Arizona Life Exam

Which of the following statements concerning buy-sell agreements is true?

Buy-sell agreements are normally funded with a life insurance policy.

Who requires that a prospective producer take and pass a written examination on the kinds of insurance business specified in the application?

Director

What is the waiting period on a Waiver of Premium rider in life insurance policies?

6 months

Why should the producer personally deliver the policy when the first premium has already been paid?

to help the insured understand all aspects of the contract

All of the following could own group life insurance EXCEPT

A group needing low-cost life insurance

A Straight Life policy has what type of premium?

A level annual premium for the life of the insured

Which of the following type(s) of licenses is/are required to sell variable insurance products in this state?

A life insurance license and a registered representative license

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?

A minor son of the insured

According to the Replacement Rule, replacement of life insurance is defined as a process in which

A new policy is bought and an old policy is converted to a Reduced Paid-up policy

Which of the following is NOT a standard exclusion, included in most life insurance policies?

A policy issued following a misstated age

If someone wants to buy a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should that person buy?

Permanent

Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?

Depreciation period

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act?

Direct response marketing

An insurance policy or countersignature endorsement must be signed by any of the following EXCEPT

Director of Insurance

Items stipulated in the contract that the insurer will not provide coverage for are found in the

Exclusions clause

What do individuals use to transfer their risk of loss to a larger group?

Insurance

What are the two components of a universal policy?

Insurance and cash account

Which statement regarding insurable risks is NOT correct?

Insureds cannot be randomly selected

Which of the following statements regarding HIV testing for life insurance purposes is NOT true?

Insurers are barred from requesting HIV testing

The Life and Disability Insurance Guaranty Fund protects insureds and policyholders if

Insurers lack money to pay off claims

During partial withdrawal from a universal life policy, which portion will be taxed?

Interest

The mode of premium payment

Is defined as the frequency and the amount of the premium payment.

Why is an equity indexed annuity considered to be a fixed annuity?

It has a guaranteed minimum interest rate

Which of the following is correct regarding credit life insurance?

It insures the life of a debtor.

Which of the following best describes the MIB?

It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance.

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value?

Predicted needs of the family after the insured's death.

All of the following are characteristics of group life insurance EXCEPT

Premiums are determined by the age, sex and occupation of each individual certificate holder.

Which of the following is true about the premium on the children's rider in a life insurance policy?

It remains the same no matter how many children are added to the policy.

An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?

It will increase because the insured will be 5 years older than when the policy was originally purchased.

In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium?

It will likely be higher because the applicant is a substandard risk

The premium of a survivorship life policy compared with that of a joint life policy would be

Lower

What is the other term for the cash payment settlement option?

Lump sum

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it becomes a/an

Modified endowment contract

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this?

Reinstatement provision

An application for a life insurance policy was rejected because of information disclosed in an inspection report. The applicant reviewed the consumer reporting agency's file and found they collected incorrect information concerning his personal life. He can legally require the reporting agency to

Reinvestigate

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy

Required a premium increase each renewal

When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy, as well as a refund of all of the premiums paid. Which rider is attached to the policy?

Return of premium

The Ownership provision entitles the policyowner to do all of the following EXCEPT

Set premium rates

Which type of life insurance policy generates immediate cash value?

Single Premium

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called

Single premium whole life

Which of the following would NOT be accepted as a document showing that an applicant for a license is in the United States legally?

Social Security Card

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles?

Standard risk is representative of the majority of people.

Which of the following is an example of liquidity in a life insurance contract?

The cash value available to the policyowner

Which of the following statements about group life is correct?

The cost of coverage is based on the ratio of men and women in the group.

An Adjustable Life policyowner can change which of the following policy features?

The coverage period

What happens if a deferred annuity is surrendered before the annuitization period?

The owner will receive the surrender value of the annuity.

All of the following are true regarding a decreasing term policy EXCEPT

The payable premium amount steadily declines throughout the duration of the contract.

Which of the following best describes what the annuity period is?

The period of time during which accumulated money is converted into income payments

All of the following are true of key person insurance EXCEPT

The plan is funded by permanent insurance only.

What provision in a life or health insurance policy extends coverage beyond the premium due date?

grace period

Which of the following is usually true of a participating life insurance policy?

it pays dividends to policyowners

Which of the following statements is TRUE about a policy assignment?

it transfers rights of ownership from the owner to another person

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called

joint and survivor

A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy?

joint life

An insured owns a term policy with a guaranteed renewable option. When the end of the policy draws near, the insured answers medical questions in order to prove insurability and qualifies for a discounted premium rate. Which option best describes this scenario?

re-entry

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?

reduction

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?

