Life Insurance - Basics
The Medical Information Bureau (MIB) was created to protect A Insureds from unreasonable underwriting requirements by the insurance companies. B Medical examiners that perform insurance physical examinations. C Insurance companies from adverse selection by high risk persons. D Insurance departments from lawsuits by policyowners.
Insurance companies from adverse selection by high risk persons.
What is the purpose of the buyer's guide? A To provide the name and address of the agent/producer issuing the policy B To list all policy riders C To provide information about the issued policy D To allow the consumer to compare the costs of different policies
To allow the consumer to compare the costs of different policies
Which is generally true regarding insureds who have been classified as preferred risks? A They can decide when to pay their monthly premiums. B They keep a higher percentage of any interest earned on their policies. C Their premiums are lower. D They can borrow higher amounts off of their policies.
Their premiums are lower.
Under what circumstances would a life insurance contract qualify as a "standard policy?" A When it contains ALL of the essential elements of an insurance contract, as described in the Model Policy Article of the California Insurance Code B Under no circumstances C When it meets the guidelines established by the Commissioner, as described in the Model Policy Article of the California Insurance Code D When it conforms to the NAIC Model Illustration requirements
Under no circumstances
Which of the following CANNOT be included along with illustrations used to sell life insurance? A Original death benefit B Vanishing premium information C Name of the insurer D Rating information
Vanishing premium information
A key person insurance policy can pay for which of the following? A Costs of training a replacement B Loss of personal income C Workers compensation D Hospital bills of the key employee
Costs of training a replacement
The process of "post-selection" refers to which of the following? A An agent is conducting a second interview with an applicant. B An agent is completing and submitting an application. C An insurer is investigating the client's risk profile. D An applicant is choosing an insurance company.
An insurer is investigating the client's risk profile.
Joe, Larry, and Curly own a small business. They have made a legal arrangement which states that if one of them dies or becomes disabled, the other two will be able to buy the partner's shares. Which term best describes this arrangement? A Business Partner Disability Provision B Buy-up Distribution C Business Continuation D Shares Distribution
Business Continuation
Concerning AIDS and HIV risks, all of the following acts may subject an insurer to liability claims or fines EXCEPT A Declining applicant for a positive HIV test result. B Not providing counseling contacts and educational information about HIV and AIDS. C Disclosing test results to third party without applicant's consent. D Requiring applicant to pay for HIV test in order to be underwritten.
Declining applicant for a positive HIV test result.
If an insured changes his payment plan from monthly to annually, what happens to the total premium? A Stays the same B Doubles C Increases D Decreases
Decreases
If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT A Note on the application the reason for the change. B Destroy the application and complete a new one. C Erase the incorrect answer and record the correct answer. D Draw a line through the first answer, record the correct answer, and have the applicant initial the change.
Erase the incorrect answer and record the correct answer.
Which of the following would provide an underwriter with information concerning an applicant's health history? A The Medical Information Bureau B A medical examination C The agent's report D The inspection report
The Medical Information Bureau
Who makes up the Medical Information Bureau? A Insurers B Hospitals C Former insured D Physicians and paramedics
Insurers
Which of the following is NOT a type of Temporary Insuring Agreement? A Conditional Receipt B Acceptance Form of Receipt C 30-day Interim Term Receipt D Bridge Coverage Receipt
Bridge Coverage Receipt
When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n) A Executive bonus. B Key person policy. C Fraternal association. D Aleatory contract.
Executive bonus
Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? A Agent's Report B General Information C Medical Information DI nspection Report
Medical Information
Which of the following reports will provide the underwriter with the information about an insurance applicant's credit? A Agent's report B Any federal report C Consumer report D Inspection report
Any federal report
If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to A Require a yearly medical examination. B Lower its insurability standards. C Refuse to issue the policy. D Charge a higher premium.
Charge a higher premium.
According to the Fair Credit Reporting Act, all of the following would be considered negative information about a consumer EXCEPT A Late payments. B Failure to pay off a loan. C Disputes regarding consumer report information. D Tax delinquencies.
Disputes regarding consumer report information. D Tax delinquencies.
Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? A Term insurance only B Permanent insurance only C Universal life insurance only D Any form of life insurance
Any form of life insurance
What is the purpose of a conditional receipt? A It is intended to provide coverage on a date prior to the policy issue. B It guarantees that a policy will be issued in the amount applied for. C It serves as proof that the applicant has been determined insurable. D It is given only to applicants who fully prepay the premium.
It is intended to provide coverage on a date prior to the policy issue.
Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation? A Blackout approach B Lump-sum approach C Human life value approach (HLVA) D Needs approach
Human life value approach (HLVA)
Which of the following would be least likely to be considered a legitimate need that would be paid by insurance proceeds? A Vacation travel expenses B Travel expenses for family to come to the funeral C Debt cancellation D Day care
Vacation travel expenses
If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than A With the policy. B Upon issuance of the policy. C Within 30 days after the first premium payment was collected. D Prior to filling out an application for insurance.
With the policy.
If a business owner becomes totally disabled, a Business Overhead Expense policy will pay all of the following EXCEPT A Rent. B Utilities. C Employee payroll. D Loss of the owner's income.
Loss of the owner's income.
In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT A Applicant's present physical condition. B Applicant's present occupation. C Applicant's past income. D Applicant's past medical history.
Applicant's past income.
Which of the following types of risk will result in the highest premium? A Substandard risk B Standard risk C Preferred risk D All risks pay equal premiums
Substandard risk
If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information EXCEPT the applicant's A Prior insurance. B Ancestry. C Credit history. D Habits.
Ancestry.
Stranger-originated life insurance policies are in direct opposition to the principle of A Insurable interest. B Law of large numbers. C Good faith. D Indemnity.
Insurable interest.
An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company? a. Disclosure rule b. Fair Credit Reporting Act c. Consumer Privacy Act d. Conditional receipt
Fair Credit Reporting Act
Which of the following is an example of liquidity in a life insurance contract? A The flexible premium B The money in a savings account C The cash value available to the policyowner D The death benefit paid to the beneficiary
The cash value available to the policyowner
All of the following are true of key person insurance EXCEPT A The plan is funded by permanent insurance only. B There is no limitation on the number of key employee plans in force at any one time. C The employer is the owner, payor and beneficiary of the policy. D The key employee is the insured.
The plan is funded by permanent insurance only.
The Federal Fair Credit Reporting Act A Regulates consumer reports. B Protects customer privacy. C Regulates telemarketing. D Prevents money laundering.
Regulates consumer reports.
Written binders provide insurance before the policy is actually issued. The time period between the issuance of the binder and the policy's effective date is called A Grace period. B Binding period. C Interim term. D Temporary term.
Temporary term.
An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of A Third-party ownership. B A STOLI policy. C A prearranged funeral plan. D A viatical settlement.
A STOLI policy.
Which of the following best details the underwriting process for life insurance? A Issuance of policies B Reporting and rejection of risks C Selection, classification, and rating of risks D Solicitation, negotiation and sale of policies
Selection, classification, and rating of risks
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A 5 days B 7 days C 10 days D 3 days
5 days
Each of the following factors are used in determining insurance rates EXCEPT A Interest B Mortality C Expenses D Dividends
Dividends
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? A Company is the owner, but the executive pays the premium. B Board of directors is the owner, and the board of directors pays the premium. C Company is the owner, and the company pays the premium. D Executive is the owner, and the executive pays the premium.
Executive is the owner, and the executive pays the premium
Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? A Insured's annual expenses. B Effect of inflation on income over time. C Predicted needs of the family after the insured's death. D Insured's current and future income.
Predicted needs of the family after the insured's death.
Which of the following will be included in a policy summary? A Comparisons with similar policies B Primary and secondary beneficiary designations C Premium amounts and surrender values D Copies of illustrations and application
Premium amounts and surrender values
Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must A Defend the report if the agency feels it is accurate. B Change the report. C Send an actual certified copy of the entire report to the consumer. D Respond to the consumer's complaint.
Respond to the consumer's complaint.
An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date? A The date of medical exam B The date of policy delivery C The date of issue D The date of application
The date of medical exam
In the event of a loss, business overhead insurance will pay for A Medical bills of the business owner. B Rent. C Loss of profits. D Salary of the business owner.
