Sample Exam
Assume a mortality table shows the following number of people living at the beginning of ages 40, 50, and 51: Age Number Living 40 - 9,400 50 - 9,000 51 - 8,950 Using this information, what is the probability that a person living at the beginning of age 40 will die while aged 50? (A) .005319 (B) .005556 (C) .042553 (D) .957447
(A) .005319
All the following statements concerning reinsurance agreements and their provisions are correct EXCEPT (A) A facultative agreement binds the primary company to offer, and the reinsurer to accept, all risks that fall within the purview of the agreement. (B) Any settlement made by the primary company with a claimant is generally binding on the reinsurer. (C) Recapture of insurance by the primary company is usually permitted only after the policies involved have been in force for a specified period of time. (D) It is becoming increasingly common for reinsurance agreements to contain a provision permitting a primary company to share in any mortality gains and losses arising under reinsured policies.
(A) A facultative agreement binds the primary company to offer, and the reinsurer to accept, all risks that fall within the purview of the agreement.
All the following statements concerning the functions or services that agents provide for the public are correct EXCEPT (A) Agents often make suggestions for reducing the number of policies a prospect owns. (B) Agents generally give advice and make recommendations about what product is best. (C) Agents often analyze a prospect's needs and advise the prospect about the amount of protection required. (D) Agents perform an important service merely by calling attention to the need for protection.
(A) Agents often make suggestions for reducing the number of policies a prospect owns.
Which of the following statements concerning the insurance regulatory information system (IRIS) and/or risk-based capital (RBC) tools used by state regulators is correct? (A) Asset default risk, rather than insurance risk, is generally the most important risk factor in terms of the proportion of a company's RBC that is represents. (B) Failure of IRIS or RBC tests by themselves indicates that a company has a significant risk of insolvency or impairment. (C) The IRIS system has specific rules that determine the degree of regulatory response for a company whose results fall outside the usual ranges in a number of IRIS tests. (D) Like the claims-paying-ability ratings of the rating services, IRIS ratios are intended to be measures of company risk.
(A) Asset default risk, rather than insurance risk, is generally the most important risk factor in terms of the proportion of a company's RBC that is represents.
A 1992 study of policy illustrations by a task force of the Society of Actuaries concluded which of the following about policy illustrations? I. They work well to educate clients in the mechanics of how policies work. II. They are an adequate tool for comparing costs of policies from different insurance companies. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
Which of the following purposes can be accomplished by using term insurance as collateral for a loan? I. Protection for the lender against loss resulting from the borrower's death II. Protection for the lender against the borrower's unwillingness or inability to repay the loan (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
Which of the following statements concerning a spendthrift clause is (are) correct? I. It keeps insurance proceeds under a settlement agreement from being reached by the beneficiary's creditors. II. It is enforceable when a policyowner elects a settlement option for his or her own benefit. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
Which of the following statements concerning a whole life insurance policy is (are) correct? I. The premium-paying period can be shorter than the insured's remaining lifetime. II. The insurance company retains the right of cancellation for the duration of the policy. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
Which of the following statements concerning the application for life insurance is (are) correct? I. It is used to obtain important information directly from the applicant. II. It must be completely filled out by the applicant. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
Which of the following statements concerning the fixed-period settlement option is (are) correct? I. Prepaid premiums considered to be part of the proceeds may increase the payment amounts. II. Policy loans outstanding at the policy's maturity may shorten the time period over which payments are made. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
Which of the following statements concerning the functional areas of a life insurance company is (are) correct? I. The marketing or agency department may participate in the development of new products. II. The human resources department handles the recruitment, selection, and training of new agents. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
Which of the following statements concerning the underwriting of life insurance is (are) correct? I. Urinalysis detection of excess sugar could lead to a higher premium or refusal to issue coverage. II. Detection of low blood pressure usually results in refusal to issue coverage. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(A) I only
All the following statements concerning both contract and current rates of income per $1,000 of proceeds are correct EXCEPT (A) If a liquidating option is elected by the beneficiary within a relatively short period of time after the insured's death, current rates apply. (B) Contract rates are always available to the policyowner for settlement options contained in the original policy. (C) Contract rates are intended to protect the insurance company from adverse mortality and financial selection. (D) Current rates normally apply if a policyowner wants the proceeds distributed in a way that is not provided for in the original policy.
