash value

Fixed surrender value

Which of these annuities require premium payments that vary from year to year? Flexible premium immediate annuity Flexible premium deferred annuity Fixed premium deferred annuity Fixed premium immediate annuity

Flexible premium deferred annuity

Which of the following is NOT a commercial insurer Industrial Company Fraternal Company Stock Company Mutual Company

Fraternal Company

The primary insurance amount (PIA) is equal to 1/2 worker's retirement benefit at 62 1/2 worker's retirement benefit at 65 Full worker's retirement benefit at 62 Full worker's retirement benefit at 65

Full worker's retirement benefit at 65 (The PIA is actually the amount equal to the worker's full retirement benefit at age 65 (benefits are reduced for early retirement) or benefits to a disabled worker. Benefits payable to workers and their spouses and dependents are usually expressed as a percentage of the worker's PIA. For example, a person who elects to retire at age 62 with Social Security retirement benefits will receive benefits equal to 80% of his or her PIA.)

All of these are legitimate uses of insurance in a business setting EXCEPT Funding against general company financial loss Funding against financial loss by the death of a key employee Funding business continuation agreements Funding a buy-sell plan

Funding against general company financial loss (Life and health insurance can be used for a variety of reasons in a business setting. Safeguarding against general company financial loss is not one of them.)

When a qualified plan starts making payments to its recipient, which portion of the distributions is taxable? Principal Contributions made by employee Contributions made by employer Gains

Gains

An insurer will accept a premium from the insured and continue the coverage in full force as though it was NOT late during which time period? Incontestable period Probation period Reinstatement period Grace period

Grace period

Which of the following is NOT considered to be a group permanent plan? Group ordinary Group credit Group universal Group paid-up

Group credit

Which of the following statements regarding group life insurance plans is CORRECT The employee is generally responsible for paying the entire premium. Group insurance, per unit of benefits, is available at rates lower than those for individuals. An employee may not continue the policy if he/she terminates employment. Group insurance plans are only available to key employees.

Group insurance, per unit of benefits, is available at rates lower than those for individuals. (Group insurance generally is available at rates lower than those for an individual because of the lower administrative, operational, and selling expenses associated with them.)

A business will typically use which type of life insurance to cover their employees? Group policy Adjustable life policy Whole life policy Endowment policy

Group policy

Delores just received her first Social Security Disability payment. What can we correctly assume about her? Her disability is expected to last at least 12 months She is at least 65 years old She has applied for Medicare She became disabled 12 months ago

Her disability is expected to last at least 12 months (The qualification for Social Security Disability benefits is subject to rigid requirements. One of these requirements states the disability must be the result of a physical or mental impairment expected to last at least 12 months.)

Which of these is a method of determining the level of funds required for ongoing support in the event of the breadwinner's death? Financial loss value Human life value Assessment value Replacement value

Human life value (The human life value calculator helps you assess the financial loss your family would incur if you were to die today.)

Which approach predicts a person's earning potential and determines how much of that would be devoted to dependents? Future value approach Earnings approach Needs approach Human life value approach

Human life value approach (The human life value approach predicts an individual's future earning potential and determines how much of that amount would be devoted to dependents.)

Needs analysis is a method of life insurance planning which Identifies the needs of an individual and the individual's dependents Eliminates the need for estimating future interest and inflation rates Requires the team effort of the producer and home office underwriter Ignores Social Security benefit payments

Identifies the needs of an individual and the individual's dependents (Needs analysis is a method of life insurance planning which identifies the needs of an individual and the individual's dependents.)

If the agency contract gives the producer the authority to solicit insurance but states nothing about the collection of premiums, the producer normally has authority to collect premiums based on * Implied authority * Express authority * Apparent authority * Licensee authority

Implied authority

Upon retiring at age 60, an employee requested the 401(k) plan trustee to issue a check payable to the employee for the entire accrued benefit in the employee's account. The funds were immediately rolled over into an IRA. The 401(k) distribution will be Subject to a penalty tax Eligible for capital gains tax treatment Included in gross income for tax purposes Reduced by the amount withheld for federal income tax

Included in gross income for tax purposes (In this situation, the 401(k) distribution will be included in gross income for tax purposes because the plan participant took physical receipt of the distribution before its rollover to the IRA.)

Which of the following is generally assessed when a participant receives retirement savings from an IRA before reaching age 59 1/2? Income tax only A penalty tax only Income tax and a penalty tax Capital gains tax

Income tax and a penalty tax

Which of these is considered a major tax advantage of life insurance? Tax credits are available for life insurance premiums paid Annual earnings are tax free Premiums are tax deductible by an employee if paid for by an employer Income tax is typically not owed on proceeds paid directly to a beneficiary

Income tax is typically not owed on proceeds paid directly to a beneficiary

An individual, age 45, received a distribution of $15,000, less $3,000 income tax withholding, from a former employer's 401k plan. None of the money was rolled over. Which federal taxes apply? Only income taxes on $15,000 Only income taxes on $12,000 Income taxes plus a 10% penalty tax on $15,000 Income taxes plus a 10% penalty tax on $12,000

Income taxes plus a 10% penalty tax on $15,000 (All withdrawals from a qualified retirement plan are taxable as current income. In addition, any withdrawals made before age 59 1/2 is subject to an additional tax penalty of 10% of the amount withdrawn.)

Which of the following protects a policyowner from a misrepresentation caused by an innocent mistake? Reinstatement clause Entire Contract clause Incontestable clause Nonforfeiture clause

Incontestable clause

How is the cost of a policy affected when a policyowner pays premiums more frequently? Not affected Increases Decreases Depends on the type of coverage

Increases

What happens to the total amount of premium paid for an insurance policy when the payment frequency increases? No difference in cost Decreases Increases Depends on the type of coverage

Increases

Which type of beneficiary should be named if the insured wants to give explicit directions on how the policy proceeds should be paid? Individual Group Class Estate

Individual

How does one qualify as a fully-insured individual under Social Security disability coverage? Individual has been credited with the appropriate number of quarters of coverage Individual is currently covered under Medicaid Individual is expected to be disabled for 5 months Individual is currently employed

Individual has been credited with the appropriate number of quarters of coverage

All of the following are distinguishing characteristics of group life insurance EXCEPT Flow of insureds Group underwriting Master contract Individual policies

Individual policies

Which of the following signatures is not required on an individual insurance application? Producer Applicant Insured Insurer

Insurer

An agent is an individual that represents whom? * Insurer * Insured * Broker * Himself/Herself

Insurer (An agent is an individual who is authorized by an insurer to sell goods and services on its behalf. An agent is also the insurer's representative in dealing with the public.)

What action may the insurer take on future policy anniversaries after a group life master policy has been issued? Cancel insurance on group members who become terminally ill Insurer can make no changes to policy Insurer can deny claims after a group has excessive claims Insurer can adjust premium

Insurer can adjust premium (Most group life plans are term plans, which use annual renewable term (ART) insurance for the underlying policy. This gives the insurer the right to increase the premium each year (based on the group's experience rating), and it gives the policyholder the right to renew coverage each year.)

Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy? Interest only Reduced paid-up insurance Extended term insurance Cash surrender

Interest only

An applicant's character and personal habits can be obtained for underwriting purposes from which source? Investigative consumer report Attending physician's statement Medical Information Bureau (MIB) Credit report

Investigative consumer report

Sharon is the policyowner of a $50,000 life insurance policy. Her son, Mike, is the beneficiary. If Sharon MUST obtain Mike's signature in order to change the beneficiary, what kind of beneficiary designation is this? Tertiary Contingent Revocable Irrevocable

Irrevocable

A policyowner is prohibited from making any changes to the policy without the beneficiary's written consent under which beneficiary designation? Contingent beneficiary Tertiary beneficiary Revocable beneficiary Irrevocable beneficiary

Irrevocable beneficiary

Which of the following statements about key person insurance is CORRECT? The key employee's family is the beneficiary of the policy. The death proceeds are taxable. The business may take a tax deduction for premiums paid. It can be considered a business asset.

