Life Practice Questions

Automatic Premium Loan Option

A cash value life insurance policy nonforfeiture option under which the insurer will automatically pay an overdue premium for the policyowner by making a loan against the policy's cash value as long as the cash value equals or exceeds the amount of the premium due.

Pure Risk

A chance of loss or no loss, but no chance of gain.

Graded-Premium Whole Life policy premiums are typically lower initially, but gradually increase for a period of 5-10 years. After the period of increase the premiums will A. Be level thereafter B. Continue to increase C. Return to initial premium amount D. Decrease again

A. Be level thereafter When a Graded-Premium Whole Life policy begins, the premium amounts are typically 50% lower than premiums for straight life policies. The premium then gradually increases each year for a period of time and then remains level thereafter.

If an annuitant dies before annuitization occurs, what will the beneficiary receive? A. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount B. Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount C. Amount paid into the plan D. Cash value of the plan

A. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount

If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy? A. It is only taxable if the cash value exceeds the amount paid for premiums B. It is not considered to be taxable C. It is taxable only if it exceeds the amounts paid for premiums by 50% D. It is automatically taxable

A. It is only taxable if the cash value exceeds the amount paid for premiums

If an insured continually uses the automatic premium loan option to pay the policy premium, A. The policy will terminate when the cash value is reduced to nothing B. The face amount of the policy will be reduced by the automatic premium loan amount C. The cash value will continue to increase D. The insurer will increase the premium amount

A. The policy will terminate when the cash value is reduced to nothing

Under an extended term nonforfeiture option, the policy cash is converted to A. The same amount as in the whole life policy B. The face amount equal to the cash value C. A lower face amount than the whole life policy D. A higher face amount than the whole life policy

A. The same amount as in the whole life policy

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as A. Utmost good faith B. Reasonable expectations C. A warranty D. Implied warranty

A. Utmost good faith

Two types of assignments

Absolute and Collateral

How long must an insurer keep records of electronic transmission to customers? A. 3 years B. 5 years C. 6 years D. 1 year

B. 5 years

Which of the following is another term for the accumulation period of an annuity? A. Annuity period B. Pay-in period C. Premium period D. Liquidation period

B. Pay-in period

An insured has $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium and died on February 28. How much will the beneficiary receive? A. $0 B. $200 C. $9,800 D. $10,000

C. $9,800

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe? A. Adhesion B. Conditional C. Aleatory D. Good health

C. Aleatory Uneven exchange of value

Which of the following would qualify as an implied warranty in an insurance contract? A. Contract's legal purpose B. Statements in the policy C. An oral representation by the applicant D. The applicant's signature

C. An oral representation by the applicant

Which statement regarding Business Overhead Expense policies is NOT true? A. Any benefits received are taxable to the business B. Leased equipment expense are covered by the plan C. Benefits are usually limited to six months D. Premiums paid for BOE are tax-deductible

C. Benefits are usually limited to six months

Which of the following is true regarding written binders? A. Both the applicant and insurer can write a binder B. Binders serve as a receipt that the insurer is processing the application. No coverage applies. C. Binders prove that the insured has insurance coverage, even though the policy has not been issued yet D. Binders apply only to Life insurance

C. Binders prove that the insured has insurance coverage, even though the policy has not been issued yet

Which of the following is NOT a legitimate use of annuities by businesses? A. Providing deferred compensation for employees B. Providing an investment vehicle C. Creating a tax shelter D. Funding employee retirement plans

C. Creating a tax shelter

Which of the following annuity riders ensures that the owner will receive from an annuity at least the amount paid for the annuity? A. Guaranteed Minimum Accumulation B. Guaranteed Lifetime Earning C. Guaranteed Lifetime Withdrawal D. Guaranteed Minimum Income

C. Guaranteed Lifetime Withdrawal

Which of the following annuity riders ensures investors will receive a set amount of income annually? A. Guaranteed Lifetime Earnings B. Guaranteed Lifetime Withdrawal C. Guaranteed Minimum Income Benefit D. Guaranteed Minimum Accumulation Benefit

C. Guaranteed Minimum Income Benefit

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? A. Single life B. Fixed-amount C. Life income with period certain D. Joint and survivor