(A) If a liquidating option is elected by the beneficiary within a relatively short period of time after the insured's death, current rates apply.
Which of the following statements concerning current assumption whole life is correct? (A) It has a redetermination feature that reconfigures the premium amount in light of recent experience. (B) It is a variation of traditional whole life that provides no guarantees for the policy-owner. (C) Its cash value development is more like that of variable life than of any other policy. (D) It is participating insurance that has several unique dividend features
(A) It has a redetermination feature that reconfigures the premium amount in light of recent experience.
Which of the following statements concerning modified reserves is correct? (A) Modified reserves help to reduce the strain placed on a company's surplus by the high first-year expenses on new business. (B) Modified reserves are always smaller than full net level premium reserves. (C) Modified reserves are based on the same level pattern of net premiums that is used in calculating full net level premium reserves. (D) In most states, a company must establish a reserve equal to the modified reserve calculated with the Commissioners Reserve Valuation Method.
(A) Modified reserves help to reduce the strain placed on a company's surplus by the high first-year expenses on new business.
All the following statements concerning the receipt of an annuity due of $100 per year for 6 years are correct EXCEPT (A) The annuity due involves payments of $100 to be received at the end of each year for 6 years. (B) The present value of the annuity due will decrease as assumed interest rates increase. (C) The present value for the annuity due will be larger than the present value of an ordinary annuity of $100 per year for 6 years at the same rate of interest. (D) By investing the payments received at a specified interest rate, the annuitant will earn more interest than if he or she had been investing payments from an ordinary annuity of $100 per year for 6 years.
(A) The annuity due involves payments of $100 to be received at the end of each year for 6 years.
Which of the following statements concerning the yearly renewable term plan of reinsurance is correct? (A) The primary company, rather than the reinsurer, is responsible for surrender values and policy loans. (B) The reinsurer is liable only for the portion of the policy death benefit equal to the reserve on the amount of insurance above the primary company's retention. (C) The reinsurer is responsible for holding the policy reserves. (D) The plan requires the primary company to transfer most of the premiums to the reinsurer and thus leads to a very slow growth in the primary company's assets.
(A) The primary company, rather than the reinsurer, is responsible for surrender values and policy loans.
Consequences of the interest-rate-based competition in the 1990s have resulted in all the following EXCEPT (A) an increase in the average maturity of the typical insurer's portfolio (B) a broadening of buyer's choices for insurance products (C) a decrease in the number of life insurers (D) an increase in the importance of annuities for generating investable funds
(A) an increase in the average maturity of the typical insurer's portfolio
Which of the following investments accounts for the largest share of assets of U.S. life insurance companies? (A) corporate bonds (B) policy loans (C) stocks (D) mortgages
(A) corporate bonds
Mortgage redemption insurance is an example of (A) decreasing term insurance (B) increasing term insurance (C) re-entry term (D) term to 65
(A) decreasing term insurance
Which of the following is usually the primary source of capital (surplus) for a life insurance company? (A) favorable deviations of actual experience from assumed experience on seasoned policies (B) funds raised by selling bonds in the traditional capital markets (C) the effective use of reinsurance to transfer risk to outsiders (D) voluntary policy terminations at early durations when policy surrender values are less than their reserves
(A) favorable deviations of actual experience from assumed experience on seasoned policies
All the following are treated differently under statutory accounting practices than they are under GAAP EXCEPT (A) policy loans (B) policy reserves (C) policy acquisition costs (D) federal income taxes
(A) policy loans
The NAIC model regulation pertaining to life insurance policy illustrations prohibits all the following EXCEPT (A) taking more than 10 days to provide a current in-force illustration for an existing universal life policy (B) representing the policy as anything other than a life insurance policy (C) stating or implying that the amount of policy dividends or other nonguaranteed elements is certain or guaranteed (D) using the term "vanishing premium" to describe a plan for using policy dividends or other nonguaranteed elements to pay a portion of future premiums
(A) taking more than 10 days to provide a current in-force illustration for an existing universal life policy
All the following statements concerning universal life insurance policies are correct EXCEPT (A) Under the increasing death benefit option the total death benefit equals the stated face amount plus the amount at risk. (B) Most policies credit current interest rates on the cash value as long as there are no outstanding policy loans. (C) Withdrawals affect future earnings because the fund still intact to earn interest is reduced by the amount of the withdrawal. (D) The target premium amount is merely a suggestion and carries no liability if it is inadequate to maintain the contract to any duration.
