Life Insurance Test Practice
In order for a business parter to be eligible for a Keogh plan, he/she must work full time and own at least how much of the business? A) 25% b) 33% c) 50% D) 10%
D) 10% To be covered under a Keogh retirement plan, the person must be self-employed or a partner working part or full time who owns at least 10% of the business.
Decreasing Term insurance is often used to A) Cover a mortgage B) Liquidate an estate C) Build up cash value for retirement D) Pay estate taxes
A) Cover a mortgage Decreasing term can be designed to reduce its benefit similar to how a mortgage reduces over time
Your client wants to provide a retirement income for his elderly parents in case something happens to him. He wants to make sure that both beneficiaries are guaranteed an income for life. Which settlement option should this policyowner select? A) Fixed-Period installments B) Life income C) Joint and survivor D) Fixed-amount installments
C) Joint and survivor Under the joint and survivor settlement option, payments will continue until the death of the last beneficiary.
The commissioner may order that an insurer or its producer make restitution to any claimant who has suffered actual economic damage as a result of A) A violation of any cease and desist order committed by the insurer or its producer B) A slow claims processing unit for which such producer or insurer has responsibility C) Failure by the insured to avoid risk for which the insurer had no recourse D) Inadequate levels of coverage written on an insured based on levels of risk to be covered
A) A violation of any cease and desist order committed by the insurer or its producer The commissioner may order that an insurer or its producer make restitution to any claimant who has suffered economic damage as a result of a violation of a cease and desist order committed by the insurer or its producer.
An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy? A) $20,000 B) $25,000 C) $50,000 D) The face amount will be determine by the insurer
C) $50,000 The face of the term policy would be the same as the face amount provided under the whole life policy.
Which of the following indicates the person upon whose life the annuity income amount is determined? A) Owner B) Insured C) Annuitant D) Beneficiary
C) Annuitant The annuitant is there person upon whose life the annuity income amount is determined
Which of the following would be likely to establish a SEP? A) Military personnel B) The elderly C) Low-income individuals and families D) Small employers
D) Small employers A simplified employee pension is a type of qualified plan suited for the small employer. SEP is an arrangement whereby an employee establishes and maintains an individual retirement account to which the employer contributes. Employer contributions are not included in the employee's gross income.
Guaranteeing future dividends is considered to be an unfair or deceptive act known as: A) Misrepresentation B) Churning C) False financial statements D) Rebating
A) Misrepresentation It is considered to be misrepresentation to make any false or misleading statements regarding the dividends to be received on any insurance policy.
An annuity would normally be purchased by an individual who wants to A) Provide income for retirement B) Provide a death benefit to the surviving family C) Earn a higher rate of interest D) Create an estate
A) Provide income for retirement The main purpose of an annuity is to liquidate an estate and provide income for retirement. Life insurance creates an estate and provides a death benefit to the beneficiaries.
If a life insurance company uses HIV testing as part of its underwriting, when must an applicant be notified of the procedure? A) Prior to ordering a physical exam B) Prior to solicitation of the policy C) Prior notice is not required D) Prior to performance of the test
D) Prior to performance of the test Prior to testing, the insurer must disclose in writing its intent to test the applicant for the Human Immunodeficiency Virus infection or for a specific health condition derived from HIV. The insurer must obtain the applicants written informed consent to administer the test.
