1 - Basic Principles of Life and Health Insurance and Annuities

Which title can a life insurance agent use when conducting business? A) inancial planner. B) Financial consultant. C) Investment advisor. D) Broker.

D) Broker. Insurance producers may be agents, who represent a particular company, or brokers, who are not tied to any particular company and can represent many insurers' products.

All of the following methods support the sale of insurance through agents EXCEPT? A) Independent agency. B) Personal producing general agency. C) Career agency. D) Direct selling.

D) Direct selling. In actuality, direct selling systems allow insurance companies to deal directly with clients through vending machines, advertisements, or salaried sales reps. No agents or brokers are involved.

Mutual insurers pay dividends to participating policyowners if the insurer has which of the following? A) Divisible surplus. B) Reciprocal Dividend Agreement. C) Certificate of Authority. D) Participating clause.

A) Divisible surplus. By issuing participating policies that pay policy dividends, mutual insurers allow their policyowners to share in any company earnings.

The State Guaranty Association guarantees? A) that a policy will be issued. B) that a claim will be paid if an insurer becomes insolvent. C) that dividends will be paid. D) the rate of return on a policy.

B) that a claim will be paid if an insurer becomes insolvent. If an insurance company is unable to pay its claims, the state guaranty association will step in and pay the outstanding claims.

Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated? A) 1970 - Fair Credit Reporting Act. B) 1959 - Intervention by (SEC) The Securities and Exchange Commission. C) 1999 - Financial Services Modernization Act. D) 1945 - The McCarran-Ferguson Act.

A) 1970 - Fair Credit Reporting Act. Fair Credit Reporting Act requires the fair and accurate reporting of information about consumers. Insurers must inform applicants about any investigations being made and if the report is used to deny coverage or charge higher rates, the insurer must provide the applicant the name of the credit reporting agency conducting the investigation.

Which of the following statements regarding types of insurers is NOT correct? A) Reinsurers usually deal with group policyowners. B) Mutual insurance companies are "owned" by their policyowners. C) Stock insurance companies seek a profit for their shareholders. D) Fraternal benefit societies must be nonprofit organizations.

A) Reinsurers usually deal with group policyowners. Reinsurers make arrangements with other insurance companies to transfer a portion of their risk to the reinsurer. The company transferring the risk is called the ceding company and the company assuming the risk is the reinsurer.

A life insurance company that shares its suplus earnings with its insureds is known as? A) a participating company. B) a fraternal organization. C) an association. D) an admitted company.

A) a participating company. Participating insurance companies share its surplus earnings with its insureds.

All of the following are systems that support the sale of insurance through agents and brokers EXCEPT. A) Career Agency System. B) Fraternal Benefit Society System. C) Personal Producing General Agency System. D) Independent Agency System.

B) Fraternal Benefit Society System. All of these are actual insurance agency systems except for Fraternal Benefit Society Systems.

An agent is required to provide which of the following to the applicant when they make a proposal of insurance. A) Buyer's guide. B) Policy summary. C) Buyer's guide and policy summary. D) Financial history and stock information of insurer.

C) Buyer's guide and policy summary. Agents need to provide both a buyer's guide and policy summary to anyone that purchases a policy.

Which of the following is NOT a service provider? A) HMO. B) Benefit plans offering medical services to subscribers. C) Lloyd's of London. D) PPO.

C) Lloyd's of London. Lloyd's of London is not an insurance company, but an association of individuals and companies that underwrite insurance, it provides unique coverages that might otherwise be uninsurable.

Which law gives chief financial officers the power to investigate insurance companies and producers, to issue cease and desist orders, and to impose penalties on violators? A) Unfair Trade Practices Act. B) McCarran-Ferguson Act. C) Fair Credit Reporting Act. D) Financial Services Modernization Act.

A) Unfair Trade Practices Act. The Unfair Trade Practices Act also gives officers the authority to seek a court injunction to restrain insurers from using any methods believed to be unfair or deceptive.

Two principles of needs-based selling are? A) find the facts and educate the client. B) determine how much they can afford and occupation. C) find the amount of money they will earn and invest over a lifetime. D) what is applicant's medical history.

A) find the facts and educate the client. Finding the facts and educating the client are the foundation of needs-based selling. This will allow the agent to determine what the applicant is best suited for and how to address those needs.

All the following types of insurance companies may be approved to operate in nearly all states EXCEPT? A) Fraternal insurance companies. B) Mutual insurance companies. C) Lloyds of London. D) Stock insurance companies.

C) Lloyds of London. Contrary to popular belief, Lloyd's of London is not an insurer but rather an association of individuals and companies that individually underwrite insurance. Lloyd's can be compared to the New York Stock Exchange, which provides the arena and facilities for buying and selling public stock.

Which law made it clear that continued regulation of insurance by the states was in the public's best interest? A) Financial Services Modernization Act. B) Glass-Steagall Act. C) McCarran-Ferguson Act. D) Unfair Trade Practices Act.

C) McCarran-Ferguson Act. The McCarran-Ferguson Act of 1945 made it clear that continued regulation of insurance by the states was in the public's best interest. However, it also made possible the application of federal antitrust laws.