(A) the increasing death benefit option the total death benefit equals the stated face amount plus the amount at risk.
Which of the following statements concerning life insurance settlement agreements is correct? (A) Most beneficiaries elect payment in the form of a settlement option as opposed to a lump-sum payment. (B) A settlement agreement contains a detailed description of the way proceeds will be distributed. (C) An insurance company's liability under a policy ends once payments under a settlement option start. (D) A settlement agreement must be drawn up at the time a policy goes into effect.
(B) A settlement agreement contains a detailed description of the way proceeds will be distributed.
Changes that have occurred in recent years with respect to life insurance company investments include which of the following? I. Bond investments have been heavily redirected away from public securities and toward directly negotiated deals with debtors. II. The average maturity of the nonmarketable part of long-term investments has been cut sharply. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only
Which of the following statements concerning GAAP accounting and reporting for life insurance companies is (are) correct? I. The underlying accounting principle influencing GAAP is to charge off all policy acquisition costs against revenues in the year of sale. II. The focus of GAAP reporting is on the income statement and the statement of cash flows, rather than on the balance sheet. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only
Which of the following statements concerning re-entry term insurance is (are) correct? I. The initial premium is based on an ultimate mortality table if the insured's health is better than average. II. Future premiums will be based on a select mortality table if satisfactory evidence of insurability is periodically provided. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only
Which of the following statements concerning reduced paid-up insurance is (are) correct? I. There is no surrender privilege under reduced paid-up whole life and endowment policies. II. A reduced paid-up policy is payable on the same conditions as the original policy. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only
Which of the following statements concerning substandard risk underwriting is (are) correct? I. The gross premium for a 200 percent extra percentage case will be 2 times the gross premium for a standard case. II. Deafness is an example of a constant hazard appropriately handled with a flat extra premium. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only
Which of the following statements concerning the higher rate of mortality associated with the issuance of nonmedical insurance is (are) correct? I. The extra mortality normally does not manifest itself until 20 to 25 years after the policy is issued. II. The extra mortality is believed to stem from impairments known to the applicant but deliberately concealed. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only
Which of the following statements concerning the use of mortality tables is (are) correct? I. Most major life insurance companies rely principally on either the mortality rates from the 1980 CSO Table or 2001 CSO Table for setting premium rates and dividend scales. II. Statutory mortality tables provide a minimum basis for the valuation of liabilities. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only
Which of the following statements concerning universal life insurance premium payments is (are) correct? I. At no time is there a required minimum level of premium payment. II. Nearly every policy is issued with a target premium amount. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(B) II only
Which of the following statements concerning the NAIC model Holding Company Act is correct? (A) It contributes to the pressure on insurers to organize holding company systems in which the insurer is a subsidiary of the noninsurance parent company. (B) It requires that organizations seeking control of an insurer disclose relevant information and obtain the approval of the commissioner. (C) It establishes a 5 percent maximum dividend distribution to affiliated companies. (D) It permits the commissioner only to issue cease-and-desist orders to enforce the act.
(B) It requires that organizations seeking control of an insurer disclose relevant information and obtain the approval of the commissioner.
Which of the following statements concerning surrender values is correct? (A) Surrender values often exceed policy reserve amounts in early policy years. (B) Many companies provide surrender values greater than the minimum required by law. (C) The minimum required surrender value is different for each life insurer because it reflects actual company mortality experience. (D) Flexible premium policies have simplified the calculation of minimum required surrender values
(B) Many companies provide surrender values greater than the minimum required by law.
All the following statements concerning yearly renewable term insurance are correct EXCEPT (A) The premium is determined by the death rate at the insured's attained age. (B) The policy owner must furnish evidence of insurability to renew coverage. (C) The right to renew coverage may be limited to a specified period or a specified age. (D) If the insured dies while coverage is in force, the face amount of the policy is paid to the designated beneficiaries.