It can be considered a business asset. (Complete control of the policy rests with the business, which means key person insurance can be considered a company owned asset not earmarked for any specific purpose.)

What happens to interest earned if the annuitant dies before the payout start date? It is taxable It is taxable only if no beneficiary is named It is not taxable It is only taxable if contract has been in force under one year

It is taxable

Which of the following would disqualify a company's retirement plan from receiving favorable tax treatment? Contains a vesting schedule Contributions are applied with no regard to income Formed for the sole benefit of employees and their beneficiaries It is temporary

It is temporary

All of the following statements correctly describe the purpose of Social Security EXCEPT It provides a source of income for a meaningful standard of living during retirement It provides basic protection against financial problems accompanying death, disability, and retirement It augments a sound personal insurance plan It provides retirement and survivor benefits to a worker and the worker's family

It provides a source of income for a meaningful standard of living during retirement

Which of the following statements about the certificate of insurance is true? It is a binding contract between the employee and the insurer It serves as evidence of an employee's coverage It is issued to the employer It is used only when accidental death benefits are provided

It serves as evidence of an employee's coverage

A life insurance policy written on one contract for two people in which it is payable upon the first death is called Split Shared Joint Survivorship

Joint

Which type of life insurance is normally associated with a Payor Benefit rider? Juvenile insurance Family income insurance Spouse insurance Term rider

Juvenile insurance

What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death? Dual Life insurance Joint Life insurance Last Survivor Life insurance Shared Life insurance

Last Survivor Life insurance

What is the reason for key person insurance? Lessen the risk of financial loss due to the death of a key employee Provide health and life insurance to families of key employees Provide retirement benefits to key employees Lessen the chance of financial loss due to fraud by a key employee

Lessen the risk of financial loss due to the death of a key employee (Key person insurance can lessen the risk of financial loss due to the death of a key employee who has specialized skills, knowledge, or business contacts.)

Which type of annuity stops all payments upon the death of the annuitant? Life annuity Period certain annuity Cash refund annuity Joint and survivor annuity

Life annuity

Which type of annuity guarantees a stated number of income payments, whether or not the annuitant is still alive to receive them? Life annuity certain Secure life annuity Irrevocable survivor annuity Guaranteed life annuity

Life annuity certain

Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary? Fixed period Interest only Installment refund Life income

Life income

Which of these is NOT considered to be a common life insurance nonforfeiture option? Cash surrender Extended term insurance Reduced paid-up insurance Life income annuity

Life income annuity

Which of the following annuity payout options makes no additional payments regardless of when the annuitant dies? Life only Life with period certain Cash refund Installment refund

Life only

Which of the following makes a group life policy different from an individual life policy? Higher premium Higher underwriting costs Individual underwriting Lower premiums

Lower premiums (The primary reason for a group life plan having lower premiums is the lower administrative, operational, and selling expenses associated with servicing one contract, as opposed to several individual contracts.)

A method of marketing group benefits to employers who have a small number of employees is the MET Blanket Life Insurance ART Small Employer Trust

MET (A method of marketing group benefits to employers who have a small number of employees is the multiple employer trust (MET). METs may provide a single type of insurance (such as health insurance) or a wide range of coverage (life, medical expense, and disability income insurance).

All of these are considered key factors in underwriting life insurance EXCEPT Tobacco use Health history Age Marital status

Marital status

Which of the following examples pertaining to Social Security benefits is CORRECT? -Simon was a fully employed worker at the time of his death. His surviving spouse will receive a lump-sum death benefit of $2,250. -Lola, age 30, has a daughter, age 10. Her husband, who is covered under Social Security, died unexpectedly last month following surgery. Both Lola and her daughter are entitled to receive monthly survivor benefits until her daughter reaches age 18. -Mason, who is married with one son, age 16, is a fully insured retired worker receiving Social Security benefits. In addition, his spouse is eligible for benefits at age 62 and his son is eligible for benefits until he is 18 years old. -Arlene, the 20-year-old daughter of a fully insured retired worker, becomes totally and permanently disabled from injuries received in a car accident. Because her disability occurred after age 16, Arlene is not eligible for her father's Social Security benefits.

Mason, who is married with one son, age 16, is a fully insured retired worker receiving Social Security benefits. In addition, his spouse is eligible for benefits at age 62 and his son is eligible for benefits until he is 18 years old. (The spouse of any worker eligible for retirement benefits is entitled to an old age income at a reduced amount starting at age 62. An unmarried child of a worker on retirement income is generally eligible to receive a monthly benefit until the child turns 18.)

In an employer group plan, what is the name of the policy issued to the employer? Certificate of insurance Certificate of authority Group contract Master contract

Master contract

Over the course of a year, which premium payment mode is most expensive? Monthly Quarterly Semi-Annually Annually

Monthly

A qualified retirement plan is "top heavy" when More than 20% of participants are highly compensated More than 20% of annual additions are for key employee accounts Fewer than 60% of employees benefit by the plan More than 60% of plan assets are in key employee accounts

More than 60% of plan assets are in key employee accounts (A plan is considered to be top heavy if more than 60% of plan assets are attributable to "key employees" as of the last day of the prior plan year.)

What would be an expense factor in an insurance program? Premiums collected Mortality costs Opportunity costs Investment interest

Mortality costs

Which entity has preserving state regulation of insurance as one of its objectives? American Council of Life Insurance National Association of Life Underwriters National Committee to Preserve the Republic National Association of Insurance Commissioners

National Association of Insurance Commissioners

All of these are considered sources of information that can assist an underwriter in determining whether or not to accept a risk EXCEPT Agent's report Medical Information Bureau (MIB) Inspection reports National Association of Insurance Underwriters

National Association of Insurance Underwriters

Which of these requires an analysis of a family's financial needs and objectives should the breadwinner die or become disabled? Needs Approach Human Value Life Approach Human Needs Approach Human Value Needs Approach

Needs Approach (The needs approach requires an analysis of the family's financial needs and objectives should the breadwinner die or become disabled. Those needs are weighed against the ability of the family to meet them out of current or anticipated assets.)

The approach that is used to make life insurance recommendations, determines the total funds available to a family from all sources, and subtracts the amount needed to meet their financial objectives is known as the Human Life Value approach Needs approach Dollar Valuation approach Input-Output approach

Needs approach (The needs approach analyzes the family's financial needs and objectives should the breadwinner die or become disabled. These needs are then weighed against the ability of the family to meet them out of current or anticipated assets.)

Joanne has a $100,000 whole life policy with an accumulated $25,000 of cash value. She would like to borrow $15,000 against the cash value. Which of the following statements is TRUE? Net death benefit will be reduced if the loan is not repaid No interest will be charged on loan balance Term life policies are the only type of insurance that allows policy loans A loan can be taken out for up to the face amount of the policy

Net death benefit will be reduced if the loan is not repaid

A beneficiary has just received a claim payment for a life insurance policy. Which of the following is TRUE regarding the federal income tax liability owed? A flat tax of 10% is owed on all proceeds Federal income tax is owed if proceeds exceed $250,000 No federal income tax is owed on life insurance proceeds Tax liability owed depends on the type of life insurance policy

No federal income tax is owed on life insurance proceeds

When an employer pays the entire premium of a group plan, the plan is called Rebating Waiver of premium Contributory Noncontributory

Noncontributory (In a noncontributory plan, an employer pays the entire premium and the employee is not expected to contribute.)

