Life Test
An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer? $8,000, no tax consequence $8,000, tax on growth only $10,000, tax on growth only $10,000, no tax consequence
$10,000, no tax consequence During an IRA direct transfer (or direct rollover), the full amount gets reinvested from one plan to the other.
An individual purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy? Nothing $50,000 $100,000 $200,000
$100,000 In joint life policies, the death benefit is paid upon the first death only.
If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually? a) $7,000 b) $3,000 c) $13,000 d) $10,000
$3,000 If $100,000 of life insurance proceeds were used in a settlement option paying $13,000 per year for 10 years, $10,000 per year would be income tax free (as principal) and $3,000 per year would be income taxable (as interest).
Duties of the replacing insurer include all of the following EXCEPT - Make sure that the producer signs the Notice. - Maintain records related to replacement for 3 years. - Send to the existing insurer, within three days of receiving the replacement application, the Notice Regarding Proposed Replacement of Life Insurance or Annuity. - Keep records related to replacement for at least 5 years.
- Keep records related to replacement for at least 5 years. In Illinois, records related to replacement transactions must be kept on file for a minimum of 3 years, not 5.
#44. If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? a) 7 days b) 10 days c) 3 days d) 5 days
5 days Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.
Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years? - A notice regarding replacement - A privacy notice - A buyer's guide - A policy summary
A policy summary A policy summary usually includes all the listed information, and must be delivered along with a new policy.
According to the life insurance replacement regulations, which of the following would be an example of policy replacement? A: A policy is reissued with a reduction in cash value. B: A lapsed policy is reinstated within a specific timeframe. C: Term insurance is changed to a whole life policy. D: A term policy expires, and the insured buys another term life policy.
A: A policy is reissued with a reduction in cash value. Incorrect! Replacement means any transaction in which new life insurance or a new annuity is to be purchased and it is known or should be known to the proposing producer that by reason of the transaction, existing life insurance or annuities have been or will be converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.
The death protection component of Universal Life Insurance is always - Adjustable Life - Decreasing Term - Annually Renewable Term - Whole Life
Annually Renewable Term A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.
The Illinois Life and Health Insurance Guaranty Association is obligated to pay covered claims only if under the amount of A: $100,000 B: $300,000 C: $500,000 D: $1,000,000
B: $300,000 Incorrect! Claims under $300,000 are covered by the Illinois Insurance Guaranty Association.
For how long is an insurance company allowed to defer policy loan requests? A: 30 days B: 60 days C: 6 months D: 1 year
C: 6 months
#72. On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. The company is guilty of a) Rebating. b) Misrepresentation. c) Concealment. d) Unfair claim practice.
Misrepresentation Issuing or circulating any sales material that is false or misleading would be considered misrepresentation and is illegal.
Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option? - Amount of interest - Size of each installment - Predetermined length of time stated in the contract - Length of income period
Size of each installment The size of each installment determines the length of time that benefits are received under the Fixed Amount settlement option. It logically follows that larger installments translate into shorter benefit periods.
Which of the following is a risk classification used by underwriters for life insurance? Excellent Standard Poor Normal
Standard The three ratings classifications that denote the risk level of insureds are standard, substandard, and preferred. This classification system helps insurers to decide if an insured should pay a higher premium.
Which of the following would help prevent a universal life policy from lapsing? Adjustable premium Corridor of insurance Target premium Face amount
Target premium The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than A: Prior to filling out an application for insurance. B: With the policy. C: Upon issuance of the policy. D: Within 30 days after the first premium payment was collected.
With the policy. If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium.
Which of the following is TRUE regarding the premium in term policies? A: Decreasing term policy will have a decreasing premium. B: The premium is level. C: Only level term policy has a level premium. D: The premium in term policies is not based on the insured's age.
b: The premium is level. Regardless of the type of term insurance purchased, the premium is level throughout the term of the policy. Only the amount of the death benefit may change.
How soon must the insurer pay a death benefit claim after receiving the proof of death? a) 1 year b) 6 months c) 2 months d) 30 days
c) 2 months A provision on settlement upon proof of death mandates that a settlement must be made no later than 2 months after the receipt of proof of death.
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? a) Interest-sensitive whole life b) Life annuity with period certain c) Increasing term d) Limited pay whole life
d) Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100.
