Multiple Choice to Study for Test

An insurance producer just sold an insurance policy to his sister. What kind of business is this? A. Personal B. Controlled C. Illegal D. Internal

B. Controlled When producers sell policies on themselves, their family, or their coworkers, this is called controlled business. Controlled business is legal as long as premiums paid on these policies do not exceed the premiums that the producer writes for other business.

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT A. The interest is credited at a rate specified by the policy. B. The policy holder has the right to withdraw the accumulations at any time. C. The interest is not taxable since it remains inside the insurance policy. D. The annual dividend is retained by the company.

C. The interest is not taxable since it remains inside the insurance policy. The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

What does "liquidity" refer to in a life insurance policy? a) The death benefit replaces the assets that would have accumulated if the insured had not died. b) The policyowner receives dividend checks each year. c) The insured receives payments each month in retirement. d) Cash values can be borrowed at any time.

d) Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values.

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? A. Insuring clause B. Entire contract clause C. Beneficiary clause D. Consideration clause

A. Insuring clause The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.

When replacing life insurance, the duties of the replacing insurance company include all of the following EXCEPT: A. Providing to each purchaser a Buyer's Guide and a Policy Summary. B. Maintaining a copy of the Notice Regarding Replacement and all sales proposals used for at least 5 years. C. Requiring from the agent with the application a copy of the Notice Regarding Replacement. D. Sending to the existing insurer a copy of the Notice Regarding Replacement immediately.

B. Maintaining a copy of the Notice Regarding Replacement and all sales proposals used for at least 5 years. Replacing insurers must maintain copies of the Notice Regarding Replacement and all sales proposals used for at least 3 years or until the conclusion of the next regular audit by the insurance department, whichever is later.

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.

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report A. Must be advised that a copy of the report is available to anyone who requests it. B. May sue the reporting agency in order to get inaccurate data corrected. C. Must be informed of the source of the report. D. Are entitled to obtain a copy of the report from the party who ordered it.

C. Must be informed of the source of the report. Under the Fair Credit Reporting Act, if an insurance policy is declined or modified because of information contained in a consumer report, the consumer must be advised and provided with the name and address of the reporting agency.

Which of the following is true regarding the spendthrift clause in life insurance policies? A.. It allows the beneficiary to select a different settlement option. B. It is only used when the beneficiary is a minor. C. It is the same as irrevocable settlement clause. D. It can protect the policy proceeds from creditors of the beneficiary.

D. It can protect the policy proceeds from creditors of the beneficiary. The spendthrift clause in a life insurance policy prevents the beneficiary's reckless spending of benefits, and protects the policy proceeds from creditors of the beneficiary or policyowner.

What is the main purpose of the Seven-pay Test? A. It requires level premium payments for 7 years. B. It ensures that the policy benefits are paid out in 7 years. C. It guarantees the minimum interest. D. It determines if the insurance policy is a MEC.

D. It determines if the insurance policy is a MEC. The Seven-pay Test determines whether an insurance policy is "over-funded" or if it's a Modified Endowment Contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest.

All of the following are requirements for life insurance illustrations EXCEPT A. They may only be used as approved. B. They must identify nonguaranteed values. C. They must differentiate between guaranteed and projected amounts. D. They must be part of the contract.

D. They must be part of the contract. An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.

Which of the following is called a "second-to-die" policy? a) Survivorship life b) Family income c) Juvenile life d) Joint life

a) Survivorship life Survivorship life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.

Which is TRUE about the cash surrender nonforfeiture option? a) After the cash surrender, the insured is covered for a grace period of one month. b) The policy remains active for some time after the policyholder opts for cash surrender. c) The policyholder receives the original cash value of the policy. d) Funds exceeding the premium paid are taxable as ordinary income.

d) Funds exceeding the premium paid are taxable as ordinary income. The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

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.