To what is a group life plan in which the employer pays the entire cost commonly referred? Contributory plan Noncontributory plan Group permanent plan Group paid-up plan

Noncontributory plan

How much tax is withheld from funds that are transferred directly from one IRA to another IRA? 10% 15% 50% None

None

How are contributions made to a Roth IRA handled for tax purposes? Fully tax deductible Not tax deductible Partially tax deductible Conditionally tax deductible

Not tax deductible

What is the formal name for Social Security? Qualifed Age Survivors Disability Insurance Advanced Age Survivors Disability Insurance Retirement Age Survivors Disability Insurance Old Age Survivors Disability Insurance

Old Age Survivors Disability Insurance (The Social Security program, enacted in 1935 and administered at the federal level by the Social Security Administration, is more formally called OASDI. This acronym aptly identifies the types of protection provided under the program: "Old Age" (retirement), "Survivors" (death benefits), and "Disability Insurance".)

How do interest earnings accumulate in a deferred annuity? On a tax credit basis On a tax-deferred basis On a tax-free basis On a taxable basis

On a tax-deferred basis

Larry died in an automobile accident. His survivors are eligible for limited Social Security benefits. Larry's insured status was Partially insured Insured Conditionally insured Half insured

Partially insured (To be considered partially insured, a worker must have earned 6 credits during the 13-quarter period ending with the quarter in which the worker died.)

All of these are requirements of a group life plan EXCEPT A minimum number of participants are required The cost of the plan is dictated by average age of group Participants receive a certificate of coverage Participants are required to provide evidence of insurability

Participants are required to provide evidence of insurability

What is an insurer required to do when faced with an error made under the Misstatement of Age provision? Cancel the policy Pay age-corrected benefits Pay full benefits as stated in the policy Bill the policyowner for back premiums

Pay age-corrected benefits

A business often buys life insurance on a key employee to: Take a tax deduction Pay estate taxes for the key employee Pay the remaining balance of the key employee's mortgage Pay for finding and training a replacement if the employee dies prematurely

Pay for finding and training a replacement if the employee dies prematurely (One reason for a business to purchase key person life insurance is to pay for finding and training a replacement if the employee dies prematurely.)

Which type of rider will waive the premium on a child's life insurance policy if the parent paying the premium dies? Waiver of premium Juvenile waiver Guaranteed insurability Payor benefit

Payor benefit

How is Social Security (OASDI) funded? Federal grants Sales taxes Treasury Bonds Payroll taxes

Payroll taxes (OASDI is supported by a payroll tax, paid by employees, employers, and self-employed individuals.)

What is an insurance policy's grace period? Period of time after the initial premium is paid and before the policy is issued Period of time it takes for a policy's underwriting to complete Period of time after a policy is issued and before it is delivered to policyowner Period of time after the premium is due but the policy remains in force

Period of time after the premium is due but the policy remains in force

What are blanket life policies? Policies that are mass-marketed Policies that cover everyone in a household Policies that are issued by the Guaranty Association covering multiple insurers Policies that cover a group of people exposed to a common hazard

Policies that cover a group of people exposed to a common hazard (Blanket life insurance covers a group of people exposed to a common hazard. Individuals do not need to apply for blanket coverage and insurers do not need to provide each person with a certificate of coverage. Insureds are not specifically named in the policy because coverage is temporary.)

Which situation accurately describes a reduced paid-up nonforfeiture option? Policy has a decreased face amount Face amount of the new policy equals that of the original policy Cash value is surrendered to policyowner Premiums must continue to be paid

Policy has a decreased face amount

Who is considered the owner of a mutual insurance company? Stockholders Policyholders Mutual fund shareholders Attorney in fact

Policyholders

Who receives dividends in a mutual insurance company? Policyholders Stockholders Beneficiaries Employees

Policyholders

During the accumulation period, who can surrender an annuity? Payor Annuitant Beneficiary Policyowner

Policyowner (The policyowner is the only one who can surrender an annuity during the accumulation period.)

Variable life insurance and Universal life insurance are very similar. Which of these features are held exclusively by variable universal life insurance? Policyowner may increase or decrease the premium payments Policyowner may increase or decrease the face amount Policyowner can contribute large sums of money Policyowner has the right to select the investment which will provide the greatest return

Policyowner has the right to select the investment which will provide the greatest return

Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test? Policy loans are disallowed The premium payments will be tax deductible Pre-death distributions are typically taxable Withdrawals will be prohibited

Pre-death distributions are typically taxable

Under a Modified Endowment Contract, what are the likely tax consequences? Interest on policy loans is tax deductible Premium payments are tax deductible Pre-death distributions will become taxable Cash value cannot be surrendered early

Pre-death distributions will become taxable

Which of the following statements regarding key person insurance is NOT correct? Key person life insurance indemnifies a business for financial loss caused by the death of a key employee or key executive. The business may borrow from the cash value of a permanent key person life insurance policy. The policy's death proceeds received by the business are not taxable. Premiums for a key person life insurance policy are a tax-deductible expense to the business.

Premiums for a key person life insurance policy are a tax-deductible expense to the business.

Which of the following statements is correct when comparing participating policies with non-participating policies? Premiums for participating policies are usually higher than for non-participating policies Dividends from participating policies are treated as taxable income, but dividends from non-participating policies are not The dividends on participating policies increase the value of the policyholder's stock, but non-participating dividends do not The guaranteed cash values in a participating policy are greater than in a non-participating policy

Premiums for participating policies are usually higher than for non-participating policies

Which type of retirement plan sets aside a portion of the firm's net income for distributions to employees who qualify under the plan? Defined benefit plan Noncontributory retirement plan Profit-sharing plan Pension trust plan

Profit-sharing plan

What is the role of insurance? Provide a solution for economic uncertainty and loss Guarantee lifelong happiness Provide counseling and support services Guarantee short term happiness

Provide a solution for economic uncertainty and loss

What is considered to be the primary reason for buying life insurance? Provide death benefits Provide money for retirement Provide living benefits Provide money for college

Provide death benefits

How are survivorship life insurance policies helpful in estate planning? Provide funds to help fund retirement Provide funds to help pay taxes Provide funds for funeral expenses Provide tax deductions for premium payments

Provide funds to help pay taxes

Dana is an employee who deposits a percentage of her income into her individual annuity. Her company also contributes a percentage into a separate company pension plan. What kind of annuity is this considered? Qualified retirement annuity Key employee retirement annuity Executive compensation plan Keogh annuity plan

Qualified retirement annuity

Which one of the following is NOT covered by Social Security Self-employed worker Business owner Railroad worker Insurance salesman

Railroad worker

Individuals covered by Social Security include all of the following EXCEPT Small business owners State workers who are not covered by state pension plans Federal employees (after 1984) Railroad workers

Railroad workers (Railroad workers are covered under a separate federal program, the Railroad Retirement System.)

Qualified distributions from a Roth IRA are Fully taxable in the year received Taxable only on amounts over the aggregate Subject to a 10% penalty tax Received income tax free

Received income tax free

What is the primary feature of a viatical settlement? No interest on policy loans Reduced death benefit prepayment Longer contestable period Lower premiums

Reduced death benefit prepayment

All of the following are considered to be nonforfeiture options available to a policyowner EXCEPT Extended Term Insurance Cash Surrender Reduction of Premium Reduced Paid-Up Insurance

Reduction of Premium

A policyowner may exercise which of these dividend options that uses the dividend to pay all or part of the next premium due? Reduction of premium dividend option Extended term option Paid-up option Cash dividend option

Reduction of premium dividend option

An annuitant dies during the distribution period. What kind of annuity will return to a beneficiary the difference between the annuity value and the income payments already made? Variable annuity Refund annuity Rebate annuity Return annuity

Refund annuity

Which of the following statements regarding types of insurers is NOT correct? Reinsurers usually deal with group policyowners. Mutual insurance companies are "owned" by their policyowners. Stock insurance companies seek a profit for their shareholders. Fraternal benefit societies must be nonprofit organizations.