An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? a) The insured would not need to prove insurability for a conversion policy. b) The insured may convert coverage to an individual policy within 31 days. c) The premium for individual coverage will be based upon the insured's attained age. d) The insured may choose to convert to term or permanent individual coverage.
d) The insured may choose to convert to term or permanent individual coverage. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance.
Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE? a) Distributions before age 59 1/2 incur a 10% penalty on policy gains. b)Policy loans are taxable distributions. c)Accumulations are tax deferred. d)Withdrawals are not taxable.
d)Withdrawals are not taxable. Any distributions from MECs are taxable, including withdrawals and policy loans. All of the other statements are true.
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? $20,000 $25,000 $50,000 The face amount will be determined by the insurer.
$50,000 The face of the term policy would be the same as the face amount provided under the whole life policy.
The term "illustration" in a life insurance policy refers to A: A presentation of nonguaranteed elements of a policy. B: Pictures accompanying a policy. C: A depiction of policy benefits and guarantees. D: Charts and graphs.
A: A presentation of nonguaranteed elements of a policy. Incorrect! The term "illustration" means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years. Illustrations must also include name of the insurer and the agent, information about the proposed insured and the policy itself.
A Universal Life Insurance policy is best described as a/an A: Annually Renewable Term policy with a cash value account. B: Variable Life with a cash value account. C: Whole Life policy with two premiums: target and minimum. D: Flexible Premium Variable Life policy.
A: Annually Renewable Term policy with a cash value account. A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.
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? A: Contracts designed for senior citizens B: Deferred compensation plans C: Government or church plans D: Prepaid funeral plans
A: Contracts designed for senior citizens Correct! Recommendations to senior citizens are not excluded from this requirement.
A nonresident producer in Illinois just relocated to Indiana and became a resident producer in that state. What must the producer do to satisfy one of Illinois' requirements for nonresident producers? A: File a change of address within 30 days B: Pay a fee to the Illinois Department of Insurance C: Resubmit a nonresident license application D: Nothing
A: File a change of address within 30 days Incorrect! A nonresident producer who moves from one state to another must file a change of address and provide certification from the new resident state within 30 days after the change of legal residence. No fee or license application is required.
Life income joint and survivor settlement option guarantees A: Income for 2 or more recipients until they die. B: Payment of interest on death proceeds. C: Payout of the entire death benefit. D: Equal payments to all recipients.
A: Income for 2 or more recipients until they die. Incorrect! The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.
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? A: Interest only option B: Life income with period certain C: Joint and survivor D: Fixed amount option
A: Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.
Which of the following is NOT true regarding a Premium Fund Trust Account? A: It could be used as a claim payment account. B: It is a fiduciary account. C: It may be a depository for service fees and late charges. D: It is established to maintain all the premiums.
A: It could be used as a claim payment account. Incorrect! PFTA cannot be used as a general operation or a claim payment account. It is a fiduciary account into which all collected premiums or other monies, such as service fees, later charges and inspection fees must be deposited.
Which of the following is NOT true regarding a nonqualified retirement plan? A: It needs IRS approval. B: Contributions are not currently tax deductible. C: It can discriminate in benefits and selecting participants. D: Earnings grow tax deferred.
A: It needs IRS approval. Incorrect! Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.
A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums? A: The insured's premiums will be waived until she is 21. B: The premiums will become tax deductible until the insured's 18th birthday. C: Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected. D: The insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums.
A: The insured's premiums will be waived until she is 21. Incorrect! If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.
Which of the following is a key distinction between variable whole life and variable universal life products? A: Variable whole life has a guaranteed death benefit. B: Variable universal life is regulated solely through FINRA. C: Variable whole life allows policy loans from the cash value. D: Variable universal life has a fixed premium.
A: Variable whole life has a guaranteed death benefit. Variable universal life insurance may or may not have a minimum death benefit, unlike variable whole life insurance which guarantees a minimum death benefit.
Under what conditions must an insured sign a Notice Regarding Replacement of Life Insurance or Annuity form? a) When replacing a policy with a different insurer that is under different ownership than the current company b) When replacing a life insurance policy that has been in existence for over five years c) When replacing a life insurance policy, under nearly all circumstances d) Only when replacing a policy with a different insurer
A: When replacing a policy with a different insurer that is under different ownership than the current company If an insured wants to replace his or her policy with another policy provided by a different insurer, the insured must sign a Notice Regarding Replacement of Life Insurance or Annuity form, unless the new insurer is under the same ownership as the old insurer. This notice warns the applicant to get all the facts before deciding to replace existing coverage. The policies proposed for replacement must be entered on the form.