Rent
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? A Premiums are tax deductible by the key employee. B Premiums are tax deductible as a business expense. C Premiums are taxable to the employee. D Premiums are not tax deductible as a business expense.
Premiums are not tax deductible as a business expense.
The term "illustration" in a life insurance policy refers to A A presentation of nonguaranteed elements of a policy. B A depiction of policy benefits and guarantees. C Pictures accompanying a policy. D Charts and graphs.
A presentation of nonguaranteed elements of a policy.
All of the following are personal uses of life insurance EXCEPT A Buy-sell agreement. B Survivor protection. C Estate creation. D Cash accumulation.
Buy-sell agreement.
Which of the following statements concerning buy-sell agreements is true? A Benefits received are considered income taxable. B Buy-sell agreements pay in the event of a medical emergency. C Buy-sell agreements are normally funded with a life insurance policy. D Premiums paid are deductible as a business expense.
Buy-sell agreements are normally funded with a life insurance policy.
Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount? A Profit and loss agreement B Key person agreement C Split dollar agreement D Buy-sell agreement
Buy-sell agreement
What is an advantage of the Temporary Insuring Agreement to the applicant? A It provides immediate coverage even if no money was paid with the application. B It guarantees that the insurance company will issue the policy as applied for. C It gives the applicant immediate coverage. D It locks in the rate quoted by the agent.
It gives the applicant immediate coverage.
Which of the following best describes the MIB? A It is a rating organization for health insurance. B It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. C It is a government agency that collects medical information on the insured from the insurance companies. D It is a member organization that protects insured against insolvent insurers.
It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance.
Which of the following information about the applicant is NOT included in the General Information section of the application for insurance? A Marital status B Medical background C Gender D Occupation
Medical background
Signing and dating a delivery receipt for a life insurance policy helps to establish all of the following timeframes EXCEPT a. The Free-Look Period. b. The Right of Rescission. c. The Grace Period. d. The Incontestability Period.
The Grace Period.
Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? A The key employee is the owner and beneficiary. B The key employee is the owner and the employer is the beneficiary. C The employer is the owner and beneficiary. D The employer is the owner and the key employee is the beneficiary.
The employer is the owner and beneficiary.
Which is the primary source of information used for insurance underwriting? A Applicant interviews B Medical records C Private investigations D Application
Application
Which of the following is NOT a type of information that needs to be gathered in order to determine the value of someone's life when using the needs approach? A Estimated longevity B Outstanding debt C Mortgages D Expenses
Estimated longevity
An applicant who receives a preferred risk classification qualifies for A Higher premiums than a person who receives a sub-standard risk. B Higher premiums than a person who receives a standard risk. C Lower premiums than a person who receives a standard risk. D Dividends payable for lack of claims.
Lower premiums than a person who receives a standard risk.
Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life? A It must be assumed that the death of the insured will occur immediately. B Need is predicted using the number of years until the insured's retirement. C Coverage is based on the predicted needs of that family. D The death of an insured must be premature.
Need is predicted using the number of years until the insured's retirement.
Regarding the taxation of Business Overhead policies, A Premiums are not deductible, but benefits are deductible. B Premiums are not deductible, but expenses paid are deductible. C Premiums are deductible, and benefits are taxed. D Premiums are not deductible, and benefits are taxed.
Premiums are deductible, and benefits are taxed.
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then A The benefit is subject to the exclusionary rule. B IRS has no jurisdiction. C The benefit is received as taxable income. D The benefit is received tax free.
The benefit is received tax free.
In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? A The customer has no knowledge of this action. B The customer's associates, friends, and neighbors provide the report's data. C They provide additional information from an outside source about a particular risk. D They provide information about a customer's character and reputation.
The customer's associates, friends, and neighbors provide the report's data.
In regards to life insurance contracts, the temporary term is A An initial policy put in effect until a permanent policy can be put into effect. B The period of time during which a binding receipt covers a policyholder. C The policy issued by a producer with a temporary license. D The short-term benefits policy.
The period of time during which a binding receipt covers a policyholder.