Reinsurers usually deal with group policy owners. (Reinsurers make arrangements with other insurance companies to transfer a portion of their risk to the reinsurer. The company transferring the risk is called the ceding company and the company assuming the risk is the reinsurer.)

If an employee wants to enter the group outside the open enrollment period, the insurer may Require evidence of insurability Require a higher premium Require an extended open enrollment period Require physical exams on existing members

Require evidence of insurability (If an employee does not enroll in the plan during the enrollment period (typically 31 days), the employee may be required to provide evidence of insurability if enrollment is desired at a later date. This is to protect the insurer against adverse selection.)

Kurt is an active duty serviceman who was recently killed in an accident while home on leave. Which military service exclusion clause would pay upon his death? Active Status Results Leave

Results

Which of these retirement plans do NOT qualify for a federal income tax deduction? SIMPLE Plan Traditional IRA Keogh Plan Roth IRA

Roth IRA

Which market index is normally associated with an indexed annuity's rate of return? NAIC SEC S & P 500 A & P 300

S & P 500

The Human Life Value Approach does not consider which of the following? Earnings Investments Occupation Savings

Savings

Which of the following enables a life policy to be replaced with another life policy and results in the postponement of the tax consequence? Section 1040 exchange Section 1035 exchange Nonforfeiture Option Spendthrift Option

Section 1035 exchange

Which of the following are the premium payments for a Universal life policy NOT used for? Death benefits Cash value Loading costs Separate account investments

Separate account investments

Which of the following does the FICA tax fund Social Security(OASDI) and Unemployment benefits Medicare and Railroad Retirement System benefits Unemployment and Medicaid benefits Social Security(OASDI) and Medicare benefits

Social Security (OASDI) and Medicare benefits (A majority of FICA tax is used to fund Social Security benefits. The remaining portion funds Medicare benefits.)

What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured? Policy Dividend Specified amount of money Policy's cash value Funeral expense fund

Specified amount of money

Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors? Spendthrift Clause Protection Clause Viatical Clause Settlement Clause

Spendthrift Clause

Which plan can be used as an incentive by an employer to help an employee buy life insurance? Deferred compensation plan Key person insurance Sole proprietor buy-sell plan Split-dollar plan

Split-dollar plan (In a typical split-dollar plan, the employer and the employee share the premium cost.)

All of the following are exempt from the 10% tax penalty for early qualified plan withdrawals EXCEPT Qualified college expenses First time home purchase Death of the participant Stock purchase

Stock purchase (Withdrawing funds from a qualified plan for the purpose of purchasing stocks or other securities would trigger a 10% tax penalty.)

Which of these will have the highest monthly payout upon annuitization? Life with period certain Joint and survivor life Straight life Joint life

Straight life

Social Security is funded by a payroll tax imposed on a limit of an employee's income. What is this limitation called? Taxable wage base Maximum wage limit Average monthly wage (AMW) Average indexed monthly earnings (AIME)

Taxable wage base (This payroll, or FICA tax, is applied to employees' incomes up to a certain limit, called the taxable wage base.)

Which of the following policies does NOT build cash value? Term Straight Life Endowment Variable Life

Term

In determining Social Security retirement benefits, which of the following statements is CORRECT? Average monthly wages (AMW) are adjusted for inflation. The Primary Insurance Amount (PIA) determines the worker's average indexed monthly earnings (AIME). The PIA is a determination of the amount equal to the worker's full retirement benefit at the worker's full retirement age. Workers retiring past age 59 can receive 100% of their PIA.

The PIA is a determination of the amount equal to the worker's full retirement benefit at the worker's full retirement age. (The Primary Insurance Amount (PIA) is the amount equal to the worker's full retirement benefit at age 65. )

Which of these statements regarding the annuitant is CORRECT? The contract can only be assigned by the annuitant The annuitant is the only individual who can surrender the contract The annuitant must also be the beneficiary The annuitant's life expectancy determines the annuity payments

The annuitant's life expectancy determines the annuity payments

Which of these is NOT a characteristic of the Accelerated Death Benefit option? The face amount and policy premium are not affected by the payment Before payment of the benefit is made, specific conditions must exist, such as suffering from a terminal illness There may be a dollar limit on the maximum benefit The benefit can be offered as a rider at a specific extra cost or may be at no cost

The benefit can be offered as a rider at a specific extra cost or may be at no cost

James is the insured on a life insurance policy where his age was misstated on the application. Which of the following is CORRECT regarding the death benefit amount? The original face amount will be paid to the beneficiary The policy will be voided with no death benefits paid The death benefit paid will be what the premium would have purchased at the correct age The amount of premiums paid will be returned with interest

The death benefit paid will be what the premium would have purchased at the correct age

All of the following are types of insurance policy exchanges that can be made without current taxation EXCEPT: The exchange of an annuity for a life insurance policy The exchange of a life insurance policy for an annuity An annuity exchanged for another annuity contract A life insurance policy exchanged for another life policy

The exchange of an annuity for a life insurance policy (The 1035 exchange does not allow for an annuity to be exchanged for a life insurance policy. This is not considered an equal exchange and will be taxed.)

What does the word "level" in Level Term describe? The period of coverage The face amount The premium payments The cash value

The face amount

Krissa purchases a 10-year level term life insurance policy that has a death benefit of $200,000. Which of these statements is true? The policy automatically converts to whole life after the 10-year period The face amount will remain constant and the premium will increase over the 10-year period The premium will remain constant and the face amount will increase over the 10-year period The face amount and premium will remain constant over the 10-year period

The face amount and premium will remain constant over the 10-year period

When calculating the amount of life insurance needed for an income earner, what has to be determined when using the Needs Approach? The income earner's future projected income The family's financial objectives if the income earner were to die or become disabled The insurance company's financial rating The income earner's credit score When calculating the amount of life insurance needed for an income earner, what has to be determined when using the Needs Approach? The income earner's future projected income The family's financial objectives if the income earner were to die or become disabled The insurance company's financial rating The income earner's credit score

The family's financial objectives if the income earner were to die or become disabled

Which of the following would be a valid reason why a policy premium would be higher than the standard premium? The insurer is not a member of the MIB The agent quoted the wrong price The insured does not have the necessary financial reserves The insured does not meet established underwriting requirements

The insured does not meet established underwriting requirements

Who assumes the investment risk with a fixed annuity contract? The owner The annuitant The insurer The beneficiary

The insurer (It is the insurance company that bears the investment risk of a fixed annuity. The insurance company guarantees the annuitant's principal as well as a guaranteed minimum rate of return, even if the underlying assets underperform the guaranteed rate.)

Which of the following does a life insurance policy summary normally include? The policy's cash value Agent's report Policyowner's MIB report Stated beneficiary

The policy's cash value

Who were Keogh plans designed to provide pension benefits for? Corporate officers Public school employees The self-employed Government employees

The self-employed

The statement which best describes the relationship between the premiums of a whole life policy and the premium payment period is The shorter the payment period, the lower the premium The longer the payment period, the higher the premium The shorter the payment period, the higher the premium The payment period has no affect on the premium payment

The shorter the payment period, the higher the premium

An IRA owner names the spouse beneficiary. What is true if the owner dies before any distributions are made? All future distributions are forfeited The surviving spouse can roll the account into an IRA Distributions must begin within six month of the decedent's death. Distributions must begin in the year after the deceased would have reached age 70 1/2.

