Primerica - Life Insurance Basics (AZ)

Insurers are required to maintain copies of their policy summaries for at least A - 12 months. B - 6 months. C - 3 years. D - 5 years.

C - 3 years. Insurers are required to maintain copies of their policy summaries for at least 3 years.

An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have? A - Term B - Securities C - Stock D - Variable

D - Variable Variable life policies vary in value, as the name suggests, because the value is based on the stocks that support the policy. If a policyholder wants a more stable, reliable value, he/she should invest in a fixed policy.

How many hours of training is a producer required to take before soliciting annuity products? A - 4 hours B - 8 hours C - 15 hours D - There are no special requirements.

A - 4 hours Prior to selling annuity products, producers must take a one-time 4-hour annuity training course. Insurers are responsible for verifying a producer's completion of the required training.

If an insured changes his payment plan from monthly to annually, what happens to the total premium? A - Decreases B - Stays the same C - Doubles D - Increases

A - Decreases Because the insurer would have the entire premium to invest for a full year, they would reduce the premium amount.

Circulating deceptive sales material to the public is what type of Unfair Trade Practice? A - False advertising B - Defamation C - Coercion D - Misrepresentation A - False advertising This is considered to be false, deceptive or misleading advertising.

A - False advertising This is considered to be false, deceptive or misleading advertising.

Which of the following is usually true of a participating life insurance policy? A - Pays dividends to policyowners. B - May be converted to a term life policy. C - Pays dividends to stockholders. D - Assesses premiums against stockholders.

A - Pays dividends to policyowners. Participating is a term used to refer to any insurance policy that distributes its dividends by cash payments, reduced premiums, units of paid-up life insurance, a savings program, or by the purchase of term insurance.

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? A - Premiums are not tax deductible as a business expense. B - Premiums are tax deductible by the key employee. C - Premiums are tax deductible as a business expense. D - Premiums are taxable to the employee.

A - Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.

An insurer neglected to provide a buyer's guide to a customer at the time of application. Which of the following will happen as a result? A - The applicant's first premium will be waived. B - A free-look period of 15 days will be granted. C - The policy will be terminated. D - The insurer will be granted 30 additional days to provide these documents.

B - A free-look period of 15 days will be granted. If the buyer's guide and disclosure document are not provided at the time of application, a free-look period of at least 15 days applies.

An applicant wants to buy a policy that has a cash value element. Which type should she buy? A -Investment B - Term C - Permanent D - Stock

C - Permanent Unlike term insurance, permanent insurance provides lifetime death protection and a savings or cash value option.

An underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require? A - Sworn health affidavit from the applicant B - Statement of Continued Good Health C - Attending Physician Statement D - A complete medical record

C - Attending Physician Statement The APS is used to obtain medical DETAILS about a specific condition which has shown up in the application; the insurance company orders the information directly from the physician, using a signed authorization which was part of the application.

At times, it is possible for a life insurance agent to affect a savings of premium rates by backdating an application for life insurance. What is the maximum amount of time that an application may be backdated? A - One year B - It is not allowed. C - It varies from insurer to insurer. D - 6 months

D - 6 months No policy in this state can take effect more than 6 months prior to the original application date, therefore allowing an agent to backdate a policy applicant's age if his/her birthday was less than 6 months ago.

All of the following are duties and responsibilities of producers at the time of application EXCEPT A - Change any incorrect statement on the application by personally initialing next to the corrected statement. B - Explain the nature and type of any receipt the producer is giving to the applicant. C - Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information. D - Check to make sure that there are no unanswered questions on the application.

A - Change any incorrect statement on the application by personally initialing next to the corrected statement. Any changes to information on an application must be initialed by the applicant.

Which of the following premium modes would result in the highest annual cost for an insurance policy? A - Monthly B - Quarterly C - Semi-annual D - Annual

A - Monthly If the policyowner chooses to pay the premium more frequently than annually, there will be an additional charge (loading) because the company will not have the premium to invest for a full year, and the company will have additional expenses in billing the premium.