Children's riders attached to whole life policies are usually issued as what type of insurance? A: Variable life B: Adjustable life C: Whole life D: Term
D: Term Incorrect! Children's term riders provide term insurance with coverage expiring when the minor reaches a certain age.
The Replacement Regulation does NOT apply to situations in which the total existing coverage to be replaced represents less than how much of the face amount? A: $2,000 B: $5,000 C: $8,000 D: $10,000
B: $5,000 Correct! The Replacement Regulation does not apply to situations in which the total existing coverage to be replaced represents less than $500 in cash value, and less than $5,000 in the face amount.
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? A: 3 days B: 10 days C: 15 days D: 30 days
B: 10 days Incorrect! With regard to nonfinancial business practices, the subject of an examination may request a hearing in writing within 10 days after receipt of the examination report.
At what annual rate does interest on life insurance proceeds accrue from the date of death of the insured? A: 5% B: 10% C: 12% D: 15%
B: 10%
The Director informs a producer that its license has been terminated and immediately receives a request for the charges to be reviewed in court. Within what maximum number of days must the hearing be held? A: 14 B: 30 C: 60 D: 90
B: 30 Incorrect! If a producer wants to contest or review the charges in court, the request must be made within 30 days of the order. After the Director receives the request, a hearing must occur within 20-30 days.
If a viatical settlement provider moves his business the new address must be reported to the Director within A: 15 days. B: 30 days. C: 60 days. D: 90 days. Incorrect! A business address change by a viatical settlement provider must be reported to the Director within 30 days.
B: 30 days.
What must an insurer present to a prospective policy purchaser before the initial premium is paid? A: Policy Summary B: Buyer's Guide C: Conditional receipt D: Policy illustrations
B: Buyer's Guide Incorrect! The insurer must provide to all prospective purchasers a Buyer's Guide prior to accepting the applicant's initial premium or premium deposit, unless the policy for which application is made contains an unconditional refund offer of at least 10 days.
Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as: A: Binding Contracts B: Contracts of adhesion C: Unilateral contracts D: Aleatory Contracts
B: Contracts of adhesion Insurance policies are written by the insurer and submitted to the insured on a take-it-or-leave-it basis. The insured does not have any input in the contract, but simply adheres to the contract
#78. Which of the following is an example of an unfair claims settlement practice? a) Using arbitration when the insured and insurer cannot reach agreement b) Failure to promptly settle a claim when liability has been clearly established c) Denying coverage after a reasonable investigation has been conducted d) Making claims payments which clearly indicate under which coverage payment has been made
B: Failure to promptly settle a claim when liability has been clearly established After a claim has been adjusted and is found to be covered under the policy, the insurer must pay the claim upon receipt of a signed proof of loss.
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits? A: Deferred interest annuity B: Immediate annuity C: Variable annuity D: Flexible payment annuity
B: Immediate annuity Incorrect! An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.
Which of the following statements about the reinstatement provision is true? A: It guarantees the reinstatement of a policy that has been surrendered for cash. B: It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. C: It permits reinstatement within 10 years after a policy has lapsed. D: It provides for reinstatement of a policy regardless of the insured's health.
B: It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. Upon policy reinstatement, the policyowner will be required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest.
The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? A: The death benefit can be increased only by exchanging the existing policy for a new one. B: The death benefit can be increased by providing evidence of insurability. C: The death benefit cannot be increased. D: The death benefit can be increased only when the policy has developed a cash value.
B: The death benefit can be increased by providing evidence of insurability. The policyowner (insured) would need to prove insurability for the amount of the increase.
Which of the following is TRUE about nonforfeiture values? A: Policyowners do not have the authority to decide how to exercise nonforfeiture values. B: They are required by state law to be included in the policy. C: They are optional provisions. D: A table showing nonforfeiture values for the next 10 years must be included in the policy.
B: They are required by state law to be included in the policy. Incorrect! Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.
What is the maximum fine for a violation of a cease and desist order? A: $100 B: $500 C: $1,000 D: $5,000
C: $1,000 Incorrect! Any person who violates a cease and desist order is subject to a fine of up to $1,000, which may be recovered in a civil action, for each violation. The Director also has the power to revoke or suspend any license or certificate of authority for such violation.
An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement? A: $0 B: $100,000 C: $200,000 D: $100,000 plus the total of paid premiums
C: $200,000 Incorrect! The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.