The surviving spouse can roll the account into an IRA (A surviving spouse who inherits IRA benefits or benefits from the deceased spouse's qualified plan is eligible to establish a rollover IRA in the surviving spouse's own name.)

All the following statements regarding survivor financial needs are correct EXCEPT The term dependency period refers to the 20-year period immediately following the insured's death during which the widowed spouse must depend on Social Security The period for which there are no Social Security benefits for the surviving spouse is known as the blackout period A final expense fund addresses a deceased breadwinner's last illness and funeral costs, death taxes, outstanding debts, and more A housing fund addresses a family's rental or home mortgage needs

The term dependency period refers to the 20-year period immediately following the insured's death during which the widowed spouse must depend on Social Security (This is an inaccurate statement. The dependency period refers to that period following the death of a breadwinner during which the children are living at home.)

Which of the following statements regarding ways to determine the proper amount of life insurance is CORRECT? The most popular method today for determining the proper amount of life insurance is the human life value approach. When using the needs approach to determine the proper amount of life insurance to purchase, non-insurance-type assets, such as pension benefits or personal savings, are not factors in the calculation. The needs approach considers only the most immediate financial concerns without regard for family financial goals, such as college education for children or retirement income for a surviving spouse. There are two basic approaches to determining the amount of life insurance that is needed: the human life value approach and the needs approach.

There are two basic approaches to determining the amount of life insurance that is needed: the human life value approach and the needs approach. (The human life value approach and the needs approach are the two basic approaches to determining the amount of life insurance needed.)

Which of the following statements regarding deferred compensation plans is CORRECT? A deferred compensation plan must always be designed as a qualified plan. Life insurance is not a permissible funding vehicle, but annuities are. They permit a business to provide extra benefits to officers, executives, and other highly paid employees. A deferred compensation plan must be made available to all employees who are at least 21 years old and have 1 year of service to the business.

They permit a business to provide extra benefits to officers, executives, and other highly paid employees. (Deferred compensation is an arrangement whereby an employee (or owner) agrees to forgo some portion of his or her current income (such as annual raises or bonuses) until a specified future date, typically retirement.)

Three individuals form a partnership with equal shares valued at $300,000. If they were persuaded to use an "entity" buy-sell plan funded with life insurance, how many policies and for what amounts would be purchased? One policy for $100,000 Three policies for $200,000 each Three policies for $100,000 each Six policies for $50,000 each

Three policies for $100,000 each

What is the purpose of the Medical Information Bureau (MIB)? To accept or decline insurance applicants To set the premium rates for insurers To help underwriters evaluate risk To perform physical examinations on applicants

To help underwriters evaluate risk

What is the purpose of insurance? To replace the uncertainty of risk with guarantees To replace guarantees with the certainty of risk To remove the possibility of loss To remove the predictability of loss

To replace the uncertainty of risk with guarantees

Which of the following pertains to the analysis of an applicant's personal information and determining whether insurance should be issued or declined? Adverse calculation Underwriting Risk classification Actuarial determination

Underwriting

Social Security benefits include all of the following, EXCEPT Unemployment benefits Disability benefits Retirement benefits Medicare benefits

Unemployment benefits

When a wage earner dies, the surviving family may have all of the following expenses EXCEPT Final expenses Unemployment tax liabilities Family living expenses Death taxes

Unemployment tax liabilities

Joe has a life insurance policy that has a face amount of $300,000. After a number of years, the policy's cash value accumulates to $50,000 and the face amount becomes $350,000. What kind of policy is this? Increasing Term Life policy Nonparticipating policy Modified Whole Life policy Universal Life policy

Universal Life policy

Rollover contributions to an individual retirement annuity (IRA) are Limited to 15 percent of the participant's compensation Limited to $2,000 per year Limited to $35,000 per year for married parties Unlimited by dollar amount

Unlimited by dollar amount

A life insurance policy which contains cash values that vary according to its investment performance of stocks is called Increasing Term Life Modified Whole Life Variable Whole Life Adjustable Whole Life

Variable Whole Life

Which type of policy combines the flexibility of a universal life policy with investment choices? Adjustable universal life policy Flexible universal life policy Variable universal life policy Modified universal life policy

Variable universal life policy

Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested? Adjustable life policy Variable universal policy Universal policy Modified whole life policy

Variable universal policy

A policyowner can receive a percentage payment of the death benefits prior to death by using what kind of contract? Viatical settlement agreement Funding medium agreement Split dollar plan Buy-sell plan

Viatical settlement agreement

All of the following riders can increase the death benefit amount EXCEPT Cost of Living Waiver of Premium Accidental Death Rider Guaranteed Insurability

Waiver of Premium

All of these statements concerning whole life insurance are false EXCEPT Policyowner can take out a policy loan up to the face amount When a whole life policy is surrendered, income taxes may be owed Coverage is normally temporary The death benefit is not affected by outstanding loans

When a whole life policy is surrendered, income taxes may be owed

When does a life insurance policy typically become effective? * When the policy is issued * When initial premium is collected and policy is issued * When the application is completed and signed * When the completed application is signed and initial premium is collected

When initial premium is collected and policy is issued

Which of these would be the best example of a limited pay life insurance policy? Whole life policy that pays out its cash value over a 20 year period Whole life policy with premiums paid up after 20 years Term life policy that returns cash value after 20 years Term life policy with premiums paid up after 20 years

Whole life policy with premiums paid up after 20 years

All of these are examples of a business use for life insurance EXCEPT Workers Compensation Buy-sell funding Key person Partnership entity plan

Workers Compensation

Three business partners individually agree to acquire the interest of a deceased partner and own life insurance on each of the other partners in the amount of his or her share of the business's buyout value. What is described here is an entity buy-sell plan a stock redemption buy-sell plan a cross-purchase buy-sell plan a 401(k) plan

a cross-purchase buy-sell plan (Under the cross-purchase buy-sell plan (the more common approach to a buyout) the partners individually agree to purchase the interest of a deceased partner. The executor of the deceased partner's estate is then directed to sell the interest to the surviving partners.)

The double indemnity provision in a life insurance policy pertains to an insured's death caused by a(n) sickness suicide accident war

accident

All of these are common exclusions to a life insurance policy EXCEPT accidental death military service aviation hazardous occupations

accidental death

All of these are valid options for what a policyowner may do with policy dividends EXCEPT cash outlay to the policyowner accumulate without interest reduction in policy premium buy additional insurance coverage

accumulate without interest

A non-contributory health insurance plan helps the insurer avoid adverse selection state compliance the underwriting process tax deductions

adverse selection (Because all eligible employees are usually covered, noncontributory plans are desirable from an underwriting standpoint because adverse selection is minimized.)

A partnership owns, pays for, and is the beneficiary of life insurance policies on the lives of its individual partners. This is known as an entity buy-sell plan a stock redemption plan a cross purchase plan a Keough plan

an entity buy-sell plan (With an entity buy-sell plan, a deceased partner's interest is purchased from his or her estate by the partnership. This interest is divided among the surviving partners in proportion to their own interest.)

The premium payment mode that results in the least overall cost would be monthly quarterly semi-annual annual

annual

The type of insurance most frequently used in group life plans is annually renewable term. 10-year renewable term. limited pay whole life. single-premium whole life.

annually renewable term. (Annual renewable term insurance gives the insurer the right to increase the premium each year (based on the group's rating) and gives the policyholder the right to renew coverage each year.)