Which of the following would provide an underwriter with information concerning an applicant's health history? A - The Medical Information Bureau B - A medical examination C - The agent's report D - The inspection report

A - The Medical Information Bureau An agent's report and inspection report provides personal information. Medical exams provide information on current health. Only the MIB will provide information about an applicant's medical history.

What is the purpose of the buyer's guide? A - To allow the consumer to compare the costs of different policies B - To provide the name and address of the agent/producer issuing the policy C - To list all policy riders D - To provide information about the issued policy

A - To allow the consumer to compare the costs of different policies The buyer's guide provides generic information about life insurance policies and allows the consumer to compare the costs of different policies. The policy summary provides specific information about the issued policy, as well as the insurer's information.

Which of the following is NOT among the accounts that the Life and Disability Insurance Guaranty Fund maintains? A - Annuity account B - Group insurance account C - Disability insurance account D - Life insurance account

B - Group insurance account The Fund maintains the following 3 accounts: the disability insurance account, the life insurance account, and the annuity account.

What is the purpose of key person insurance? A - To maintain an account that insures the owner of a company remains solvent B - To lessen the risk of financial loss because of the death of a key employee C - To provide health insurance to the families of key employees D - To insure retirement benefits are available to all key employees

B - To lessen the risk of financial loss because of the death of a key employee A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills or business contacts. A business can lessen the risk of such loss by the use of key person insurance.

Who makes up the Medical Information Bureau? A - Former insured B - Physicians and paramedics C - Insurers D - Hospitals

C - Insurers The Medical Information Bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.

All of the following are requirements for producer license renewal EXCEPT A - Renewal fees. B - Record of fingerprints. C - Renewal examination. D - Continuing education.

C - Renewal examination. In order to renew a producer's license, proper renewal forms must be submitted, accompanied by payment of the required fees, and proof of the completion of continuing education. The Director may also require a producer to submit a full set of fingerprints. Producers do not have to take any special renewal exams.

Which of the following is an example of liquidity in a life insurance contract? A - The flexible premium B - The money in a savings account C - The cash value available to the policyowner D - The death benefit paid to the beneficiary

C - The cash value available to the policyowner Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.

What is the name of the insured who enters into a viatical settlement? A - Contingent B - Viatical broker C - Viator D - Third party

C - Viator Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.

An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n) A - Attending Physician Statement. B - Inspection report. C - Medical Information Bureau report. D - Medical examination.

B - Inspection report. An inspection report may be ordered about an applicant from an independent investigating firm or credit agency. It is a general report of the applicant's finances, character, work, hobbies, and habits.

Which of the following information about the applicant is NOT included on Part 1 of the application for insurance? A - Occupation B - Marital status C - Medical background D - Gender

C - Medical background Part 1 of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. The applicant's medical background is addressed in Part 2 - Medical Information.

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? A - Effect of inflation on income over time. B - Predicted needs of the family after the insured's death. C - Insured's current and future income. D - Insured's annual expenses.

B - Predicted needs of the family after the insured's death. The Human Life Value Approach to determining the value of an individual's life requires the calculation of probable future earnings of the insured, which involves wages, expenses, inflation, amount of time until retirement, and the time value of money. Predicted needs of the family after the insured's death are used in the needs approach.

Which of the following best describes the MIB? A - It is a rating organization for health insurance. B - It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. C - It is a government agency that collects medical information on the insured from the insurance companies. D - It is a member organization that protects insured against insolvent insurers.

B - It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. The Medical Information Bureau (MIB) is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as A - Survivorship insurance B - Juvenile protection provision C - Survivor protection D - Life planning

C - Survivor protection Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection.

Which is generally true regarding insureds who have been classified as preferred risks? A - They can decide when to pay their monthly premiums. B - They keep a higher percentage of any interest earned on their policies. C - Their premiums are lower. D - They can borrow higher amounts off of their policies.