(B) The policy owner must furnish evidence of insurability to renew coverage
All the following statements concerning life annuities are correct EXCEPT (A) The life annuity principle is based on the uncertainty of the length of life. (B) The total sum of benefit payments under every life annuity contract will at least equal the sum paid for the contract. (C) Life annuities are based on a pooling arrangement under which those who die early make a contribution on behalf of those who live beyond their life expectancy. (D) The word life in the title of an annuity indicates that the payments are based on life contingencies.
(B) The total sum of benefit payments under every life annuity contract will at least equal the sum paid for the contract.
All the following statements concerning universal variable life insurance are correct EXCEPT (A) These policies permit the policy owner to direct the investment portfolio. (B) These policies treat all cash value withdrawals as policy loans. (C) These policies shift some of the investment risk to the policy-owner. (D) These policies have either a level death benefit or an increasing death benefit.
(B) These policies treat all cash value withdrawals as policy loans.
All the following statements concerning various plans of proportional reinsurance are correct EXCEPT (A) Under modified coinsurance, the primary company pays the reinsurer a proportional part of the gross premium less agreed-upon allowances for commissions, premium taxes, and overhead. (B) Under the coinsurance plan, the primary company retains the entire reserve under the reinsured policy. (C) Under the yearly renewable term plan, the primary company is liable for the portion of the death benefit equal to the amount of its retention limit plus the reserve on the amount of insurance above its retention limit. (D) Under the coinsurance plan, the reinsurer must pay dividends on the portion of insurance it assumes on a participating policy, according to the primary company's dividend scale.
(B) Under the coinsurance plan, the primary company retains the entire reserve under the reinsured policy.
All the following statements concerning variable life insurance are correct EXCEPT (A) Agents who sell variable life policies must be licensed as both life insurance agents and securities agents. (B) Variable life policies provide guarantees of both the interest rate and a minimum cash value. (C) Variable life policies can be sold only after the prospective purchasers have had a chance to read the prospectus. (D) Variable life policies become more acceptable to consumers after a long period of market increases.
(B) Variable life policies provide guarantees of both the interest rate and a minimum cash value.
Which of the following reinsurance plans is proportional reinsurance? (A) a stop-loss agreement (B) a coinsurance agreement (C) a catastrophe agreement (D) a spread-loss agreement
(B) a coinsurance agreement
All the following are guiding principles that must govern the risk selection procedures of an insurance company if it is to operate on a sound basis EXCEPT (A) predominance of the standard group (B) avoidance of inferior risks (C) equity among policy owners (D) compatibility with underlying mortality assumptions
(B) avoidance of inferior risks
The human life value approach assumes that a person should carry life insurance in an amount equal to the (A) capitalized value of the person's gross earnings (B) capitalized value of the person's net earnings (C) needs of the family if the person should die (D) life income needs of the surviving dependent spouse
(B) capitalized value of the person's net earnings
The three-factor contribution plan for distributing surplus recognizes all the following sources of surplus EXCEPT (A) expense (loading) savings (B) gains from voluntary policy terminations (C) excess interest (D) mortality savings
(B) gains from voluntary policy terminations
Under which of the following circumstances would a life insurance company experience a gain? (A) if a policy matures as a death claim when its asset share is less than its reserve (B) if a policy lapses when its asset share is larger than its surrender value but less than its reserve (C) if a policy matures as a death claim when its asset share is larger than its surrender value but less than its reserve (D) if a policy lapses when its asset share is less than its surrender value
(B) if a policy lapses when its asset share is larger than its surrender value but less than its reserve
The average period after policy issuance until a claim is paid is the (A) portfolio immunization period (B) liability duration (C) validation period (D) measure of convexity
(B) liability duration
An annuity that makes lifetime payments with the first payment made at issue is called a(n) (A) life annuity immediate (B) life annuity due (C) annuity certain (D) annuity due
(B) life annuity due
A mortality table that reflects only the expected rates of mortality after the influence of selection has worn off is called a(n) (A) select mortality table (B) ultimate mortality table (C) aggregate mortality table (D) multiple-decrement mortality table
(B) ultimate mortality table
Use the following information to answer the question below: Years Present Value of an Ordinary Immediate Annuity of one per Year at 5 Percent Interest 11 8.3064 12 8.8633 13 9.3936 What is the present value of an annuity due of $1,000 per year for 12 years at 5 percent interest? (A) $8,306.40 (B) $8,863.30 (C) $9,306.40 (D) $9,863.30
(C) $9,306.40
Which of the following statements concerning the fundamental factors associated with getting new business is correct? (A) A low agent-retention rate should result in greater productivity per agent. (B) Persistency refers to the number of calls an agent makes per sale. (C) A high agent-retention rate avoids company expenses associated with new agent recruitment. (D) Agent productivity refers to the amount of premium dollars an agent generates per $1,000 of policy face amount.