Fixed period settlement options are considered to be a form of a(n) cash value loan variable life policy annuity Endowment

annuity

Life insurance can be used in business in all of the following ways EXCEPT as a funding medium as a profit sharing plan as a form of business interruption insurance as an employee benefit

as a profit sharing plan

A type of group that has a constitution and bylaws and has been organized for purposes other than obtaining insurance is called a(n) employer group employee group association or labor group multiple coalition

association or labor group (They are organized and maintained in good faith for purposes other than obtaining insurance.)

A Renewable Term Life insurance policy can be renewed at a predetermined date or age, regardless of the insured's health only if the insured provides evidence of insurability anytime at the policyowner's request typically with no change in premium

at a predetermined date or age, regardless of the insured's health

Which of these factors is NOT taken into account when determining an applicant's life insurance needs? Social Security automobile savings pension

automobile

Which of these factors help determine an insured's life insurance premium? insured's salary marital status place of residence avocation (hobby)

avocation (hobby)

Preferred risk policies with reduced premiums are issued by insurance companies because the insured has a higher face amount than average a better ability to pay premiums over a long period of time worse than average mortality or morbidity experience better than average mortality or morbidity experience

better than average mortality or morbidity experience

The period in which there are no Social Security benefits for the surviving spouse is called the blackout period elimination period ineligible period dependency period

blackout period (The blackout period begins when the youngest child turns 16 and continues until the spouse reaches age 60, at the earliest. If there are no eligible children with the surviving spouse when the breadwinner dies, the blackout period starts immediately.)

The annual addition to an employee's account in a qualified retirement plan can be any amount as determined by the end of year to year must be the same dollar amount for every full time employee cannot exceed the maximum limits set by the Internal Revenue Service usually reflects the employee's individual work performance each year

cannot exceed the maximum limits set by the Internal Revenue Service

Under a group life policy, the insurer will issue an individual _____ to the policyowner for delivery to each person insured. policy certificate application rider

certificate

Abbey's employer recently made group insurance available for its employees as a benefit. After filling out her enrollment card, she is given a(an) policy receipt certificate of insurance application

certificate of insurance (This summarizes the coverage terms and explains the employee's rights under the group contract. In these cases, the employer is the applicant and contract policyholder.)

A provision that allows a policyowner to temporarily give up ownership rights to secure a loan is called a(n) automatic premium loan nonforfeiture option collateral assignment irrevocable assignment

collateral assignment

Ownership of a life insurance policy may be temporarily transferred with a(n) collateral assignment absolute assignment transferable assignment beneficiary assignment

collateral assignment

Life insurance policies will normally pay for losses arising from commercial aviation war suicide hazardous jobs

commercial aviation

A waiver of premium rider allows an insured to waive premium payments if the insured is temporarily disabled unemployed completely and permanently disabled experiencing financial hardship

completely and permanently disabled

Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident? primary beneficiary's estate contingent beneficiary insured's estate children of the insured

contingent beneficiary

Group insurance plans that require employees to pay a portion of the premium are called underwritten contributory participatory shared

contributory

An employee under a group insurance policy has the right to name a beneficiary and the right to remain on the group plan in the event of employment termination cash surrender the existing policy change the policy provisions convert to an individual policy in the event of employment termination

convert to an individual policy in the event of employment termination

A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a cross purchase plan split-dollar plan key person plan deferred buy-sell plan

cross purchase plan (Under a cross purchase plan, the partners individually agree to purchase the interest of a deceased partner. Each partner is the owner, payor, and beneficiary of the life insurance on the lives of the other partners.)

The least expensive option to pay off a 30-year mortgage balance would be convertible term life decreasing term life adjustable term life increasing term life

decreasing term life

The amount that an employer pays for accidental death and dismemberment insurance for its employees is normally deductible to the business included in taxable income for each covered employee recovered upon receipt of the insurance proceeds considered unnecessary as a business expense

deductible to the business

An example of a tax-qualified retirement plan would be a(n) equity compensation plan defined contribution plan executive index plan 1035 exchange plan

defined contribution plan

Matt is applying for life insurance and requests a double indemnity rider. A double indemnity benefit will be payable to Matt's beneficiary if Matt is killed while committing a felony dies of a stroke dies instantly from a car accident is injured in a skiing accident and dies 18 months later

dies instantly from a car accident

All of these are standard exclusions found in a life insurance policy EXCEPT hazardous occupations aviation disability war

disability

Nonparticipating insurers do not allow their policyowners to receive which of the following? cash advances dividends preferred premium rates stock options

dividends

If an employee in poor health is part of a large group that is acceptable for group life insurance, that employee is ineligible for coverage under the plan eligible for coverage, but on a rated basis eligible for the same type of coverage as other employees ineligible until good health is restored

eligible for the same type of coverage as other employees

Level premium permanent insurance accumulates a reserve that will eventually equal the face amount of the policy pay a dividend to the policyowner require the policyowner to make periodic withdrawals become larger than the face amount

equal the face amount of the policy

Purchasing a life insurance policy in order to avoid the forced sale of assets upon death is called estate funding capital withholding capital gains estate conservation

estate conservation

Under a non-qualified annuity, interest is taxed after the deposits have been made death of the annuitant distribution of payments exclusion ratio has been calculated

exclusion ratio has been calculated (The taxable and non-taxable portions of annuity payments are determined by the exclusion ratio.)

A life insurance policy normally contains a provision that restricts coverage in the event of death under all of the following situations EXCEPT fare-paying passenger pilot of personal airplane suicide war

fare-paying passenger

A tax-free Section 1035 Exchange of a life insurance policy to a different policy is permitted if it occurs in the same state as the original transaction within a 12 month period from insurer to insurer and no cash is received by the policyowner from agent to agent as long as the agents are licensed in the same line

from insurer to insurer and no cash is received by the policyowner

Rudy is eligible for full death, retirement, and disability benefits under Social Security. His worker status is completely insured currently insured fully insured partially insured

fully insured

An insured's status under Social Security can be described as partially insured actively insured fully insured completely insured

fully insured (There are two types of insured statuses that qualify individuals for Social Security benefits: fully insured and currently insured. Most Social Security benefits are paid to fully insured individuals.)

All of the following business arrangements can use "insured buy-sell agreements" to assure the orderly continuation of a business EXCEPT partnership forms of business close corporations sole proprietorships government entities

government entities

A life insurance rider that allows an individual to purchase insurance as they grow older, regardless of insurability, is called a(n) guaranteed term rider guaranteed insurability rider accelerated benefit rider cost of living rider

guaranteed insurability rider

Level premium term life insurance policies build cash value in a separate account automatically convert to permanent insurance at a predetermined date automatically renew at predetermined dates have premiums that are averaged over the policy period

have premiums that are averaged over the policy period

Index whole life insurance contains a securities component that acts as a(n) hedge against inflation premium stabilizer means to lowering taxes on earnings incentive to purchase more coverage

hedge against inflation

Simon has purchased a fixed immediate annuity. His payment amount will be dependent upon principal, interest, and the contract's surrender charge death benefit cash refund income period

income period

The conversion privilege under a group life plan allows an employee to convert to a(n) family plan with another insurer individual plan with another insurer that has better rates individual plan upon employment termination individual policy in the spouse's name

individual plan upon employment termination

Which settlement option involves having the proceeds remain with the insurer and earnings paid on a monthly basis to the beneficiary? interest only dividends only extended interest fixed period

interest only

When a decreasing term policy is purchased, it contains a decreasing death benefit and increasing premiums level premiums decreasing premiums variable premiums

level premiums

A permanent life insurance policy where the policyowner pays premiums for a specified number of years is called a(n) adjustable policy limited pay policy level term policy variable universal policy

limited pay policy

A life insurance policy that has premiums fully paid up within a stated time period is called stated payment insurance limited universal insurance stated modified insurance limited payment insurance

limited payment insurance (Limited payment insurance is characterized by premiums that are fully paid up within a stated period, after which no further premiums are required.)

