life insurance practice questions (ones I got wrong)

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 may be used to fund a buy-sell agreement.

d)Any form of life insurance Any form of Life insurance may be used to fund a buy-sell agreement.

When an annuity is written, whose life expectancy is taken into account? a)Annuitant b)Beneficiary c)Life expectancy is not a factor when writing an annuity. d)Owner

A) annuitant The annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and annuity owner are often the same person but do not have to be.

The Commissioner issues an order without having conducted a hearing. Within how many days of receiving the order can the person aggrieved by the order request a trial? A) 30 B) 60 C) 90 D) 15

30 days Before the Commissioner can issue an order, a hearing must be held. If an order is issued without a hearing, any person aggrieved by the order may demand a hearing, in writing, within 30 days after the date on which the order was mailed.

An insurer decides to renew a policy but at a higher premium rate, starting on the renewal date. How many days in advance must the insured be notified? a) 30 b) 60 c) 90 d) 100

60 days The insurer may offer to renew the policy on less favorable terms or at higher premiums, only if the insurer notifies the policyholder at least 60 days prior to the renewal date, the terms and premiums take effect on the renewal date and within 60 days prior to the renewal date, the terms and premiums take effect 60 days after the renewal date.

How many hours of prelicensing education approved by the Commissioner must each applicant complete? a)12 b)18 c)20 d)24

C) 20 Within one year prior to taking the examination, each applicant for a property, personal lines, casualty, life, or accident and health insurance license must complete 20 hours of a preliminary educational program approved by the Commissioner.

An insurer can refuse, cancel or deny insurance coverage to a class of risks based on which of the following characteristics of an applicant or insured? a)Moral character b)Physical condition or developmental disability c)Sexual preference d)None of the above

d)None of the above An insurer cannot refuse, cancel or deny insurance coverage to a class of risks based on any of the above characteristics listed above.

All of the following would be different between qualified and nonqualified retirement plans EXCEPT a)Taxation of withdrawals b)Taxation of contributions c)IRS approval requirements d)Taxation on accumulation

d)Taxation on accumulation Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.

All of the following are true regarding rebates EXCEPT a) Rebates are allowed if it is in the best interest of the client. b)Rebates are only allowed if specifically stated in the policy. c)Rebating can be anything of monetary value given as an inducement to purchase insurance. d)Dividends are not considered to be rebates.

a) Rebates are allowed if it is in the best interest of the client. A rebate is an illegal act which involves returning something of value to the client as an inducement to buy, such as the commission. Rebates are only allowed if specifically stated in the policy. Insurance dividends are not considered rebates as the IRS considers it as a return of overpaid premium.

When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value? a) Mortality costs b)The cash surrender amount c)Outstanding loans and interest d)The face amount

c) Outstanding loans and interest To calculate the loan value an insured may take out of the variable life insurance policy, any unpaid loans and interest must be subtracted from the policy's cash value.

The Federal Fair Credit Reporting Act a)Regulates telemarketing. b)Prevents money laundering. c)Regulates consumer reports. d)Protects customer privacy.

c) Regulates consumer reports. The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.

Which of the following is a licensee able to place insurance with unauthorized insurers? a)Reinsurance broker b)Managing general agent c)Surplus lines agent d)Reinsurance intermediary

c) surplus lines agent A surplus lines agent or broker is a licensee able to place insurance with unauthorized insurers.

The Interstate Insurance Product Regulation Compact is a contract between a)Commissioners of Insurance in different states. b)Reciprocal states. c)Insurers and insureds. d)Member states.

d)Member states. The Interstate Insurance Product Regulation Compact us a contract between member states that established the Interstate Insurance Product Regulation Commission (IIPRC).

Which of the following is usually true of a participating life insurance policy? a)It assesses premiums against stockholders. b)It pays dividends to policyowners. c)It may be converted to a term life policy. d)It pays dividends to stockholders.

B) It pays dividends to policyowners. Participating is a term used to refer to any insurance policy that distributes its dividends by cash payments, reduced premiums, units of paid-up life insurance, a savings program, or by the purchase of term insurance.

Which of the following describes the tax advantage of a qualified retirement plan? a)Employer contributions are not taxed when paid out to the employee. b)The earnings in the plan accumulate tax deferred. c)Distributions prior to age 59½ are tax-deductible. d)Employer contributions are deductible as a business expense when the employee receives benefits.

B) The earnings in the plan accumulate tax deferred. The earnings in the plan accumulate tax deferred.

In insurance policies, contract ambiguities are automatically ruled in the favor of the insured. What privilege does the insurer have in order to balance this? a)The right to revoke the policy b)The right to raise premiums as a result of court rulings c)The right to determine the wording of a policy d)The right to refute the rulings

C) The right to determine the wording of a policy In contracts in which only the insurer has the right to determine the wording of a policy, the policyholder will receive benefits denied due to a contract ambiguity.