What is the minimum number of study hours required of a candidate for a casualty producer's license? A:10 B: 15 C: 20 D: 40
C: 20 Incorrect! Unless exempt, those applying for an insurance producer's license must first complete an approved course of study of at least 20 hours for each line of insurance covered under the license. Proof of completing a prelicensing study program must accompany the application for a license.
All of the following are examples of third-party ownership of a life insurance policy EXCEPT A: A company purchases a life insurance policy on their manager, who is an important part of the operation. B: When an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company. C: An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. D: An insured couple purchases a life insurance policy insuring the life of their grandson.
C: An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.
If the annuitant dies during the accumulation period, who will receive the annuity benefits? A: The annuity owner B: The insurance company C: The annuitant's estate D: The beneficiary
D: The beneficiary If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.
Which of the following is true regarding taxation of dividends in participating policies? A: Dividends are taxable in some life insurance policies and nontaxable in others. B: Dividends are considered income for tax purposes. C: Dividends are not taxable. D: Dividends are taxable only after a certain amount is accumulated annually.
C: Dividends are not taxable. Incorrect! Dividends are not considered to be income for tax purposes, since they are the return of unused premiums. The interest earned on the dividends, however, is subject to taxation as ordinary income.
An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n) A: Flexible Annuity. B: Immediate Annuity. C: Equity Indexed Annuity. D: Variable Annuity. Correct! The interest rates of Equity Indexed Annuities are tied to the Standard and Poor's Index.
C: Equity Indexed Annuity. Correct! The interest rates of Equity Indexed Annuities are tied to the Standard and Poor's Index.
In a direct transfer, how is money transferred from one retirement plan to a traditional IRA? A: From the participant to the new plan B: From the original plan to the original custodian C: From trustee to trustee D: From trustee to the participant
C: From trustee to trustee In a direct transfer, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan.
What type of insurance would be used for a Return of Premium rider? a) Decreasing Term b) Annually Renewable Term c) Increasing Term d) Level Term
C: Increasing Term The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.
An insurer creates an advertisement in January of 2015 and keeps a record of its contents on file. Its next regular examination will occur in December of 2018. How long must the insurer keep its advertisements on file? A: January 2018 B: December 2018 C: January 2019 D: January 2020
C: January 2019 Incorrect! Records of insurance advertisements must be kept on file for 4 years or until the insurer's next regular examination by the Department, whichever comes later.
The Replacement Regulation minimizes A: Unnecessary replacement. B: Illegal policy renewal. C: Misrepresentation. D: The need for replacement.
C: Misrepresentation. Incorrect! The Replacement Regulation requires that certain steps be followed in the replacement of insurance policies, in order to make sure that policyowners receive the information they need to make decisions that reflect their own best interest. It also minimizes the opportunity for misrepresentation and incomplete disclosure.
What is the definition of a unilateral contract? A: One author: the company wrote the contract; the insured must accept it as written. B: If one party makes a condition, the other party can counteroffer. C: One-sided: only one party makes an enforceable promise. D: Two or more parties go into a contract understanding there may be an unequal exchange of value.
C: One-sided: only one party makes an enforceable promise. Incorrect! An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.
Which of the following riders would NOT cause the Death Benefit to increase? A: Cost of Living Rider B: Accidental Death Rider C: Payor Benefit Rider D: Guaranteed Insurability Rider
C: Payor Benefit Rider Incorrect! Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.
Nonforfeiture values guarantee which of the following for the policyowner? A: That the death benefit will be paid in a lump sum B: That the policy premiums will never increase C: That the cash value will not be lost D: That the dividends will be paid annually
C: That the cash value will not be lost Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.
What is the advantage of reinstating a policy instead of applying for a new one? A: The face amount can be increased. B:The cash values have gained interest while the policy was lapsed. C: The original age is used for premium determination. D: Proof of insurability is not required.
C: The original age is used for premium determination.. The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status.
If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE? A: The policy will be void. B: The insurer may deny coverage later, because of the information missing on the application. C: The policy will be interpreted as if the insurer waived its right to have an answer on the application. D: The policy will be interpreted as if the insured did not have an answer to the question.
C: The policy will be interpreted as if the insurer waived its right to have an answer on the application. Any unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage later because of unanswered questions.
If an insured continually uses the automatic premium loan option to pay the policy premium, A: The cash value will continue to increase. B: The insurer will increase the premium amount. C: The policy will terminate when the cash value is reduced to nothing. D: The face amount of the policy will be reduced by the automatic premium loan amount.