Which of the following statements describes one of the reasons individuals purchase life insurance? A) It helps liquidate an estate through death proceeds B) It can always accumulate cash value C) It provides income an insured cannot outlive D) It creates an immediate estate
D) It creates an immediate estate Life insurance death proceeds can create an estate when the insured dies
If the owner of an IRA dies without having named a beneficiary, by what point must the interest be distributed? A) December 31 of the calendar year that contains the second anniversary of the owner's death B) December 31 of the calendar year immediately following the owner's death, in a lump sum distribution C) Beginning December 31 of the year immediately following the owner's death, extending over a period of no greater than 50 years D) December 31 of the calendar year that contains the fifth anniversary of the owner's death
D) December 31 of the calendar year that contains the fifth anniversary of the owner's death If no beneficiary is named by the time of an IRA owner's death, the entire interest must be paid in full on or before December 31 of the calendar year that contains the fifth anniversary of the owner's death
In a variable life insurance policy, all of the following assets are held in the insurance company's general account EXCEPT A) Mortality reserves B) Face amount reserves C) Incidental benefit amounts D) Cash surrender values
D) Cash surrender values The insurer does not guarantee or participate in the investment risk of a variable life insurance policy. Because all underlying assets must be kept in the separate account, variable life insurance policies cannot provide a guaranteed cash surrender value.
All of the following are true of the survivorship life policy EXCEPT A) The death benefit is not paid until the last death B) The premium would be lower than in a joint life policy C) It can insure more than two lives D) The premium is based on the age of each insured
D) The premium is based on the age of each insured Survivorship life (or second-to-die policy) is much the same as joint life in that it insured two or more lives for a premium that is based on a joint age
All of the following statements are true regarding an Ordinary (Straight) Life policy EXCEPT A) It does not have a guaranteed death benefit B) It is funded by a level premium C) It builds cash value D) If the insured lives to age 100, the policy matures, and the face amount is paid to the insured
A) It does not have a guaranteed death benefit Straight Life (also called Ordinary Life or Continuous Premium Whole Life) charges a level annual premium for the lifetime of the insured and provides a level, guaranteed death benefit. If the insured lives to age 100, the policy endows (matures) and the face amount is paid to the insured at that time. During the insured's lifetime the straight life policy builds cash value. The insurer guarantees the cash value and death benefit under a straight life policy.
All of the following are true of group life insurance EXCEPT A) Premium rates are based upon the average age, gender and purpose of the group B) When the insured terminates membership in the group the coverage can be converted to whole life C) The insureds each own their own contract D) Evidence of insurability is usually not required
C) The insured each own their own contract Group contracts are owned by the group, not by the insureds
In Credit Life insurance, who is responsible for paying the premiums? A) Creditor only B) Borrower only C) Creditor and borrower equally D) Creditor and borrower proportionally
A) Borrower only In credit life insurance, while the creditor is the owner and the beneficiary of the policy, the borrower is responsible for paying the policy premiums
If the annuitant dies before the annuity start date, which of the following is true? A) The interest is taxable B) The interest will not be tax deferred C) The interest is tax free if the beneficiary is a spouse D) The interest is nontaxable
A) The interest is taxable If the contract holder dies before the annuity staring date, the contracts interest becomes taxable. If the beneficiary of the annuity is a spouse, the tax can continue to be deferred.
All of the following are true of credit life EXCEPT A) The creditor is the policyowner B) The insured names the beneficiary C) The death benefit cannot exceed the amount of the loan D) The premium payment is included in the loan payment
B) The insured names the beneficiary With credit life, the lending institution is the owner and names the beneficiary.
All of the following are general requirements of a qualified plan EXCEPT A) The plan's benefit cannot discriminate in the favor of the "prohibited group" B) The plan must be temporary C) The plan must be approved by the IRS D) The plan must have a vesting requirement
B) The plan must be temporary Qualified plans must be permanent. All the other characteristics above are also true.
J is receiving fixed amount benefit payments from his late wife's insurance policy. He was told that if he dies before all of the benefits are paid, the remaining amount will go to the contingent beneficiary. Which settlement option did J choose? A) Fixed period B) Interest only C) Joint and survivor D) Fixed amount
D) Fixed amount The fixed-amount option pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted. The recipient selects a specified fixed dollar amount to be paid until it is gone. If the beneficiary dies before the proceeds are exhausted, installments will continue to be paid to a contingent beneficiary until all proceeds have been paid out.
