Texas Life Insurance Exam

An insurance contract must contain all of the following tto be considered legally binding EXCEPT A. Consideration B. Competent parties C. Beneficiary's consent D. Offer and acceptance

C. Beneficiary's consent The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose.

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? A. Extended term B. Reduced paid-up option C. Automatic premium loan D. Reinstatement

C. Automatic premium loan Automatic premium loan 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 applicant who receives a preferred risk classification qualifies for A. Lower premiums than a person who receives a standard risk B. Dividends payable for lack of claims C. Higher premiums than a person who receives a sub-standard risk D. Higher premiums than a person who receives a standard risk

A. Lower premiums than a person who receives a standard risk. The preferred risk category is reserved for those persons with a superior physical condition, lifestyle, and habits.

An insured purchased a life policy in 2010 and died in 2020. The insurance company discovers at that time that the insured had misstated information about her insurance history on the application. What will the insurer do? A. Pay the death benefit B. Sue for the right to not pay the death benefit C. Refuse to pay the death benefit because of the misstatement on the application. D. Pay a decreased death benefit

A. Pay the death benefit. The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact.

If an agent fails to obtain an applicant's signature on the application, the agent must A. Return the application to the applicant for a signature B. Sign the application for the applicant C. Sign the application, stating it was by the agent D. Send the application to the insurer with a not explaining the absence of signature

A. Return the application to the applicant for a signature. All applications must have the appropriate authorized signatures.

A policy owner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policy owner should have her husband named as the A. Revocable beneficiary B. Irrevocable beneficiary C. Secondary beneficiary D. Contingent beneficiary

A. Revocable beneficiary The policy owner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policy owner may not be able to exercise certain rights without their consent.

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to A. Refuse to issue the policy B. Charge a higher premium C. Lower its insurability standards D. Require a yearly medical examination

B. Charge a higher premium The premium rate will be adjusted to reflect the insurer's increased risk.

Which of the following is NOT an essential element of an insurance contract? A. Legal purpose B. counteroffer C. Consideration D. Agreement

B. Counteroffer In order for insurance contracts to be legally binding, they must have four essential elements: agreement (offer & acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

All of the following information about the applicant is identified in the General information section of a life insurance application EXCEPT A. Gender B. Education C. Age D. Occupation

B. Education Education is not an underwriting factor nor is it information included on the application.

Fixed annuities provide all of the following EXCEPT A. Future income payments B. Hedge against inflation C. Minimum guaranteed rate of interest D. Equal monthly payments for life

B. Hedge against inflation Fixed annuities invest premium payments into a general account-a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, and therefore providing protection against inflation. (Variable annuities=hedge against inflation)

Why is an equity indexed annuity considered to be a fixed annuity? A. It has modest investment potential B. It has a guaranteed minimum interest rate C. It as a fixed rate of return D. It is not tied to an index like the S&P 500

B. It has a guaranteed minimum interest rate While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

Which of the following best describes annually renewable term insurance? A. It requires proof of insurability at each renewal B. It is a level term insurance C. Neither the premium nor the death benefit is affected by the insured's age D. It provides an annual increasing death benefit

B. It is a level term insurance Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

Which of the following is true of a children's rider added to an insured's permanent life insurance policy? A. Each child covered must show evidence of insurability B. It is a term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age C. The policy covers only the natural children of the insured D. It is permanent insurance

B. It is a term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. Children's rider is a term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.

Which of the following is a risk classification used by underwriters for life insurance? A. Excellent B. Standard C. Normal D. Poor

B. 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.

If the annuitant dies during the accumulation period, who will receive the annuity benefits? A. The annuitant's estate B. The beneficiary C. The annuity owner D. The insurance company

B. The beneficiary if the annuitant dies during the accumulation period, the benificiary receives benefits from the annuity; either the amount paid into the plan or the cash value-whichever is greater

If a life insurance policy has an irrevocable beneficiary designation, A. The owner can always change the beneficiary at will. B. The beneficiary can only be changed with written permission of the beneficiary. C. The beneficiary cannot be changed. D. The beneficiary cannot be changed for at least 2 years.

B. The beneficiary can only be changed with written permission of the beneficiary. If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE? A. The premium would be returned to the insured's estate because the policy was not issued. B. The beneficiary will receive the full death benefit if it is determined that the applicant qualifies for the policy. C. The death claim will be rejected. D. The application will be voided.

B. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy. The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical examination, if one is required.

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 premiums will become tax deductible until the insured's 18th birthday B. The insured's premiums will be waived until she is 21 C. 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 D. Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected.

B. The insured's premiums will be waived until she is 21. 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.

An absolute assignment is a A. Change of beneficiary B. Transfer of all ownership rights in a policy C. Transfer of some ownership rights in a policy D. Change of insurer

B. Transfer of all ownership rights in a policy Absolute assignment involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policy owner does not end to have an incurable interest in the insured.

Why should the producer personally deliver the policy when the first premium has already been paid? A. To make sure the policy is not stolen or lost B. To ensure the producer gets paid commission C. To help the insured understand all aspects of the contract D. To find out how the family has been doing since the initial presentation

C. To help the insured understand all aspects of the contract. it is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.

Which of the following is a short-term annuity that limits the amounts paid to a specific fixed period or until a specific fixed amount is liquidated? A. Refund life B. Variable annuity C. Fixed annuity D. Annuity certain

D. Annuity certain Annuity certain option allows the annuitant to select the time period of the benefits to be paid out. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date.

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

D. Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

Which of the following best describes the aleatory nature of an insurance contract? A. Only one of the parties being legally bound by the contract B. Ambiguities are interpreted in favor of the insured C. Policies are submitted to the insurer on a take-it-or-leave-it basis D. Exchange of unequal values

D. Exchange of unequal values An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.

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

D. 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.

Using a class designation for beneficiaries means A. Not naming beneficiaries B. Naming an estate as the beneficiary C. Naming each beneficiary by his or her name D. Naming beneficiaries as a group

D. Naming beneficiaries as a group Class designations are used when an insured chooses to distribute benefits among the living beneficiaries and/or their heirs without naming each individual person, such as "all my children"

Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy? A. Assignment rights B. The entire contract provision C. The consideration clause D. Owner's rights.

D. Owner's rights Policyowners can learn about their ownership rights by referring to the policy.

Which of the following would qualify as a competent party in an insurance contract? A. The applicant is under the influence of a mind-impairing medication at the time of the application. B. The applicant is a 12 year old student C. The applicant is intoxicated at the time of application D. The applicant has a prior felony conviction

D. The applicant has a prior felony conviction. When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felon to buy an insurance contract. An intoxicated person may not be mentally competent, a 12 year old student is considered underage, and a person under mind-impairing medication most likely would not be mentally competent.

Which of the following is TRUE regarding the premium in term policies? A. Only level term policy has a level premium B. The premium in term policies is not based on the insured's age C. Decreasing term policy will have a decreasing premium D. The premium is level for the term of the policy

D. The premium is level for the term of the policy The premium on a term life insurance policy is level throughout the term of the policy. Only the amount of the death benefit may change. This does not apply to annual renewable term (ART) insurance, in which the premium increases annually to the attained age.