(C) A high agent-retention rate avoids company expenses associated with new agent recruitment.
If the same mortality and interest assumptions are used, which of the following statements concerning reserves for a 10-payment whole life policy issued to a female aged 30 is (are) correct? I. The reserve computed under the Commissioners Reserve Valuation Method is greater than zero but less than the full net level premium reserve at the end of the first policy year. II. The reserve computed under the Commissioners Reserve Valuation Method is equal to the full net level premium reserve at age 45. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following applies to a statutory balance sheet but not to a GAAP statement? I. the concept of non-admitted assets II. an asset valuation reserve (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements about marketing life insurance is (are) correct? I. Super producers have become a recognizable distribution approach. II. Many life insurers have been willing to experiment with new marketing approaches in an effort to increase efficiency. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning adjustable life insurance is (are) correct? I. The adjustable life policy gives the policyowner the right to request and obtain a reconfiguration of the policy at specified intervals. II. The adjustable life policy offers all of the same guarantees regarding cash values, mortality, and expenses as traditional whole life policies do. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning limited-payment whole life insurance policies is (are) correct? I. The limitation on the number of premiums to be paid may be expressed in terms of either a maximum number of years or an age beyond which premiums are not payable. II. If the insured dies during the premium-paying period, the total premiums paid will exceed those paid for an ordinary life policy of the same face amount issued at the same age. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning nonvariable life policy illustrations is (are) correct? I. They usually cover at least 10 years of data and often cover 15 or 20 years. II. Company illustrations can vary in content and format. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning sources and uses of company surplus is (are) correct? I. Interest earnings greater than the assumed rate usually contribute the largest portion of insurer gains for policies that develop a cash value. II. Financing company growth generally presents the life insurer's largest internal demand for capital (surplus), regardless of whether it is a mutual or a stock company. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning surrender options under universal life and variable universal life policies is (are) correct? I. These policies provide a nonguaranteed form of reduced paid-up option II. These policies do not have a guaranteed extended term option. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning the calculation of net premiums for a nonrefund deferred whole life annuity purchased by a male aged 40 to begin annuity payments of $100 per year at age 65 is (are) correct? I. The net single premium can be calculated by using either the pure endowment approach or the general annuity approach. II. The net level premium is calculated by dividing the net single premium by the present value of a 25-year temporary life annuity due of one dollar per year calculated as of age 40. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning the effects of changing assumptions in computing present values is (are) correct? I. Increasing the interest rate will lower the present value of a specific future value. II. Lengthening the discounting period will lower the present value of a specific future value. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
Which of the following statements concerning the main types or branches of the agency system is (are) correct? I. The non-building branch expands by tapping into the existing pool of agents to create an instant sales force. II. The building branch expands by recruiting and training new agents. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(C) Both I and II
All the following statements concerning technical aspects of insurance company investment management are correct EXCEPT (A) The duration of an asset changes with changes in interest rates so that the value of any portfolio will tend to diverge from initial calculations. (B) A barbell strategy involves having one concentration of assets at the shortest end of the yield curve and another concentration at the long end. (C) Selling covered call options enables the seller of the option to retain potential future price gains in a portfolio of bonds. (D) Treasury bond futures contracts are often used in hedging transactions.
(C) Selling covered call options enables the seller (buyer?) of the option to retain potential future price gains in a portfolio of bonds.
Which of the following statements concerning factors used in the selection and classification process of applicants for life insurance is correct? (A) Applicants must submit document proof of age as part of the application. (B) Any past health record of the applicant is of little real relevance in the selection process. (C) The determination of an applicant's mortality expectation involves an examination of the relationship between height, weight, and girth. (D) The influence of heredity may be most significant when evaluating a young person's application.
(C) The determination of an applicant's mortality expectation involves an examination of the relationship between height, weight, and girth.