An annuity has accumulated the cash value of $70,000, of which $30,000 is from premium payments. The annuitant dies during the accumulation phase. The beneficiary will receive: A) $30,000 B) $70,000 C) $100,000 (combination of cash value and premiums paid) D) A survivor benefit determined by the insurance company.
B) $70,000 If the annuitant's death occurs during the accumulation period, the beneficiary will receive the amount of premiums paid into the plan or the cash value, whichever is greater. In this case, the beneficiary will receive $70,000.
When an insured terminates membership in the insured group, the insured can convert to A) Term with proof of insurability B) While life without proof of insurability C) Whole life with proof of insurability D) Term without proof of insurability
B) Whole life without proof of insurability When a member terminates membership in a group, he or she can convert to whole life without proof of insurability
A distribution from an employer-sponsored retirement plan or from an IRA is eligible for a tax-free rollover if it is reinvested in an IRA within A) 60 days B) 90 days C) 100 days D) 30 days
A) 60 days To be eligible for a tax-free rollover, the distribution must be reinvested in an IRA within 60 days following the distribution and the plan participant must not take actual physical receipt of the distribution. Unless the entire amount is rolled over, the part retained will be taxed as ordinary income.
Cash Value guarantees in a whole life policy are called A) Dividends B) Nonforfeiture values C) Living benefits D) Cash loans
B) Nonforfeiture values Because permanent life insurance policies have cash values, there are certain guarantees that are built into the policy that cannot be forfeited by the policyowner. These guarantees (known as nonforfeiture values) are required by state law to be included in the policy. A table showing the nonforfeiture values must be included in the policy for a minimum period of 20 years. The policyowner has options as to how to exercise nonforfeiture values.
Which provision may be added to a permanent life policy, at no cost, that insures that the policy will not lapse so long as there is a cash value? A) Past Due Premium Option B) Application to Reduce Premium Option C) Automatic Premium Loan Option D) Mode of Premium option
C) Automatic premium loan option With the automatic premium loan option, if the premium is not paid out and the policy reaches the end of the grace period, the insurance company is directed to borrow the premium from the cash value as a loan to prevent the lapse.
How much training related to the business of life settlements must life settlement brokers complete? A) 24 hours every 2 years B) 10 hours every year C) 3 hours every year D) 15 hours every 2 years
D) 15 hours every 2 years Life settlement brokers are required to complete 15 hours of training related to the business of life settlements every 2 years.
All of the following are true regarding the waiver of cost of insurance rider EXCEPT A) The rider cannot waive the cost of premiums that accumulate cash value B) The rider expires when the insured reaches age 60 C) The rider waives insurance costs in the event the insured becomes disabled D) the rider is only applicable to universal life policies
B) The rider expired when the insured reaches age 60 The waiver of cost of insurance rider, also known as the waiver of monthly deductions rider, waives the cost of insurance and other expenses in the event the insured becomes disabled. Any premiums necessary to the accumulation of cash values cannot be waived.