The premium for a Modified whole life policy is higher than the typical whole life policy during the first few years and then lower than typical for the remainder lower than the typical whole life policy during the first few years and then higher than typical for the remainder normally graded over a period of 20 years level for the first 5 years then decreases for the remainder of the policy

lower than the typical whole life policy during the first few years and then higher than typical for the remainder

A guaranteed issue insurance policy has no initial premium requirement incontestable period waiting period medical underwriting

medical underwriting

Insurers require that a minimum number of trade association member employees participate in a group insurance plan in order to maximize premium income minimize adverse selection calculate valid loss ratios lower plan expenses

minimize adverse selection (The larger the group to be insured, the more predictable will be the expected losses from the group.)

The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid minus indebtedness and with interest during the last 12 months minus indebtedness and without interest during the last 6 months

minus indebtedness and without interest

The premium payment mode that results in the highest overall cost would be monthly quarterly semi-annual annual

monthlymonthly

A type of insurer that is owned by its policyowners is called domestic mutual stock in-house

mutual

A provision in a whole life policy that allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type is called a(n) insuring clause payor provision reinstatement provision nonforfeiture provision

nonforfeiture provision

A nonparticipating policy will provide a return of premium provide tax advantages not pay dividends give policyowners special privileges

not pay dividends

Determining a person's economic value through the human life value approach does NOT consider the effects of investments savings earnings occupation

occupation

A provision that allows a policyowner to withdraw a policy's cash value interest free is a(n) partial surrender waiver of premium automatic premium loan grace period

partial surrender

What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus? nonparticipating life insurance policy participating life insurance policy divisible surplus life insurance policy straight life insurance policy

participating life insurance policy (A mutual insurer issues life insurance policies that provide a return of divisible surplus.)

Acme Partnership has three individual partners. The partnership itself owns, pays for, and is beneficiary of the life policies that insure the lives of the individual partners. This type of arrangement is called a partnership cross-purchase plan partnership purchase plan partnership entity buy-sell plan key person buy-sell plan

partnership entity buy-sell plan (An entity plan states that when a partner dies, that partner's interest is purchased by the partnership. The interest is then divided among the surviving partners.)

The automatic premium loan provision authorizes an insurer to withdraw from a policy's cash value the amount of any interest payable from an outstanding policy loan balance past due premiums that have not been paid by the end of the grace period the outstanding policy loan balance any surrender charges owed by the policyowner

past due premiums that have not been paid by the end of the grace period

A rider that assures premiums will be paid on a juvenile policy until the child reaches a specific age is called a(n) waiver of premium rider payor rider automatic premium loan rider juvenile waiver rider

payor rider

The major difference between participating and nonparticipating policies is the interest assumption premium payment method settlement options presence of policy dividends

presence of policy dividends

Decreasing term life insurance is often used to provide retirement funds provide coverage for a home mortgage accumulate cash value provide coverage for estate taxes

provide coverage for a home mortgage

In order to activate the reinstatement clause of a lapsed life insurance policy, the insured MUST remit all past-due premiums within the grace period provide evidence of insurability to the insurer resubmit a new life insurance application provide a valid reason for the lapse

provide evidence of insurability to the insurer

The two major actions required for a policyholder to comply with the Reinstatement Clause are provide evidence of insurability, agree to a new incontestable period provide evidence of insurability, pay past due premiums pay past due premiums, agree to a new incontestable period pay past due premiums, agree to a reduction in coverage

provide evidence of insurability, pay past due premiums

What is the automatic continuance of insurance coverage referred to as? renewal reinstatement resumption renovation

renewal

An annuity is primarily used to provide retirement income disability income long-term care benefits death benefits

retirement income

A life insurance policyowner does NOT have the right to change a beneficiary select a beneficiary take out a policy loan revoke an absolute assignment

revoke an absolute assignment

Term insurance is appropriate for someone who seeks living benefits for themselves seeks a policy that builds cash value seeks temporary protection and lower premiums seeks permanent protection and higher premiums

seeks temporary protection and lower premiums

Participating insurers allow their policyowners to share in any company earnings and receive a dividend receive preferred premium rates determine what type of insurance programs are offered skip premium payments without penalty

share in any company earnings and receive a dividend

Proceeds from a life insurance policy are protected from the beneficiary's creditors by which clause? protection clause creditor clause spendthrift trust clause beneficiary trust clause

spendthrift trust clause

A nonparticipating company is sometimes called a(n) alien insurer mutual insurer reinsurer stock insurer

stock insurer

The type of policy which pays on the death of the last person is called joint life survivorship life dual life shared life

survivorship life

The type of multiple protection coverage that pays on the death of the last person is called a(n) joint life policy survivorship life policy annuity joint policy dual life policy

survivorship life policy

FICA tax is applied to an employee's income up to a certain income amount. This amount is called average monthly wage taxable wage base average indexed monthly earnings primary insurance amount

taxable wage base

What types of life insurance are normally used for key employee indemnification? term, whole, and universal life insurance increasing term insurance joint, credit, and group life insurance adjustable, permanent, and limited-pay life insurance

term, whole, and universal life insurance

The State Guaranty Association guarantees that a policy will be issued that a claim will be paid if an insurer becomes insolvent that dividends will be paid the rate of return on a policy

that a claim will be paid if an insurer becomes insolvent

Converting a group plan to permanent life insurance involves submitting proof of insurability paying a lower premium converting to term life insurance the conversion being applied within 1 month of termination

the conversion being applied within 1 month of termination

Robert and his employer agree on the purchase of a split-dollar life insurance policy and the usual split-dollar approach to premium payments. Each year, the employer will contribute to the premium an amount equal to one-half the premium the annual dividend the increase in the policy's cash value two-thirds of the premium

the increase in the policy's cash value (In a typical split-dollar plan, the employer and the employee share the premium cost. Though there are variations, generally the employer's contribution is equal to the increase in the policy's cash value.)

An insured individual and the policy's beneficiary die from the same accident. The common disaster provision states the insurer will continue as if the insured outlived the beneficiary the beneficiary outlived the insured no beneficiary was ever named the insured and beneficiary died at the same time

the insured outlived the beneficiary

If the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if the insured outlived the beneficiary the beneficiary outlived the insured both the insured and beneficiary died at the same time the estate was listed as beneficiary

the insured outlived the beneficiary

All of the following factors are used in the needs approach for determining the amount of required life insurance EXCEPT the monthly income the emergency fund period the education fund the percentage of future income

the percentage of future income (The percentage of future income is not used in the needs approach for determining the amount of required life insurance.)