Which of the following statements concerning renewable term life insurance is correct? (A) Evidence of insurability must he furnished at the time of each renewal. (B) The scale of renewal rates contained in the contract may be changed by the insurance company. (C) The insurance company may experience some adverse selection with each renewal. (D) The premium rate at each renewal remains the same.
(C) The insurance company may experience some adverse selection with each renewal.
Which of the following statements concerning the insurability option offered by most life insurance companies is correct? (A) The policy purchased under the option must be the same plan as the original policy. (B) Premiums for the new additional insurance purchased under the option are based on the original age of issue for the original policy. (C) The option may be exercised only at given time intervals or scheduled events. (D) The extra premium to purchase this option is based on the number or type of option conditions.
(C) The option may be exercised only at given time intervals or scheduled events.
All the following statements concerning the operation of an automatic premium loan provision are correct EXCEPT (A) If the policy is participating, the policy owner continues to receive dividends. (B) Special benefits such as waiver of premium and accidental death remain in full force. (C) The policy owner must furnish evidence of insurability to resume premium payments. (D) An automatic premium loan usually bears interest at the rate applicable to all policy loans.
(C) The policy owner must furnish evidence of insurability to resume premium payments.
All the following statements concerning life income settlement options are correct EXCEPT (A) There are as many variations of the life income option as there are types of immediate annuities. (B) A life income option is nothing more than the annuity principle applied to the liquidation of insurance proceeds. (C) There is a commutation privilege for benefits payable under a deferred life annuity. (D) Benefits are calculated on the basis of the age and sex of the primary beneficiary.
(C) There is a commutation privilege for benefits payable under a deferred life annuity.
Which of the following statements concerning the adjusted-premium method for computing surrender values is correct? (A) This method produces the surrender value that the Standard Nonforfeiture Law requires a company to provide for a policy. (B) A policy's surrender value is computed under this method by subtracting the present value of future net level premiums from the present value of future benefits. (C) This method amortizes a special first-year expense allowance over a policy's premium-paying period. (D) The mortality and interest assumptions used to calculate surrender values with this method must be the
(C) This method amortizes a special first-year expense allowance over a policy's premium-paying period.
The method most commonly used by life insurance companies for dealing with substandard risks that present an increasing hazard is to (A) create a lien against the policy for a number of years (B) assess a flat extra premium (C) charge a premium based on a mortality table that reflects the degree of extra mortality for the substandard class into which a risk is classified (D) make no extra charge but place all of the members of the group in a special class for dividend purposes, adjusting the dividends in accordance with actual experience
(C) charge a premium based on a mortality table that reflects the degree of extra mortality for the substandard class into which a risk is classified
Because of the level premium concept, an ordinary life insurance policy can be viewed as a combination of (A) increasing protection and increasing reserve (B) increasing protection and decreasing reserve (C) decreasing protection and increasing reserve (D) decreasing protection and decreasing reserve
(C) decreasing protection and increasing reserve
All the following are steps in the calculation of a person's economic value for purposes of life insurance EXCEPT (A) estimating the person's average annual earnings from personal efforts over the remaining years of his or her income-producing lifetime (B) deducting income taxes, life insurance premiums, and the cost of selfmaintenance from estimated earnings (C) estimating the number of years until the person's death (D) selecting a reasonable interest rate at which future earnings will be discounted
(C) estimating the number of years until the person's death
Which of the following factors affecting asset shares has an impact that increases with duration? (A) mortality (B) terminations (C) interest (D) expenses
(C) interest
All the following are steps that may be involved in the construction of a life insurance mortality table EXCEPT (A) selecting a sample population representative of the population where the resulting probabilities are to be used (B) computing raw death rates from the numbers observed living and dying at each age in a mortality study (C) lowering death rates below those expected to introduce margins of safety (D) introducing projections to reflect changes that have occurred in mortality since the observation period
(C) lowering death rates below those expected to introduce margins of safety
All the following are IRIS ratios EXCEPT (A) net change in capital and surplus ratio (B) real estate to capital and surplus ratio (C) marketing expenses per new policy sales (D) adequacy of investment income ratio
(C) marketing expenses per new policy sales
The NAIC model regulation pertaining to life insurance policy illustrations requires inclusion of all the following EXCEPT (A) the generic name of the policy (such as, whole life, universal life, term life, and so on) (B) the underwriting classification upon which the illustration is based (C) the amount of state guarantee fund protection in case of insurer failure (D) the name, age, and/or sex of the proposed insured
(C) the amount of state guarantee fund protection in case of insurer failure
All the following are considered in determining the net level premium for a $1,000 ten-year endowment issued to a male aged 25 EXCEPT (A) the net single premium of a $1,000 ten-year term policy issued to a male aged 25 (B) the net single premium of a $1,000 ten-year pure endowment issued to a male aged 25 (C) the present value of a whole life annuity due of $1 per year calculated as of age 25 (D) the present value of a ten-year temporary life annuity due of $1 per year calculated as of age 25
(C) the present value of a whole life annuity due of $1 per year calculated as of age 25
Which of the following statements concerning deferred annuity contracts is correct? (A) Withdrawals during the accumulation period are exempt from charges. (B) Even variable annuities guarantee a very low minimum accumulation rate. (C) Federal law requires the accumulation phase to end by age 70 1/2 or earlier. (D) Almost every deferred annuity contract provides some refund benefit if the annuitant dies during the accumulation period.