C: The policy will terminate when the cash value is reduced to nothing. Incorrect! This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid form the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.
All of the following are true regarding a decreasing term policy EXCEPT A: The death benefit is $0 at the end of the policy term. B: The contract pays only in the event of death during the term and there is no cash value. c: The face amount steadily declines throughout the duration of the contract. D: The payable premium amount steadily declines throughout the duration of the contract.
D: The payable premium amount steadily declines throughout the duration of the contract. Premiums remain level with a decreasing term policy; only the face amount decreases.
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 Incorrect! The difference between the premiums paid and the cash value would be taxable. In this example, the difference between the premiums paid ($15,000) and the cash value ($18,000) is $3,000.
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 A: The 6-month period immediately following the issuance or extension of the license. B: Any 1 year. C: The licensing period. D: 2 calendar years immediately preceding the extension date of the license.
D: 2 calendar years immediately preceding the extension date of the license. Incorrect! An insurance license is not intended to be used to earn commissions on personal insurance needs, or those of family members, or business associates only. An insurance producer license may be refused if the Director has reasonable cause to believe that the aggregate amount of premiums on controlled business exceeded the aggregate amount of premiums on all other insurance business during either 2 calendar years immediately preceding the extension date of the license, or the 12-month period immediately following the issuance or extension of the license.
What is the waiting period on a Waiver of Premium rider in life insurance policies? A: 30 days B: 3 months C: 5 months D: 6 months
D: 6 months Incorrect! Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.
In insurance, an offer is usually made when A: The insurer approves the application and receives the initial premium. B: The agent hands the policy to the policyholder. C: An agent explains a policy to a potential applicant. D: An applicant submits an application to the insurer.
D: An applicant submits an application to the insurer. Incorrect! In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.
A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? A: Waiver of premium B: Incontestability period C: Assignment D: Automatic premium loan
D: Automatic premium loan Incorrect! This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.
An insured receives an annual life insurance dividend check. What term best describes this arrangement? A: Reduction of Premium B: Annual Dividend Provision C: Accumulation at Interest D: Cash option
D: Cash option Incorrect! The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check
Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member? A: Spouse rider B: Children's rider C: Additional insured rider D: Family term rider
D: Family term rider Incorrect! A single rider that provides coverage on every family member is called a "family rider".
Why is an equity indexed annuity considered to be a fixed annuity? A: It has modest investment potential. B: It has a fixed rate of return. C: It is not tied to an index like the S&P 500. D: It has a guaranteed minimum interest rate.
D: It has a guaranteed minimum interest rate. Incorrect! While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.
Variable life, group life, and annuities are EXEMPT under which rule? A: Insurance Disclosure B: Fiduciary C: Life Insurance Taxation D: Life Solicitation
D: Life Solicitation Incorrect! The life solicitation rule applies to all life insurance sales, including fraternal benefit life insurance, but not to credit life, group life, franchise life, variable life, annuities, and life insurance in pension and employee benefit plans subject to ERISA.
Ronald is buying life insurance policies. He is unclear which one to buy, and his insurer explains the costs of similar plans, in addition to their basic features. Which rule requires the insurer to disclose such information? A: Insurance Disclosure Rule B: Informational Rule C: Policy Information Rule D: Life Solicitation Rule
D: Life Solicitation Rule Incorrect! The Life Solicitation Rule requires insurers to deliver at least certain minimum information designed to help buyers select the most appropriate life insurance plan for their needs, understand the basic features of the policy they are considering, and evaluate the relative costs of similar plans.
What is the other term for the cash payment settlement option? A: Principal amount B: Face amount C: Proceeds D: Lump sum
D: Lump sum Incorrect! Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.
To which of the following situations does the Replacement Regulation apply? A: Group annuities B: Life coverage in a tax-qualified retirement plan C: Variable life D: Nonrenewable coverage expiring in 8 years
D: Nonrenewable coverage expiring in 8 years Incorrect! The Replacement Regulation does not apply to nonconvertible or nonrenewable term insurance that expires in 5 years or less.
Which of the following statements is correct regarding a whole life policy? A: Cash values are not guaranteed. B: The policy premium is based on the attained age. C: The death benefit may increase or decrease during the policy period. D: The policyowner is entitled to policy loans.
D: The policyowner is entitled to policy loans. Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans.
Which nonforfeiture option has the highest amount of insurance protection? Decreasing Term Reduced Paid-up Extended Term Conversion
Extended Term The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time.