In a deferred annuity, the difference between the accumulation value and the surrender value is the A) Surrender charge B) Mortality charge C) Interest credit D) Front end load
A) Surrender charge When a deferred annuity is surrendered, the surrender charge is deducted from the accumulated value to produce the surrender value
Which of the following applicants would not qualify for a Keogh Plan? A) Someone who works for a self-employed individual B) Someone who works 400 hours per year C) Someone who has been employed for more than 12 months D) Someone who is over 25 years of age
B) Someone who works 400 hours per year A person must have worked at least 1,000 hours per year to be eligible for a Keogh Plan
Which nonforfeiture option provides coverage for the longest period of time? A) Extended term B) Paid-up option C) Accumulated at Interest D) Reduced Paid-Up
D) Reduced Paid-Up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy
A new homebuyer wants to purchase a life insurance policy that would protect his family against losing the home, should he die before the mortgage was paid. The most inexpensive policy that would accomplish this need would be A) Level term B) Decreasing term C) Increasing term D) Flexible term
B) Decreasing term Decreasing term insurance may be written so that the face decreases at the same rate as the principal amount of the mortgage
Each insurer that sells, solicits, or negotiates any form of limited line credit insurance must provide to each individual whose duties will include selling, soliciting, or negotiating limited line credit insurance A) A copy of the Department of Insurance rate plan schedule B) A course of training that certifies each individual for an insurance solicitors license C) A copy of the Fair Credit Reporting Act of 1991 and a program instruction for its use D) A program of instruction that may be approved by the Commissioner
D) A program of instruction that may be approved by the Commissioner Each insurer that sells, solicits, or negotiates any form of limited line credit insurance must provide to each individual whose duties will include selling, soliciting or negotiating limited line credit insurance a program of instruction that may be approved by the Commissioner
Which of the following is the distinguishing characteristic of the interest-adjusted net cost method? A) comparing interest rates at a designated point in time B) Buying equity indexed life insurance C) Keeping yearly premiums and dividends level D) Considering the time value of money in comparing life insurance costs
D) Considering the time value of money in comparing life insurance costs Interest-adjusted net cost method considers the time value of money in comparing life insurance costs by applying an interest adjustment to yearly premiums and dividends. This means that each year premiums and dividends are figured, interest is taken into consideration.
Which of the following is a correct statements about annuities? A) Variable annuities provide minimum guaranteed rate of interest B) Variable annuities place the funds into the company's general account C) Fixed annuities have the annuitant assume the risks of investment D) Fixed annuities do not provide protection against inflation
D) Fixed annuities do not provide protection against inflation Fixed products provide protection against the risks associated with investing, since the insurance company bears the investments risks. They however, do not provide protection against inflation, sine the income (annuity payments) do not vary from one payment to the next.
A jumping juvenile policy is unique in that the death benefit automatically A) Decreases at a predetermined age B) Doubles at a predetermined age C) Pays out to the insured D) Increases at a predetermined age
D) Increases at a predetermined age A jumping juvenile policy is written on the life of a minor. This policy's death benefit automatically increases (usually 5 fold) at a predetermined age, usually at 21.
The guaranteed insurability rider allows the owner to purchase additional amounts of life insurance without proof of insurability at all of the following EXCEPT A) Birth of a child B) Marriage C) Purchase of a new home D) Approximately every 3 years between the ages of 25 and 40
C) Purchase of a new home The guaranteed insurability rider allows the owner to purchase additional amounts of insurance without proof of insurability at marriage, birth of a child, and/or every 3 years or so between the ages of 25 and 40.
If an annuity has a guaranteed minimum interest rate, this means: A) The interest rate will never rise above the guaranteed minimum B) The interest rate will not fluctuate C) There is no interest rate D) The interest rate will never drop below the guaranteed minimum
D) The interest rate will never drop below the guaranteed minimum With a guaranteed minimum interest rate, the insurer will not let the annuity's interest rate drop below the guaranteed minimum (usually, 3%). If the company has higher interest rates, the annuity will utilize the higher rates.
Which type of insurance policies provide pure life insurance protection without a savings element? A) Permanent B) Variable C) Universal D) Term
D) Term Life insurance policies that provide pure life insurance protection are called term insurance; those that include a savings or investment element (or cash value) and lifetime protection against premature death, are called permanent insurance.
Annuities certain limit the amount paid by the annuity to a certain fixed: A) Period Only B) Amount only C) Period with a certain fixed amount D) Period or fixed amount
D) Period or fixed amount Annuities certain limit the amount paid by the annuity to a certain fixed period or until a certain fixed amount is liquidated.
Which of the following is a limited lines license? A) A temporary insurance producer license B) A nonresident producer license C) A business entity license D) A portable electronics insurance license
D) A portable electronics insurance license The portable electronics insurance limited lines license issued to a vendor of portable electronics authorizes the sale of portable electronics insurance and no other line of insurance