What is the purpose of a disclosure statement in life insurance policies? A To explain features and benefits of a proposed policy to the consumer B To obtain important underwriting information from the applicant C To help consumers compare policy prices D To protect agents and insurers against lawsuits
To explain features and benefits of a proposed policy to the consumer
Which of the following would NOT fall into the category of costs associated with death? a. Final medical expenses of the insured b. Day to day expenses of maintaining the family c. The expense of a vacation for surviving family members d. Funeral expenses
The expense of a vacation for surviving family members
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT A The employer pays a bonus to a selected employee to fund the policy. B It is considered a nonqualified employee benefit. C The policy is owned by the company. D Any type of insurance policy may be used.
The policy is owned by the company.
A small hardware store owner is involved in a car accident that renders him totally disabled for half a year. Which type of insurance would help him pay for expenses of the company during the time of his disability? A Key person insurance B Disability buy-sell agreement C Business disability policy D Business overhead expense policy
Business overhead expense policy
When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will A Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. B Return the premium to Y's estate, since it has no obligation to pay the death claim. C Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued. D Issue the policy anyway and pay the face value to the beneficiary.
Issue the policy anyway and pay the face value to the beneficiary.
When the partners of a business develop an arrangement whereby should one of them die or become permanently disabled, the other partners would purchase the interest of the deceased or disabled partner at a predetermined price, this is called a/an A Business continuation plan. B Key person plan. C Business overhead expense plan. D Executive bonus plan.
Business continuation plan.
Another name for a substandard risk classification is A Elevated. B Rated. C Controlled. D Declined.
Rated.
Who is protected by a Temporary Insuring Agreement? A The applicant and the insurer B The policy beneficiary C Only the insurer D Only the applicant
The applicant and the insurer
The responsibility of making certain that an application for insurance is filled out completely, correctly, and to the best of his or her knowledge is the responsibility of whom? A The applicant B The producer C The beneficiary of the applicant D The insurance company
The producer
Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? A Insurance Index B Policy Summary C Illustrations D Buyer's Guide
Buyer's Guide
A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A Disclose commissions earned from the sale of the policy. B Explain the policy provisions, riders, and exclusions. C Collect any premium due. D Explain the rating procedures if the policy is rated differently than applied for.
Disclose commissions earned from the sale of the policy.
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report A Must be advised that a copy of the report is available to anyone who requests it. B May sue the reporting agency in order to get inaccurate data corrected. C Must be informed of the source of the report. D Are entitled to obtain a copy of the report from the party who ordered it.
Must be informed of the source of the report.
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT A Payment of premium. B Delivery receipt. C Signed waiver of premium. D Statement of good health.
Signed waiver of premium.
Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? A Standard risk requires extra rating. B Standard risk is also known as high exposure risk. C Standard risk is representative of the majority of people. D Standard risk pays a higher premium than a substandard risk.
Standard risk is representative of the majority of people.
Which of the following is the best reason to purchase life insurance rather than annuities? A To create regular income payments B To liquidate a sum of money over a lifetime C To create an estate D To liquidate a sum of money over a period of years
To create an estate
Why should the producer personally deliver the policy when the first premium has already been paid? A To find out how the family has been doing since the initial presentation B To make sure the policy is not stolen or lost C To help the insured understand all aspects of the contract D To ensure the producer gets paid commission
To help the insured understand all aspects of the contract
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT A Any type of insurance policy may be used. B The employer pays a bonus to a selected employee to fund the policy. C It is considered a nonqualified employee benefit. D The policy is owned by the company.
The policy is owned by the company.
What is the term used when a person sells his assets as a way to gain money? A Transfer B Liquidation C Buy-Sell D Commerce
Liquidation
An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin? A When the agent submits the application to the company and the company issues a conditional receipt B When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health C On the designated effective date D On the application date
When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health
Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years? A A policy summary B A notice regarding replacement C A privacy notice D A buyer's guide
A policy summary
The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective? A As of the application date B As of the policy delivery date C As of the first of the month after the policy issue D As of the policy issue date
As of the application date
During a pre-selection interview, an agent is allowed to do all of the following EXCEPT A Ask questions that are not on the application but that are important for underwriting. B Provide the applicants with negative information regarding their risk. C Inquire about specific details of the applicant's health history. D Terminate the interview and reject the applicant.
Ask questions that are not on the application but that are important for underwriting.