(D) Almost every deferred annuity contract provides some refund benefit if the annuitant dies during the accumulation period.
All the following are criticisms leveled against the numerical rating system used in the classification of risks EXCEPT (A) The system is too arbitrary. (B) There are many impairments about which knowledge is too limited to permit the assignment of numerical values. (C) The interrelated factors are non-additive in so many cases that it nullifies the value of the numerical process. (D) An insufficient number of minor debits and credits are taken into account.
(D) An insufficient number of minor debits and credits are taken into account.
All the following statements concerning risk pooling are correct EXCEPT (A) It involves combining risks by persons exposed to loss from a particular source. (B) It involves sharing losses on some equitable basis. (C) It is one important element of any sound insurance plan. (D) It is used only when an insurance arrangement is mutual in nature.
(D) It is used only when an insurance arrangement is mutual in nature.
Which of the following statements concerning a stock life insurance company's statement of financial position (balance sheet) is correct? (A) It presents the company's revenues, expenses, and earnings (losses) for the fiscal period. (B) It generally shows the same amount of (shareholders') equity regardless of whether the statement is prepared on a statutory or a GAAP basis. (C) It contains a section that specifically reports cash flows from insurance operations, from investing operations, and from financing. (D) It lists the company's assets, liabilities, and equity position at the end of a fiscal period.
(D) It lists the company's assets, liabilities, and equity position at the end of a fiscal period
Current trends in the investment environment for insurance companies include which of the following? I. More liberal investment practices II. Withdrawal from money management and increased emphasis on traditional insurance products (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II
Which of the following statements concerning life insurance reserves is (are) correct? I. The initial reserve is used principally to determine dividends under participating policies. II. The prospective method of valuation is the approach most commonly used by actuaries to calculate reserves for flexible-premium policies. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II
Which of the following statements concerning methods used by life insurance companies to handle substandard risks is (are) correct? I. If a male applicant aged 40 is rated up to age 45 under the increase-in-age method, the premium will be that for a policy issued to a male aged 45, but the surrender values will be the same as those for a policy issued to a male aged 40. II. When the flat extra premium method is issued, cash surrender values and dividends are increased to reflect the additional premium paid. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II
Which of the following statements concerning the distribution of surplus is (are) correct? I. Each year a mutual company returns its surplus gains for that year in dividends to policy-owners. II. The three-factor contribution plan is used by most companies because it refunds the excess payments of individual policyowners exactly and, therefore, provides total equity. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II
Which of the following statements concerning the readjustment period for survivors after a wage earner's death is (are) correct? I. The length of the period should be 6 months or less. II. The income during the period should be equal to the insured's gross earnings at the time of death. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II
Which of the following statements concerning training new agents is (are) correct? I. New agents generally require less supervision than veteran agents because they do not produce as much business. II. Sales quotas should be avoided because new agents do not have the necessary sales experience. (A) I only (B) II only (C) Both I and II (D) Neither I nor II
(D) Neither I nor II
All the following statements concerning statutory accounting and reporting for life insurance companies are correct EXCEPT (A) The statutory statement places primary emphasis on solvency and stability. (B) The statutory statement focuses principally on the balance sheet. (C) Statutory accounting practices are a form of liquidation-basis accounting. (D) Statutory accounting practices seek to spread policy acquisition costs evenly over each year a life insurance policy is in force.