C - Their premiums are lower. The preferred risk classification indicates that an insured is in excellent physical condition and employs healthy lifestyles and habits. These individuals qualify for lower premiums than those in the other categories.

Which of the following types of insurance policies would perform the function of cash accumulation? A - Term life B - Credit life C - Increasing term D - Whole life

D - Whole life Life insurance is unique from other types of insurance in that it could perform the function of cash accumulation. Cash values are available in whole life policies.

An insurer has placed a notice on its advertising stating that its policies are protected by the Life and Disability Insurance Guaranty Fund. This practice is A - Optional: each insurer makes its own decision about this. B - Illegal: insurers cannot advertise protection by the Fund. C - Legal: applicants have the right to know about policy guarantees. D - Required by the Life and Disability Insurance Guaranty Fund.

B - Illegal: insurers cannot advertise protection by the Fund. Stating that an insurer's policies are guaranteed by the existence of the Life and Disability Guaranty Fund is an unfair trade practice.

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

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

All advertisements are the responsibility of the A - Insured. B - Advertising agency. C - Department of Insurance. D - Insurer.

D - Insurer. The insurer whose policies are advertised is responsible for all its advertisements, regardless of who wrote, created, presented, or distributed them.

The insurance company underwriter could find information concerning the personal activities and character of an applicant from which of the following reports? A - Attending physician B - Insurance company who provided the prior coverage C - Medical Information Bureau D - Producer's report

D - Producer's report The agent communicates his/her observations concerning an applicant in the producer's report.

Which of the following would least likely be considered a legitimate need that would be paid by insurance proceeds? A - Travel expenses for family to come to the funeral B - Debt cancellation C - Day care D - Vacation travel expenses

D - Vacation travel expenses There are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Vacation travel expenses are most likely to be considered a luxury and not a need.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT A - Any type of insurance policy may be used. B - The employer pays a bonus to a selected employee to fund the policy. C - It is considered a nonqualified employee benefit. D - The policy is owned by the company.

D - The policy is owned by the company. The policy is owned by the employee.

An insurer wants to obtain information from investigators regarding an applicant for insurance. What must the insurer do in order to legally acquire this information? A - Receive written permission from the Department of Insurance B - Receive a signed statement from the insured which authorizes the investigation C - Sign a waiver that the information will be kept confidential D - Present the insured with a Disclosure Authorization Notice

D - Present the insured with a Disclosure Authorization Notice Before an insurer can obtain information from investigators regarding an applicant, it must first present the insured with a Disclosure Authorization Notice. This notice states the insurer's information collection practices and how the information will be used.

If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered A - An unfair trade practice. B - A misrepresentation. C - A required disclosure. D - A legal representation of the Association.

A - An unfair trade practice. It is an unfair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the Insurance Guaranty Association. Though it is illegal to advertise, the statement is still true and would not be considered a misrepresentation.

Stranger-originated life insurance policies are in direct opposition to the principle of A - Indemnity. B - Insurable interest. C - Law of large numbers. D - Good faith.

B - Insurable interest. Because the purchaser of a stranger-originated life insurance policy doesn't know the insured, or have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest.

The Medical Information Bureau (MIB) was created to protect A - Insureds from unreasonable underwriting requirements by the insurance companies. B - Medical examiners that perform insurance physical examinations. C - Insurance companies from adverse selection by high risk persons. D - Insurance departments from lawsuits by policyowners.

C - Insurance companies from adverse selection by high risk persons. The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

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 If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.

Another name for a substandard risk classification is A - Controlled. B - Declined. C - Elevated. D - Rated.

D - 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.

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? A - The employer is the owner and the key employee is the beneficiary. B - The key employee is the owner and beneficiary. C - The key employee is the owner and the employer is the beneficiary. D - The employer is the owner and beneficiary.

D - The employer is the owner and beneficiary. With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.