What does "liquidity" refer to in a life insurance policy? A The death benefit replaces the assets that would have accumulated if the insured had not died. B The policyowner receives dividend checks each year. C The insured receives payments each month in retirement. D Cash values can be borrowed at any time.
Cash values can be borrowed at any time.
Harry has just received his life insurance policy. In reviewing the title page, Harry was able to ascertain the following information EXCEPT a. His total annual premium amount. b. His spouse had been assigned the primary beneficiary. c. His children have been covered by a child rider. d. He had purchased a 20 year renewable term insurance policy in the face amount of $150,000.
His spouse had been assigned the primary beneficiary.
The mode of premium payment a. Is the factor that determines the amount of dividends in a policy. b. Is the method used to compute the cash surrender value of the policy. c. Does not affect the amount of premium paid. d. Is defined as the frequency and the amount of the premium payment.
Is defined as the frequency and the amount of the premium payment.
Kayla's husband died in a plane crash. She needs a new source of funding that will help put her child through daycare. Which of the following would be the best source? A State Education Waiver B Viatical settlement C Estate conservation D Life insurance proceeds
Life insurance proceeds
Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT A Alcohol and tobacco consumption. B Recent surgeries. C Other insurance coverages. D Family health history.
Other insurance coverages.
An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE? A The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy. B The premium would be returned to the insured's estate because the policy was not issued. C The death claim will be rejected. D The application will be voided.
The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy.
An insurer's liability shall be limited to A The face amount of an individual insurance policy as written. B The amount of annual renewable term insurance that could have been purchased by the insured through the insurer with the available premium dollars. C The total amount of insurance coverage for which the licensed agent represented to the client on a policy illustration during the sales process. D The face amount of an individual insurance policy, subject to any exclusions and riders as applicable, minus any outstanding policy loans and interest payments due the insurer.
The face amount of an individual insurance policy, subject to any exclusions and riders as applicable, minus any outstanding policy loans and interest payments due the insurer.
Which of the following is true regarding written binders? A Binders prove that the insured has insurance coverage, even though the policy has not been issued yet. B Binders apply only to Life insurance. C Both the applicant and insurer can write a binder. D Binders serve as a receipt that the insurer is processing the application. No coverage applies.
Binders prove that the insured has insurance coverage, even though the policy has not been issued yet.
A life insurance policy can be delivered by all of the following means, EXCEPT A First class mail with a delivery receipt. B Personal delivery by a trained employee of the insurer, with a delivery receipt. C Certified mail. D Priority mail.
Priority mail.
The title page of the policy provides a summary of the benefits and coverages provided by the policy. All of the following information is included in the title page EXCEPT A The effective date and the termination date of the policy. B The insured's beneficiaries. C Type of policy, amount of coverage provided. D The premium amount and modal.
The insured's beneficiaries.
What is the purpose of key person insurance? A To provide health insurance to the families of key employees B To insure retirement benefits are available to all key employees C To maintain an account that insures the owner of a company remains solvent D To lessen the risk of financial loss because of the death of a key employee
To lessen the risk of financial loss because of the death of a key employee
Which of the following statements regarding Business Overhead Expense policies is NOT true? A Premiums paid for BOE are tax-deductible. B Any benefits received are taxable to the business. C Leased equipment expenses are covered by the plan. D Benefits are usually limited to six months.
Benefits are usually limited to six months.
Which of the following must be disclosed in all advertisements and policies of term life insurance for individuals 55 years of age or older? A Life insurance policy illustrations B Insurance monetary value index C Life insurance surrender cost index D MIB report
Insurance monetary value index
Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application a. Fill in the blanks to the best of the insurer's knowledge b. Return the application to the applicant for completion c. Issue a policy anway since the application has been submitted d. Ask the producer who solicited the policy to complete and resign the application
Return the application to the applicant for completion
Which of the following is the basic source of information used by the company in the risk selection process? A Consumer report B Application C Agent's report D Warranty
Application
All of the following are requirements for life insurance illustrations EXCEPT A They may only be used as approved. B They must identify nonguaranteed values. C They must differentiate between guaranteed and projected amounts. D They must be part of the contract.
They must be part of the contract