If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select? Fixed period Life with period certain Fixed amount Interest only
Fixed period Under the fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period.
A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it? Immediate Flexible Deferred Variable
Immediate With an immediate annuity, distribution starts within 1 year of purchase.
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits? Flexible payment annuity Deferred interest annuity Immediate annuity Variable annuity
Immediate annuity An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.
Which of the following statements is TRUE concerning the Accidental Death Rider? - This rider is only available to insureds over the age of 65. - It is only available in group insurance. - It will pay double or triple the face amount. - It is also known as a triple indemnity rider.
It will pay double or triple the face amount. The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.
Variable Whole Life insurance is based on what type of premium? Flexible Graded Level fixed Increasing
Level fixed Variable Whole Life insurance is a level fixed premium investment-based product.
An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy? Reciprocal Nonprofit service organization Stock Mutual
Mutual Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid.
The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the - Paid-up additions. - One-year term option. - Paid-up option. - Accelerated endowment.
One-year term option. The dividend is utilized to purchase one-year term insurance.
What describes the specific information about a policy? Illustrations Buyer's guide Producer's report Policy summary
Policy summary A policy summary describes the features and elements of the specific policy for which a person is applying.
Under standard circumstances, at what point should a Buyer's Guide be distributed to a prospective buyer? - During the initial premium-paying period - At the time of application - At the time of acceptance - Prior to the initial premium
Prior to the initial premium The insurer must provide to all prospective purchasers a Buyer's Guide and a policy summary prior to accepting the applicant's initial premium or premium deposit, unless the policy for which application is made contains an unconditional refund offer of at least 10 days.
Another name for a substandard risk classification is Declined. Elevated. Rated. Controlled.
Rated Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.
#4. Which type of retirement account does not require the owner to start taking distributions at age 72? a) Traditional IRA b) Roth IRA c) Nonqualified IRA d) Standard IRA Roth contributions can continue regardless of the account owner's age, and in contrast with a traditional IRA, distributions do not have to begin at age 72.
Roth IRA Roth contributions can continue regardless of the account owner's age, and in contrast with a traditional IRA, distributions do not have to begin at age 72.
In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? - They provide information about a customer's character and reputation. - The customer has no knowledge of this action. - The customer's associates, friends, and neighbors provide the report's data. - They provide additional information from an outside source about a particular risk.
The customer's associates, friends, and neighbors provide the report's data. Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.
Which of the following determines the cash value of a variable life policy? A: The policy's guarantees. B: The premium mode c: The performance of the policy portfolio D: The company's general account
The performance of the policy portfolio The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.
#41. An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? a) The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. b) One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. c) The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. d) The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time.
The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.
All of the following are true regarding the guaranteed insurability rider EXCEPT A: The insured may purchase additional coverage at the attained age. B: The insured may purchase additional insurance up to the amount specified in the base policy. C: It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events. D: This rider is available to all insureds with no additional premium.
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.
In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe? Unilateral Unidirectional Aleatory Conditional
Unilateral In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.
Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? Flexible life Variable life Adjustable life Universal life
Universal life The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.
What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military? War or military service Limited benefit Aviation Hazardous occupation
War or military service There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war.
All of the following entities regulate variable life policies EXCEPT a) The Insurance Department. b) The Guaranty Association. c) Federal government. d) The SEC.
b) The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.
The LEAST expensive first-year premium is found in which of the following policies? a) Annually Renewable Term b) Increasing Term c) Decreasing Term d) Level Term
a) Annually Renewable Term Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.
The minimum number of credits required for partially insured status for Social Security disability benefits is a) 4 credits. b) 6 credits. c) 10 credits. d) 40 credits.
b) 6 credits. To be considered partially insured, an individual must have earned 6 credits during the last 13-quarter period.
Under which of the following circumstances would an insurer pay accelerated benefits? a) A couple wants to build a house and would like to make a larger down payment. b) An insured is diagnosed with cancer and needs help paying for her medical treatment. c) A couple is nearing retirement and needs a steady stream of income. d) An insured is looking for a way to put her daughter through college.
b) An insured is diagnosed with cancer and needs help paying for her medical treatment. Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.
A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium? a) If the daughter is disabled for more than 3 months b) If the daughter is disabled for any length of time c) If the father is disabled for more than 6 months d) If the father is disabled for at least a year
c) If the father is disabled for more than 6 months Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months.
