Life Insurance Practice Test
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?
Executive is the owner, and the executive pays the premium
Which of the following is TRUE regarding the accumulation period of an annuity?
It is a period during which the payments into the annuity grow tax deferred
What is the purpose of a conditional receipt?
It is intended to provide coverage on a date prior to the policy issue
Which of the following is TRUE regarding the annuity period?
It may last for the lifetime of the annuitant
The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called
Joint and survivor
Duties of the replacing insurer include all of the following EXCEPT
Keep records related to replacement for at least 5 years
All of the following are true regarding a decreasing term policy EXCEPT
The payable premium amount steadily declines throughout the duration of the contract
Which of the following determines the cash value of a variable life policy?
The performance of the policy portfolio
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT
The policy is owned by the company
Which of the following statements is correct regarding a whole life policy?
The policyowner is entitled to policy loans
How are contributions to a tax-sheltered annuity treated with regards to taxation?
They are not included as income for the employee, but are taxable upon distribution
Which of the following is TRUE about nonforfeiture values?
They are required by state law to be included in the policy
Which of the following is NOT true regarding Equity Indexed Annuities?
They earn lower interest rates than fixed annuities
An insured may qualify for accelerated benefits if they need the money for which of the following?
To pay for advanced liver cancer treatment
Social Security was created to provide all of the following benefits EXCEPT
Unemployment income
Why is an equity indexed annuity considered to be a fixed annuity?
It has a guaranteed minimum interest rate
What is the maximum fine for a violation of a cease and desist order?
$1,000
In the event an insurer is found guilty of committing defamation, the insurer may be subject to the maximum
$10,000
In the event an insurer is found guilty of committing defamation, the insurer may be subject to the maximum penalty of
$10,000
Within how many days may a person who is being examined by the Director for nonfinancial business practices request a hearing after receiving the examination report?
10 days
The Director may refuse to issue a license if a licensee's aggregate amount of premiums on controlled business exceeded the aggregate amount of premiums on all other insurance business during
2 calendar years immediately preceding the extension date of the license
How soon must the insurer pay a death benefit claim after receiving the proof of death?
2 months
What is the maximum percentage of the face amount of a life insurance policy that can be paid in an acceleration of benefits?
75%
Which of the following would be considered an unfair claims settlement practice?
A claims adjuster advises the insured that if the claim goes to arbitration, the insured would probably receive less than what is currently being offered
According to the life insurance replacement regulations, which of the following would be an example of policy replacement?
A policy is reissued with a reduction in cash value
An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?
A portion of the benefit up to a limit is tax free; the rest is taxable income
Temporary producer license can be issued to all of the following EXCEPT
A spouse of disabled licensed producer before and after the sale of the business
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?
Adhesion
All of the following are examples of third-party ownership of a life insurance policy EXCEPT
An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan
A Universal Life Insurance policy is best described as a/an
Annually Renewable Term policy with a cash value account
Which of the following products will protect an individual from outliving his or her money?
Annuity
The Director issued a written notice about a hearing for a business entity. The hearing is scheduled for May 1st. The affected business entity should receive the notice no later than
April 20th, the notice about a hearing must be given to the person or organization whose interests are affected no later than 10 days prior to the hearing
All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT
At distribution, all amounts received by the employee are tax free
Which of the following is INCORRECT regarding a $100,000 20-year level term policy?
At the end of 20 years, the policy's cash value will equal $100,000.
When must insurable interest exist in a life insurance policy?
At the time of application
Which of the following is a feature of a variable annuity?
Benefit payment amounts are not guaranteed
Which of the following statements concerning buy-sell agreements is true?
Buy-sell agreements are normally funded with a life insurance policy
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
Cash option
What does "liquidity" refer to in a life insurance policy?
Cash values can be borrowed at any time
A tax-sheltered annuity is a special tax-favored retirement plan available to
Certain groups of employees only
The act of rebating is considered a(n)
Class B misdemeanor
All of the following are regulated areas of the insurance industry EXCEPT
Commissions
An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?
Common disaster
An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?
Consideration
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?
Consideration
Which of the following is NOT an exclusion to the requirement stating that no insurer may recommend the purchase of an annuity if the recommendation results in an insurance transaction unless the recommendation is suitable for the consumer?
Contracts designed for senior citizens
Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as
Contracts of adhesion
A key person insurance policy can pay for which of the following?
Costs of training a replacement
An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?
Decreasing term
When twin brothers applied for life insurance from Company A, the company found that while neither of them smoked and both had a very similar lifestyle, one of the twins was in a much stronger financial position than the other. Because of this, the company charged him a higher rate for his insurance. This practice is considered
Discrimination
All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT
Education
The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the
Entire contract
What does "level" refer to in level term insurance?
Face amount
What provision in an insurance policy extends coverage beyond the premium due date?
Grace period
All of the following are true about the bond requirements in the state of Illinois EXCEPT
Insurance producers with insurance companies that take responsibility for their actions are still required to post a bond
Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?
Insuring clause
The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?
Interest only option
An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an
Interest-sensitive Whole Life
Which of the following is NOT true regarding a Premium Fund Trust Account?
It could be used as a claim payment account
Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?
Limited pay whole life
The Replacement Regulation minimizes
Misrepresentation
To which of the following situations does the Replacement Regulation apply?
Nonrenewable coverage expiring in 8 years
Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?
Option B
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?
Paid-up option
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?
Premiums are not tax deductible as a business expense
Under standard circumstances, at what point should a Buyer's Guide be distributed to a prospective buyer?
Prior to the initial premium
Equity indexed annuities
Seek higher returns
An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy?
She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT
Signed waiver of premium
Which of the following insurers are owned by stockholders?
Stock
In order for a firm to maintain its registration as a legal insurance company, what must it do?
Submit a biennial fee to the Director
Nonforfeiture values guarantee which of the following for the policyowner?
That the cash value will not be lost
Which of the following information will be stated in the consideration clause of a life insurance policy?
The amount of premium payment
Which is NOT true about beneficiary designations?
The beneficiary must have insurable interest in the insured
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?
The beneficiary will only receive payments of the interest earned on the death benefit
The Director notifies a producer of license termination on March 1. On April 15, the Director receives a request to review the charges in a court of law. What is the latest possible court date that can be set for the hearing?
The court date will not be established
All of the following are correct regarding misrepresentation EXCEPT
The fines for misrepresentation range from $50 to $1,000
Who bears all of the investment risk in a fixed annuity?
The insurance company
An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?
The insured may choose to convert to term or permanent individual coverage
An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term?
The insured may renew the policy for another 10 years, but at a higher premium rate
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT
The interest is not taxable since it remains inside the insurance policy
An applicant receives a temporary insurance producer license. After 80 days, the owner of the insurance company decides to sell the business. Which of the following is TRUE?
The license will automatically terminate
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium?
Universal life
Which of the following is a key distinction between variable whole life and variable universal life products?
Variable whole life has a guaranteed death benefit.
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
Warranty
Under what conditions must an insured sign a Notice Regarding Replacement of Life Insurance or Annuity form?
When replacing a policy with a different insurer that is under different ownership than the current company
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?
When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health
When is the earliest a policy may go into effect?
When the application is signed and a check is given to the agent