A whole life insurance policy accumulates cash value that becomes the policy loan value which the insured may borrow against the death benefit the source of funding for administration fees a source of funding a term rider to the policy

the policy loan value which the insured may borrow against

If an insured dies during the grace period with no premiums paid the policy would be payable, minus the premium amount the policy would be payable only after the beneficiary makes past due premium payment all past premiums will be refunded with interest the claim would be denied

the policy would be payable, minus the premium amount

If the annuitant dies before the annuity start date, the benefits will be given tax-free only to a stated beneficiary nothing is given to the beneficiary the premiums paid will be given to the beneficiary the premiums paid plus interest earned will be given to the beneficiary

the premiums paid plus interest earned will be given to the beneficiary

Dorian exercised a nonforfeiture option by using his life policy's cash value to purchase an extended term insurance option. When the term insurance expires, he has the option of resuming the original policy and paying the same premium the coverage can be extended with a lump sum payment all remaining cash values are paid to the policyowner the protection ends

the protection ends

The free-look provision gives the policyowner the right to return the policy for a partial refund within a specified number of days the right to contest the terms of the policy the right to change a policy provision the right to return the policy for a full refund within a specified number of days

the right to return the policy for a full refund within a specified number of days

A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called whole life group life credit life universal life

universal life

A life insurance policy that is subject to a contract interest rate is referred to as adjustable life group life term life universal life

universal life

A securities license is required for a life insurance producer to sell modified life insurance Modified Endowment Contracts (MEC) variable life insurance universal life insurance

variable life insurance

A policyowner can receive an immediate payment before the insured dies by using a(n) viatical settlement contract buy-sell arrangement adhesion agreement spendthrift plan

viatical settlement contract

Shawn, Mike, and Dave are brothers who have a $100,000 "first to die" joint life policy covering all three of their lives. If Mike dies first, the policy proceeds will no longer provide insurance protection will go to Mike's estate will be divided by probate will not be paid until the last brother dies

will no longer provide insurance protection

A renewable Term Life insurance policy allows the policyowner the right to renew the policy at anytime the policyowner chooses as many times as the policyowner chooses paying the same premium as before the renewal without producing proof of insurability

without producing proof of insurability

Loans obtained by a policyowner against the cash value of a life insurance policy are treated as taxable income would not be treated as taxable income are limited by the face amount of the policy would be subject to a Federal estate tax

would not be treated as taxable income

How many months can a life insurance policy normally be backdated from the date of application? 3 6 9 12

6

Which characteristic of an insurance contract means there is a potential for unequal exchange of value for both parties? * Aleatory * Adhesion * Unilateral * Conditional

Aleatory ( Insurance contracts are aleatory. Aleatory contracts are conditioned upon the occurrence of an event. The benefits provided by an insurance policy may or may not exceed the premiums paid.)

All of the following are considered to be typical characteristics describing the nature of an insurance contract EXCEPT * Bilateral * Unilateral * Aleatory * Adhesion

Bilateral

An insurer has a right to screen applicants for HIV in which of the following ways? Blood test for HIV Inquiring about risky sexual behavior Inquiring about sexual orientation Automatically declining an application due to sexual orientation

Blood test for HIV

In which of the following relationships would there NOT be an insurable interest? Parent to child Business partner to business partner Brother to sister Business owner to business customer

Business owner to business customer

Which of the following would be considered an underwriting duty of an agent? Requesting medical information from the Medical Information Bureau (MIB) Completing all applications and collecting initial premiums Accepting or declining an application Assigning a risk classification

Completing all applications and collecting initial premiums

What type of agent may represent a number of insurance companies under separate contractual agreements Career agent Captive agent Company agent Independent agent

Independent agent

The principle of insurable interest, in regards to a life insurance contract, is accurately described in which statement? An agent establishes insurable interest An individual does not have insurable interest on his or her own life Insurable interest only pertains to business arrangements Insurable interest can be based on the love and affection of individuals related by blood or law

Insurable interest can be based on the love and affection of individuals related by blood or law

Which of these is likely to occur when life or health insurance is being applied for? The Medical Information Bureau (MIB) will determine the risk classification The agent is required to report all medical information to the Medical Information Bureau (MIB) Physical examinations are required Medical history from the insured may be reviewed and reported

Medical history from the insured may be reviewed and reported

In addition to the state, the organization that regulates variable life and variable annuities is the Federal Trade Commission (FTC) National Association of Insurance Commissioners (NAIC) Securities and Exchange Commission (SEC) Federal Communications Commission (FCC)

Securities and Exchange Commission (SEC)

Which of the following describes a person who is NOT acceptable by an insurer at standard rates because of health history, occupation, or hobbies? Standard risk Preferred risk Unacceptable risk Substandard risk

Substandard risk

Which of the following statements describes an insurable interest? * The policyowner must expect to benefit from the insured's death. * The policyowner must expect to suffer a loss when the insured dies or becomes disabled. (The policyowner must face the possibility of losing money or something of value in the event of the death or disability of the insured.) * The beneficiary, by definition, has an insurable interest in the insured. * The insured must have a personal or business relationship with the beneficiary.

The policyowner must expect to suffer a loss when the insured dies or becomes disabled. (The policyowner must face the possibility of losing money or something of value in the event of the death or disability of the insured.)

A life insurance company that shares its surplus earnings with its insureds is known as a participating company a fraternal organization an association an admitted company

a participating company

An individual most likely will have an insurable interest in insuring a person's life if an economic interest exists for the continuance of the insured's life a financial interest exists at the time of insured's death there is any blood relationship with the insured a business relationship exists

an economic interest exists for the continuance of the insured's life

A change in an insurance application requires an initial made by the producer an initial made by the applicant approval by the insurer submitting a new application

an initial made by the applicant

Dividends from a stock company are paid to stockholders, whereas in a mutual company, dividends are reinvested as capital gains and used to reduce rates for policyowners paid quarterly to the corporate officers and directors as a bonus paid to the policyowners paid to the stockholders

paid to the policyowners

A field underwriter's main task is assign a risk classification to the insured report medical information to the Medical Information Bureau (MIB) to ensure an applicant's medical information is accurate and complete to approve or decline an applicant

to ensure an applicant's medical information is accurate and complete

Why are dividends from a mutual insurer not subject to taxation? Because insurance premiums are tax-deductible Because dividends are already subject to capital gains Because dividends are payable directly to the policyholder Because dividends are considered to be a return of premium

Because dividends are considered to be a return of premium

Which of these is considered to be a document that describes the critical segments of a life insurance policy? Buyer's guide Policy summary Consumer report Buyer's summary

Policy summary

Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated 1970 - Fair Credit Reporting Act 1959 - Intervention by (SEC) The Securities and Exchange Commission 1999 - Financial Services Modernization Act 1945 - The McCarran-Ferguson Act

1970 - Fair Credit Reporting Act (Fair Credit Reporting Act requires the fair and accurate reporting of information about consumers. Insurers must inform applicants about any investigations being made. If the report is used to deny coverage or charge higher rates, the insurer must provide the applicant the name of the credit reporting agency conducting the investigation.)

Upon policy delivery, which of the following must a producer have an applicant sign if no initial premium was collected with the life insurance application? A waiver of premium A replacement form A good health statement An exclusion

A good health statement

What is involved when a life insurance policy has been backdated? Setting a policy's effective date prior to a preexisting condition Redating a policy after it has been issued Reinstating a lapsed policy Making the policy effective on an earlier date than the present

Making the policy effective on an earlier date than the present

Which of the following mandated that insurance would be regulated by the states as well as made possible the application of federal antitrust laws? Paul v. Virginia McCarran-Ferguson Armstrong investigation U.S. v. Southeastern Underwriters

McCarran-Ferguson

Which of these is NOT considered to be a risk factor in life insurance underwriting? Number of children Health history Hobbies Occupation

Number of children

Which one of the following statements about participating life insurance is true? Policyowners may be entitled to receive dividends Policyowners are assessed monthly for losses The insured must be the policyowner The insurer must be a stock company

Policyowners may be entitled to receive dividends

A person who is a nonsmoker, of average weight, and in excellent health would most likely be in which risk classification? Standard Substandard Acceptable Preferred

Preferred

Companies that sell more than one type of insurance are multi-line insurers property and causalty mutual company life company

multi-line insurers

Statements made by an insurance applicant on an application are considered to be irrevocable warranties representations guarantees

representations