$3,000

An insured just died. The insured's beneficiary promptly sent the insurer proof of death. According to Arizona law, this insurer may now establish a period of time during which the settlement will be made. What is the greatest amount of time the insurer can mandate for this particular period?

2 months

Insurers are required to maintain copies of their policy summaries for at least

3 years

What is the penalty for IRA distributions that are below the required minimum for the year?

50%

An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay?

50% tax on the amount not distributed as required

What documentation grants express authority to an agent?

Agent's contract with the principal

The LEAST expensive first-year premium is found in which of the following policies?

Annually Renewable Term

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?

Apparent

Which of the following is the basic source of information used by the company in the risk selection process?

Application

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?

As of the application date

In Arizona, the Director of Insurance serves

At the pleasure of the governor

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?

Attending Physician Statement

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?

Automatic premium loan

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium?

Automatic premium loan

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

Cash surrender

According to the entire contract provision, what document must be made part of the insurance policy?

Copy of the original application

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change?

Cost of Living Rider

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated

Which of the following is NOT allowed in credit life insurance?

Creditor requiring that a debtor buys insurance from a certain insurer

If an insured changes the premium payment mode from monthly to annually, what happens to the total premium?

Decreases

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing term

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?

Equal to the original policy for as long as the cash values will purchase.

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT

Erase the incorrect answer and record the correct answer.

In life insurance policies, cash value increases

Grow tax deferred.

A Universal Life insurance policy has two types of interest rates that are called

Guaranteed and Current

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?

Guaranteed insurability option

According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization, the owner is entitled to which of the following?

Guaranteed surrender value

Units with the same or similar exposure to loss are referred to as

Homogeneous

Which of the following is NOT true regarding the accumulation period of an annuity?

It would not occur in a deferred annuity.

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that?

Inspection Report

Under which of the following annuity options does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be?

Installments for a fixed period

Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?

Joint Life

If a contract provides a set amount of income for two or more persons with the income stopping upon the first death of the insured, it is called a

Joint life annuity

If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this?

Jumping Juvenile Policy

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Limited pay whole life

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called

Paid-up additions.

An insured has a Level Term Life Insurance policy that is guaranteed renewable and also includes a re-entry provision. The re-entry provision would allow the insured to renew the policy and

Pay a lower renewal premium by proving insurability.

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?

Payor Benefit

An applicant wants to buy a policy that has a cash value element. Which type should she buy?

Permanent

The risk of loss may be classified as

Pure risk and speculative risk

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up

Annuities can be used to fund which of the following?

Retirement plans

Which of the following types of risk will result in the highest premium?

Substandard risk

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

Survivor protection

All of the following entities regulate variable life policies EXCEPT

The Guaranty Association

J transferred his life insurance policy to his son two years before his death. Which of the following is true?

The entire face value of the policy will be included in J's taxable estate

When a fixed annuity owner pays a monthly annuity premium to the insurance company, where is this money placed?

The insurance company's general account

The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as

The policy contains sufficient cash value to cover the cost of insurance.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

The policy is owned by the company

What is the purpose of the buyer's guide?

To allow the consumer to compare the cost of different policies

For what reason may a life insurance producer backdate a life insurance policy?

To avoid an increase in premium rate for the insured

Which of the following is the best reason to purchase life insurance rather than an annuity?

To create an estate

The Director may require a producer to submit fingerprints in all of the following situations EXCEPT

Upon insurer insolvency

Which of the following would least likely be considered a legitimate need that would be paid by insurance proceeds?

Vacation travel expenses

Which of the following products requires a securities license?

Variable annuity

Which of the following life insurance policies allows a policyowner to take out a loan from the policy's cash value?

Variable universal life

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin?

When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health

When would a 20-pay whole life policy endow?

When the insured reaches age 100

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than

With the policy

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?

Withdrawals are not taxable

If an annuity contract has defaulted due to nonpayment of premiums, when can it be reinstated?

Within 1 year

Are insurance company underwriters allowed to discriminate?

Yes, but not unfairly

Who can make changes to the policy once it is in effect?

an executive officer of the insurer

If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered

an unfair trade practice

All advertisements are the responsibility of the

insurer

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

interest only option

Every office that transacts surplus lines insurance must have on staff a person who

is licensed as a surplus line broker

Which of the following best describes annually renewable term insurance?

it is level term insurance

Which of the following premium modes would result in the highest annual cost for an insurance policy?

Monthly

An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of

A STOLI policy

All of the following statements are correct regarding credit life insurance EXCEPT

Benefits are paid to the borrower's beneficiary.