C. Life income with period certain

Under a pure life annuity, an income is payable by the company A. For a guaranteed period of time, whether or not the annuitant survives to the end of that period B. For as long as either the annuitant or a named beneficiary is alive C. Only for the life of the annuitant D. Until the principal and interest are exhausted

C. Only for the life of the annuitant

For variable products, underlying assets must be kept in A. Money market account B. General account C. Separate account D. Revenue account

C. Separate account

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable? A. $50,000 B. $18,000 C. $15,000 D. $3,000

D. $3,000 You already paid $15,000 into policy, so you won't be taxed on that. You pay taxes on the difference

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. As of the application date

Which of the following elements in an Indexed Universal Life policy is tied to an index? A. Death benefit B. Face amount C. Premiums D. Cash values

D. Cash values

What happens when a policy is surrendered for its cash value? A. Coverage ends but the policy can be reinstated at any time B. The policy can be reinstated by paying back all policy loans and premiums C. The policy can be converted to term coverage D. Coverage ends and the policy cannot be reinstated

D. Coverage ends and the policy cannot be reinstated

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. Key person policy B. Fraternal association C. Aleatory contract D. Executive bonus

D. Executive bonus

Which of the following life insurance policies does NOT build cash value? A. Universal Life B. Variable Life C. Whole Life D. Guaranteed Universal Life

D. Guaranteed Universal Life

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? A. Dividend options B. Guaranteed renewable option C. Nonforfeiture options D. Guaranteed insurability option

D. Guaranteed insurability option

Harry has just received his life insurance policy. In reviewing the title page, Harry was able to ascertain the following information EXCEPT... A. His children have been covered by a child rider B. He had purchased a 20 year renewable term insurance policy in the face amount of $150,000 C. His total annual premium amount D. His spouse had been assigned the primary beneficiary

D. His spouse had been assigned the primary beneficiary

Which of the following is true regarding a policy with a face value less than $10,000? A. An insured cannot return the policy B. It it's returned during the free look period, the contract will be cancelled, but the insurer will retain the premium paid C. The policy can be cancelled with full refund of premium at any time D. If it's returned during the free look period, the agreement will be void

D. If it's returned during the free look period, the agreement will be void

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

D. Policyowner

An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would the contract's interest NOT be taxable? A. Charitable organization B. Dependents C. Annuitant D. Spouse

D. Spouse If an annuity's contract holder dies before the effective starting date, the contract's interest continues to be taxable, unless the beneficiary is a spose. In that case, this tax can be deferred.

Which of the following is NOT true regarding the annuitant? A. The annuitant's life expectancy is taken into consideration for the annuity B. The annuitant receives the annuity benefits C. The annuitant must be a natural person D. The annuitant cannot be the same person as the annuity owner

D. The annuitant cannot be the same person as the annuity owner

To which of the following products does the Replacement Regulation apply? A. Group annuities B. Credit life insurance C. Converting an existing policy with the same insurer D. Whole life insurance

D. Whole life insurance Doesn't apply to annuities; credit life is when you owe money; replacement doesn't apply when staying with same insurer

Conditional Receipt

If premium accompanies the application, coverage shall be in force from the date of application (whether the policy has yet been issued or not) provided the insurance company would have issued the coverage on the basis of facts as revealed by the application and other usual sources of underwriting information. Remember, there is never any coverage unless the premium has been paid!

Life Insurance Risk Classifications

Standard, preferred, substandard

Guaranteed Universal Life

This product provides the guarantee of term insurance for life. As long as the minimum required premiums are paid, the policy is guaranteed not to lapse. There is minimal cash value growth, but if the owner uses the cash value to cover the premium, or misses a premium payment, the "no-lapse guarantee" is removed from the policy.

Nonforfeiture Options

Three options available by law to policyowners that enable them to recover a policy's cash-value upon surrender of that policy. (1) Cash (2) Reduced Paid-Up Insurance (3) Extended Term Insurance

Speculative Risk

a situation in which either profit or loss is possible

Written Binder

normally valid for 10 to 30 days and serves an interim insuring agreement. Ex: as soon as you pay for auto insurance your car is covered

Adverse Selection

the problem of incomplete information - of choosing alternatives without fully knowing the details of available options