Life Insurance Basics

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 received tax free. B - The benefit is subject to the exclusionary rule. C - IRS has no jurisdiction. D - The benefit is received as taxable income.

A

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT A - Erase the incorrect answer and record the correct answer. B - Draw a line through the first answer, record the correct answer, and have the applicant initial the change. C - Note on the application the reason for the change. D - Destroy the application and complete a new one.

A

Insurance producers must ensure that contracts they recommend are in the best interest of the insured. This is called A - Suitability. B - Client protection. C - Approval. D - Underwriting.

A

The insurance company underwriter could find information concerning the personal activities and character of an applicant from which of the following reports? A - Producer's report B - Attending physician C - Insurance company who provided the prior coverage D - Medical Information Bureau

A

When an applicant purchased a life insurance policy, the agent dated the application 4 months prior. When asked by the applicant, the agent said he was allowed to backdate policies up to 6 months if it would A - Lower the insured's premium. B - Shorten the contestability period. C - Eliminate pre-existing conditions. D - Help him meet a sales quota for that period.

A

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.

A

Where would the underwriter find relevant information not presented by the applicant on the insurance application but communicated by the producer? A - Producer's report B - Statement of Continued Good Health C - Conditional receipt D - Inspection report

A

Which of the following applicants could the insurer charge a higher rate of premium and not violate regulations regarding unfair discrimination? A - An applicant who is a smoker B - An applicant who was born in another country C - An applicant who is legally blind D - An applicant who has been a victim of domestic abuse

A

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? A - Medical Information B - Inspection Report C - Agent's Report D - General Information

A

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as A - Juvenile protection provision. B - Survivor protection. C - Life planning. D - Survivorship insurance.

B

All of the following are duties and responsibilities of producers at the time of application EXCEPT A - Check to make sure that there are no unanswered questions on the application. B - Change any incorrect statement on the application by personally initialing next to the corrected statement. C - Explain the nature and type of any receipt the producer is giving to the applicant. D - Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information.

B

All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT A - Occupation. B - Education. C - Age. D - Gender.

B

For what For what reason may a life insurance producer backdate a life insurance policy? A - To shorten the period of contestability B - To avoid an increase in premium rate for the insured C - To meet sales quotas established by the insurer D - To make a policy effective during a period when the agent's appointment was in force

B

In the event the key employee quits or is terminated, what provision allows the policyowner to transfer coverage to the replacement employee, provided the new employee provides evidence of insurability? A - Free look B - Change of insured C - Consideration D - Misstatement of age

B

Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a A - Warranty. B - Premium receipt. C - Statement of good health. D - Backdated receipt.

B

The Medical Information Bureau (MIB) was created to protect A - Medical examiners that perform insurance physical examinations. B - Insurance companies from adverse selection by high risk persons. C - Insurance departments from lawsuits by policyowners. D - Insureds from unreasonable underwriting requirements by the insurance companies.

B

The mode of premium payment A - Does not affect the amount of premium paid. B - Is defined as the frequency and the amount of the premium payment. C - Is the factor that determines the amount of dividends in a policy. D - Is the method used to compute the cash surrender value of the policy.

B

What is the purpose of key person insurance? A - To maintain an account that insures the owner of a company remains solvent B - To lessen the risk of financial loss because of the death of a key employee C - To provide health insurance to the families of key employees D - To insure retirement benefits are available to all key employees

B

When is the earliest a policy may go into effect? A - After the underwriter reviews the policy B - When the application is signed and a check is given to the agent C - When the first premium is paid and the policy has been delivered D - When the insurer approves the application

B

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.

B

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 - Lump-sum approach B - Human life value approach (HLVA) C - Needs approach D - Blackout approach

B

Whose responsibility is it to make certain that an application for insurance is filled out completely and correctly? A - The applicant B - The producer C - The beneficiary of the applicant D - The insurance company

B

All of the following are personal uses of life insurance EXCEPT A - Estate creation. B - Cash accumulation. C - Buy-sell agreement. D - Survivor protection.

C

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.

C

If an insured changes the premium payment mode from monthly to annually, what happens to the total premium? A - Doubles B - Increases C - Decreases D - Stays the same

C

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.

C

What must happen when an individual policy or annuity has been personally delivered to the policyowner? A - The producer must go over the policy with the policyowner. B - A notary public must witness the exchange. C - The policyowner must sign a delivery receipt. D - The policyowner must pay the annual premium in full.

C

When is the earliest a policy may go into effect? A - When the insurer approves the application B - After the underwriter reviews the policy C - When the application is signed and a check is given to the agent D - When the first premium is paid and the policy has been delivered

C

When must insurable interest exist in a life insurance policy? A - When there is a change of the beneficiary B - At the time of loss C - At the time of application D - At the time of policy delivery

C

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

C

Which of the following individuals must have insurable interest in the insured? A - Underwriter B - Producer C - Policyowner D - Beneficiary

C

Which of the following is NOT an example of a valid insurable interest? A - Employer in key employee's life B - Child in parents' lives C - Debtor in the life of the creditor D - Business partners in each other's lives

C

Which of the following is a risk classification used by underwriters for life insurance? A - Normal B - Excellent C - Standard D - Poor

C

Which of the following is the basic source of information used by the company in the risk selection process? A - Warranty B - Consumer report C - Application D - Agent's report

C

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

C

Which of the following would least likely be considered a legitimate need that would be paid by insurance proceeds? A - Debt cancellation B - Day care C - Vacation travel expenses D - Travel expenses for family to come to the funeral

C

Who makes up the Medical Information Bureau? A - Former insured B - Physicians and paramedics C - Insurers D - Hospitals

C

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

C

All advertisements are the responsibility of the A - Soliciting agent. B - Advertising agency. C - Department of Insurance. D - Insurer.

D

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.

D

An insurer wants to obtain information from investigators regarding an applicant for insurance. What must the insurer do in order to legally acquire this information? A - Receive written permission from the Department of Insurance B - Receive a signed statement from the insured which authorizes the investigation C - Sign a waiver that the information will be kept confidential D - Present the insured with a Disclosure Authorization Notice

D

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about A - The gender of the applicant. B - The type of policy requested. C - Which individual will pay the premium. D - Whether an insurable interest exists between the individuals.

D

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 policy delivery date B - As of the first of the month after the policy issue C - As of the policy issue date D - As of the application date

D

The term "illustration" in a life insurance policy refers to A - A depiction of policy benefits and guarantees. B - Pictures accompanying a policy. C - Charts and graphs. D - A presentation of nonguaranteed elements of a policy.

D

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.

D

Which is the primary source of information used for insurance underwriting? A - Applicant interviews B - Medical records C - Private investigations D - Application

D

Which of the following best describes gross annual premium? A - Annual loading B - Basic insurance rate plus commissions C - Expense premium D - Net premium plus expenses

D

Which of the following individuals must have insurable interest in the insured? A - Beneficiary B - Underwriter C - Producer D - Policyowner

D

Which of the following is the best reason to purchase life insurance rather than an annuity? A - To liquidate a sum of money over a period of years B - To create regular income payments C - To liquidate a sum of money over a lifetime D - To create an estate

D