Explain the difference between what a general agent does as compared to a PPGA? A) Both basically train agents and transact insurance. B) Both basically just transact insurance. C) PPGA's primarily sell. General agents primarily recruit, train, and manage. D) General agents primarily sell. PPGA's primarily recruit, train, and manage.

C) PPGA's primarily sell. General agents primarily recruit, train, and manage. General agents primarily recruit, train, and manage. PPGA's primarily just sell insurance.

Which entity has as one of its objectives preserving state regulation of insurance? A) American Council of Life Insurance. B) National Association of Life Underwriters. C) National Committee to Preserve the Republic. D) National Association of Insurance Commissioners.

D) National Association of Insurance Commissioners. One of the objectives of the NAIC is to preserve state regulation of the insurance business.

The major difference between participating and nonparticipating policies is the. A) interest assumption. B) premium payment method. C) settlement options. D) presence of policy dividends.

D) presence of policy dividends. Nonparticipating policies involve policyowners who do NOT receive dividends. Participating policies involve policyowners who DO receive dividends.

Which of the following statements is correct when comparing participating policies with non-participating policies? A) Premiums for participating policies are usually higher than for non-participating policies. B) Dividends from participating policies are treated as taxable income, but dividends from non-participating policies are not. C) The dividends on participating policies increase the value of the policyholder's stock, but non-participating dividends do not. D) The guaranteed cash values in a participating policy are greater than in a non-participating policy.

A) Premiums for participating policies are usually higher than for non-participating policies. Premiums for participating policies are usually higher than for non-participating policies because dividends are involved with participating policies.

What is the role of insurance? A) Provide a solution for economic uncertainty and loss. B) Guarantee lifelong happiness. D) Provide counseling and support services. C) Guarantee short term happiness.

A) Provide a solution for economic uncertainty and loss. The role of insurance is to provide some financial security and peace of mind because of the uncertainty of a loss.

What is the purpose of insurance? A) To replace the uncertainty of risk with guarantees. B) To replace guarantees with the certainty of risk. C) To remove the possibility of loss. D) To remove the predictability of loss.

A) To replace the uncertainty of risk with guarantees. The purpose of insurance is to replace the uncertainty of risk with guarantees.

Companies that sell more than one type of insurance are? A) multi-line insurers. B) property and causalty. C) mutual company. D) life company.

A) multi-line insurers. Multi-line insurers sell more than just one type of insurance, For example, an insurance company that sells life, health, and annuities would be considered a multi-line insurer.

Participating insurers allow their policyowners to? A) share in any company earnings and receive a dividend. B) receive preferred premium rates. C) determine what type of insurance programs. are offered. D) skip premium payments without penalty.

A) share in any company earnings and receive a dividend. Participating insurers allow their policyowners to share in company earnings, which are distributed in a dividend. This is why they are called "participating" insurers.

Which of the following is NOT a commercial insurer. A) Industrial Company. B) Fraternal Company. C) Stock Company. D) Mutual Company.

B) Fraternal Company. Although fraternal insurance companies as of recently have incorporated similiar provisions of commercial insurers, they are still not considered traditional commercial insurers. Industrial, mutual, and stock companies are all considered commercial insurers.

Which of the following mandated that insurance would be regulated by the states as well as made possible the application of federal antitrust laws? A) Paul v. Virginia. B) McCarran-Ferguson. C) Armstrong investigation. D) U.S. v. Southeastern Underwriters.

B) McCarran-Ferguson. This law made it clear that continued regulation of insurance by the states was in the public's best interest. However, it also made possible the application of federal antitrust law.

Who is considered the owner of a mutual insurance company? A) Stockholders. B) Policyholders. C) Mutual fund shareholders. D) Attorney in fact.

B) Policyholders. Policyholders are considered owners of a mutual insurance company.

Nonparticipating insurers do not allow their policyowners to receive the following? A) cash advances. B) dividends. C) preferred premium rates. D) stock options.

B) dividends. Policyowners do not participate in receiving dividends resulting from stock ownership. This is why it is called "nonparticipating".

In addition to the state, the organization that regulates variable life and variable annuities is the A) Federal Trade Commission (FTC). B) National Association of Insurance Commissioners (NAIC). C) Securities and Exchange Commission (SEC). D) Federal Communications Commission (FCC).

C) Securities and Exchange Commission (SEC). The SEC regulates any type of insurance product that is "variable" which means it is invested in the stock market.

Dividends from a stock company are paid to stockholders, whereas in a mutual company dividends are? A) reinvested as capital gains, used to reduce rates for policyowners. B) paid quarterly to the corporate officers and directors as a bonus. C) paid to the policyowners. D) paid to the stockholders.

C) paid to the policyowners. By issuing participating policies that pay policy dividends, mutual insurers allow their policyowners to share in any company earnings.

What type of agent may represent a number of insurance companies under separate contractual agreements? A) Career agent. B) Captive agent. C) Company agent. D) Independent agent.

D) Independent agent. Independent agents may represent a number of insurance companies under separate contractual agreements.