In terms of Social Security, what is the name for the time period after the youngest child of a family turns 16 and before the surviving spouse may start receiving retirement benefits?

Blackout period

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

Unilateral

All of the following would be considered unfair settlement practices EXCEPT

Denying coverage to the terminally ill or disabled

Which of the following terms is used to name the nontaxed return of unused premiums?

Dividend

If an annuitant dies before annuitization occurs, what will the beneficiary receive?

Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount

An agent selling variable annuities must be registered with

FINRA

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?

Fixed amount

Which of the following best describes a bail-out provision?

It allows the owner to surrender the annuity without a charge.

After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive?

Monthly premium waiver and monthly income

Using a class designation for beneficiaries means

Naming beneficiaries as a group

Which of the following best describes gross annual premium?

Net premium plus expenses

Which of the following statements is an accurate comparison between private and government insurers?

Private insurers may be authorized to transact insurance by state insurance departments.

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?

Proof of insurability is not required

When a replacement is involved, a replacing insurance company is responsible for all of the following EXCEPT

Provide a copy of the Important Notice Regarding Replacement of Life Insurance to the applicant

What method do insurers use to protect themselves against catastrophic losses?

Reinsurance

A policyowner 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 policyowner should have her husband named as the

Revocable beneficiary

Adverse selection is a concept best described as

Risks with higher probability of loss seeking insurance more often than other risks.

To sell variable life insurance policies, an agent must receive all of the following EXCEPT

SEC registration

What part of the Internal Revenue Code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences?

Section 1035 Policy Exchange

A domestic insurer has just decided to change the investment policy of a separate account. After this change is filed with the Director, how soon will it become effective?

60 days

Which of the following is NOT an allowable 1035 exchange?

A whole life insurance policy is exchanged for a term insurance policy.

In life insurance, producers are permitted to share or split commissions, providing that

Both are properly licensed for the line of insurance

The document that indicates that an insurer has been approved and is authorized to transact insurance in a particular state is known as

Certificate of Authority.

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to

Charge a higher premium

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible?

Collateral assignment

Which of the following is NOT a line of authority for an insurance producer may obtain a license?

Commercial Property

A producer who fails to separate premium monies from his own personal funds is guilty of

Commingling

The authority granted to an agent through the agent's contract is referred to as

Express authority

Which nonforfeiture option has the highest amount of insurance protection?

Extended term

Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid

For 20 years or until death, whichever occurs first.

An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming?

Foreign

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income

The automatic premium loan provision is activated at the end of the

Grace period

During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal?

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½.

Which of the following would provide an underwriter with information concerning an applicant's health history?

The Medical Information Bureau

Which of the following is TRUE regarding variable annuities?

The annuitant assumes the risks on investment

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

The date of medical exam

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?

The death benefit can be increased by providing evidence of insurability

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?

The insured may choose to convert to term or permanent individual coverage.

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit?

The insured's contingent beneficiary

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?

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

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen?

The insurer will pay the full death benefit from the group policy to the beneficiary.

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen?

The policy will terminate when the loan amount with interest equals or exceeds the cash value.

What must happen when an individual policy or annuity has been personally delivered to the policyowner?

The policyowner must sign a delivery receipt.

If a premium payment is mailed, how can an insurer establish the date of payment?

The postmark on the envelop

A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why?

The purpose of the group was to purchase life insurance

Which of the following best defines target premium in a universal life policy?

The recommended amount to keep the policy in force throughout its lifetime

Which is true about a spouse term rider?

The rider is usually level term insurance.

Under an extended term nonforfeiture option, the policy cash value is converted to

The same face amount as in the whole life policy

In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT

The type of investment.

All of the following are characteristics of a group life insurance plan EXCEPT

There is a requirement to prove insurability on the part of the participants

All of the following are true regarding the guaranteed insurability rider EXCEP

This rider is available to all insureds with no additional premium.

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated?

Those who have been insured under the plan for at least 5 years

What is the purpose of key person insurance?

To lessen the risk of financial loss because of the death of a key employee

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy.

A premium payment is due on the Saturday before Memorial Day. What is the latest the insured can mail the payment for it to be considered on time?

Tuesday after due date

The Waiver of Cost of Insurance rider is found in what type of insurance?

Universal Life

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?

Universal life

An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize?

Viatical settlement

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

paid-up option

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a

settlement option

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then

the benefit is received tax free

In Arizona, the grace period on a group life insurance policy applies to every premium payment EXCEPT

the first

Which of the following are generally NOT considered when underwriting group insurance?

the insureds' medical history