(D) Statutory accounting practices seek to spread policy acquisition costs evenly over each year a life insurance policy is in force.
All the following statements concerning methods used by life insurance companies to handle substandard risks are correct EXCEPT (A) The chief appeal of the increase-in-age method to the insurance company is its simplicity. (B) The increase-in-age method is appealing to the applicant because the higher premium is accompanied by correspondingly higher surrender values and dividends if a policy is participating. (C) When the degree of extra mortality is small, members of the group may be placed in a special class for dividend purposes rather than being assessed an extra premium charge. (D) The flat extra premium method is normally used when the hazard is thought to be increasing, as opposed to decreasing or constant.
(D) The flat extra premium method is normally used when the hazard is thought to be increasing, as opposed to decreasing or constant.
Which of the following statements concerning variable adjustable life insurance is correct? (A) The policy-owner has the unilateral right to skip premium payments. (B) Most companies offering this coverage also market universal life. (C) The death benefit can be less than the original amount of coverage. (D) The policy-owner has a limited ability to choose the investment portfolio.
(D) The policy-owner has a limited ability to choose the investment portfolio.
Which of the following statements concerning the retention of policy proceeds under the interest option is correct? (A) It is an option that permanently precludes the distribution of a lump sum to the beneficiary. (B) Payments should be made monthly rather than annually to increase the total annual interest amount. (C) The beneficiary takes a risk because the insurance company is prohibited from guaranteeing a rate of interest. (D) The policyowner may grant the primary beneficiary a limited right of withdrawal.
(D) The policy-owner may grant the primary beneficiary a limited right of withdrawal.
The typical loading to a life insurance net premium reflects all the following EXCEPT (A) a percentage of the premium (B) a constant amount for each $1,000 of insurance (C) a constant amount for each policy (D) a factor for investment expenses
(D) a factor for investment expenses
1. The sum that each life insurance policyowner must contribute as his or her share of the death claims in any particular policy year is called the (A) benefit of survivorship (B) mean reserve (C) net level premium (D) cost of insurance
(D) cost of insurance
All the following are reasons why a mutual life insurance company might decide to convert to the stock form of organization EXCEPT (A) increased ability to raise capital (B) greater flexibility to expand through acquisitions or diversification (C) new opportunities to offer noncash incentive compensation to attract and retain key employees (D) freedom from the complexities of federal and state securities laws
(D) freedom from the complexities of federal and state securities laws
The type of annuity that provides the maximum income per dollar of outlay is called a(n) (A) cash refund annuity (B) life annuity certain (C) installment refund annuity (D) pure or straight life annuity
(D) pure or straight life annuity
All the following are investment strategies used by some life insurers EXCEPT (A) covered call options (B) hedging (C) barbell strategy (D) reversing yield curves
(D) reversing yield curves
Group assets according to their risk characteristics and establishing criteria to maintain prescribed ratios of holdings in each of these risk categories is called (A) portfolio risk management (B) riding the yield curve (C) categorical investment (D) segmentation of the general account
(D) segmentation of the general account
All the following are possible adjustments to improve a company's competitive situation when its tentative gross premiums are already based on "most probable" mortality, interest, expense, and termination assumptions EXCEPT (A) reducing the profit margin if a specific allowance for profit was made in the premium calculations (B) implementing more stringent underwriting requirements (C) achieving greater operating economies (D) shortening the period over which acquisition expenses are amortized
(D) shortening the period over which acquisition expenses are amortized
All the following factors are considered in calculating a life insurance policy's net single premium EXCEPT (A) the benefit amount (B) mortality (C) interest (D) the company's operating expenses
(D) the company's operating expenses
All of the following are Common Provisions under Nonforfeiture Law EXCEPT a) Guaranteed Insurability Option b) Accidental Death Benefits c) Terminal Illness Rider d) Waiver of Premium
c) Terminal Illness Rider
Waiver is defined as: a) the involuntary and intentional surrender of a known right b) the voluntary and unintentional surrender of a known right c) the voluntary and intentional surrender of a known right d) the involuntary and unintentional surrender of a known right
c) the voluntary and intentional surrender of a known right