If the Commissioner issues an order without hterm-11aving conducted a hearing, the person aggrieved by the order may demand a hearing within how many days after the order was mailed? a)10 b)15 c)20 d)30

D) 30 Before the Commissioner can issue an order, a hearing must be held. If an order is issued without a hearing, any person aggrieved by the order may demand a term-11hearing, in writing, within 30 days after the date on which the order was mailed. If a hearing is not demanded within the specified time frame, the person waived his/her opportunity for a hearing.

n addition to any other forfeiture imposed, any person who violates an effective order may be required to pay a)Triple the amount of any profit gained from the violation. b)Half the amount of any profit gained from the violation. c)The full amount of any profit gained from the violation. d)Twice the amount of any profit gained from the violation.

D) twice the amount Any person who violates an effective order, insurance statute, or rule may be required to forfeit (pay) twice the amount of any profit gained from the violation, in addition to any other forfeiture imposed.

A resident agent must pay a biennial regulation fee of a)$35. b)$50. c)$70. d)$100.

a) $35 each licensed individual agent must pay a biennial (every 2 years) regulation fee of $35 if a resident and $70 if a nonresident.

In insurance, an offer is usually made when a)An applicant submits an application to the insurer. b)The insurer approves the application and receives the initial premium. c)The agent hands the policy to the policyholder. d)An agent explains a policy to a potential applicant.

a) An applicant submits an application to the insurer. In insurance, the offer is usually made by the applicant in the form of an application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

The type of term insurance that provides increasing death benefits as the insured ages is called a)Increasing term. b)Flexible term. c)Interest-sensitive term. d)Age-sensitive term.

a) Increasing term. increasing term insurance provides an increase in the death benefit each year. The coverage is usually structured to provide a death benefit equal to the amount of premium paid on a permanent life insurance policy, or to provide a death benefit equal to the cash value accumulation in a permanent policy; however, it can be written as a stand-alone policy for the individual that has a need for increasing amounts of insurance.

When a fixed annuity owner pays pays a monthly annuity premium to the insurance company, where is this money placed? a)The insurance company's general account b)Forwarded to an investor c)Each contract's separate account d)The annuity owner's account

a) The insurance company's general account Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.

All of the following are true regarding the guaranteed insurability rider EXCEPT a) This rider is available to all insureds with no additional premium. b)The insured may purchase additional coverage at the attained age. c)The insured may purchase additional insurance up to the amount specified in the base policy. d)It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events.

a) This rider is available to all insureds with no additional premium. The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

Which of the following will NOT be an appropriate use of a deferred annuity? a)Creating an estate b)Accumulating retirement funds c)Accumulating funds in an IRA d)Funding a child's college education

a)Creating an estate Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education. Unlike life insurance, annuities do not create an estate, but liquidate it.

Which of the following best describes annually renewable term insurance? a)It is level term insurance. b)It requires proof of insurability at each renewal. c)Neither the premium nor the death benefit is affected by the insured's age d)It provides an annually increasing death benefit

a)It is level term insurance Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident, and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do? a)Pay a reduced death benefit b)Pay the full death benefit c)Pay nothing; there was a misrepresentation on the application d)Pay the full death benefit and refund excess premium

a)Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex and identity.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT a)Signed waiver of premium. b)Statement of good health. c)Payment of premium. d)Delivery receipt.

a)Signed waiver of premium. The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.

If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this? a)Single premium policy b)Jumping juvenile policy c)Limited pay whole life policy d)Modified life insurance policy

b) Jumping juvenile policy While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21).

Which of the following is NOT true of Section 1035 Policy Exchanges?a)It is typically used when exchanging or replacing a less competitive life policy with a more competitive life policy. b)Any exchange made under Section 1035 of the Internal Revenue Code must be completed within 30 days. c)It requires an absolute assignment of the existing policy to the replacing company who surrenders the contract and issues a replacement policy. d)It is an IRS Code which permits like kind exchanges of property.

b)Any exchange made under Section 1035 of the Internal Revenue Code must be completed within 30 days Section 1035 of the Internal Revenue Code does not give a specific time limit to complete such an exchange.

All of the following are true regarding the Policy Summary EXCEPT a)The policy summary is required to be given at policy delivery if the insurer did not provide a policy illustration. b)The policy summary may only describe the guaranteed elements of the policy. c)The policy summary may show dividends. d)The policy summary must show the annual premiums for the first 20 years.

c) The policy summary may show dividends. The policy summary may not include dividends since they are not guaranteed elements of the policy.

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability? a)Her parents' federal income tax receipts b)Medical exam and parents' medical history c)Proof of insurability is not required. d)Medical exam

c)Proof of insurability is not required. If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

A domestic insurer issuing variable contracts must establish one or more a)Annuity accounts. b)General accounts. c)Separate accounts. d)Liability accounts.

c)Separate accounts Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early? a)Accumulation at Interest b)Paid-up additions c)Dividend Accumulation option d)Paid-up option

d)Paid-up option with the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.