Ch. 3 Basics Examfx
Which of the following would NOT fall into the category of costs associated with death? A.) Final medical expenses of the insured B.) Day to day expenses of maintaining the family C.) The expense of a vacation for surviving family members D.) Funeral expenses
C.) The expense of a vacation for surviving family members Rationale: These costs would take into account the final medical expenses of the insured, funeral expenses, and day to day expenses of maintaining the family including rent or mortgage payments, car payments, utilities, groceries, etc.
If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT: A.) Erase the incorrect answer and record the correct answer B.) Draw a line through the first answer, record the correct answer, and have the applicant initial the change C.) Note on the application the reason for the change D.) Destroy the application and complete a new one
A.) Erase the incorrect answer and record the correct answer Rationale: An agent should not use white-out, erase or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary.
Which of the following statements concerning buy-sell agreements is true? A.) Benefits received are considered income taxable. B.) Buy-sell agreements pay in the event of a medical emergency C.) Buy-sell agreements are normally funded with a life insurance policy D.) Premiums paid are deductible as a business expense
C.) Buy-sell agreements are normally funded with a life insurance policy Rationale: A buy-sell agreement is simply a contract that establishes what will be done with a business in the event that an owner dies. Buy-sell agreements are normally funded with a life insurance policy.
Which of the following types of insurance policies would perform the function of cash accumulation? A.) Term life B.) Credit life C.) Increasing term D.) Whole life
D.) Whole life Rationale: Life insurance is unique from other types of insurance in that it could perform the function of cash accumulation. Cash values are available in whole life policies.
An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of: A.) Third-party ownership B.) A STOLI policy C.) A prearranged funeral plan D.) A Viatical settlement
B.) A STOLI policy Rationale: Stranger-originated life insurance (STOLI) policies are usually purchased by people who have no relationship with the insured with the intention of selling them for life settlements.
All of the following are personal uses of life insurance EXCEPT: A.) Cash accumulation B.) Buy-sell agreement C.) Survivor protection D.) Estate creation
B.) Buy-sell agreement Rationale: Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. A buy-sell agreement is for business uses of life insurance.
Kayla's husband died in a plane crash. She needs a new source of funding that will help put her child through daycare. Which of the following would be the best source? A.) Estate conservation B.) Life insurance proceeds C.) State education waiver D.) Viatical settlement
B.) Life insurance proceeds Rationale: There are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Daycare is considered to be among these expenses.
Which of the following is an example of liquidity in a life insurance contract? A.) The money in a savings account B.) The cash value available to the policyowner C.) The death benefit paid to the beneficiary D.) The flexible premium
B.) The cash value available to the policyowner Rationale: Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.
Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? A.) Insurance index B.) Policy summary C.) Illustrations D.) Buyer's guide
D.) Buyer's guide Rationale: The Buyer's Guide is a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.
Which of the following would be least likely to be considered a legitimate need that would be paid by insurance proceeds? A.) Vacation travel expenses B.) Travel expenses for family to come to the funeral C.) Debt cancellation D.) Day care
A.) Vacation travel expenses Rationale: There are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Vacation travel expenses are most likely to be considered a luxury and not a need.
Which of the following statements regarding Business Overhead Expense policies is NOT true? A.) Benefits are usually limited to six months B.) Premiums paid for BOE are tax-deductible C.) Any benefits received are taxable to the business D.) Leased equipment expenses are covered by the plan.
A.) Benefits are usually limited to six months Rationale: Business Overhead Expense (BOE) insurance is sold to small business owners for the purpose of reimbursing the policyholder for business overhead expenses during a period of total disability. Premiums are tax-deductible for a business, but any benefits received are taxable as income. Overhead expenses, including equipment and employee salaries, are covered by the plan. Salaries and profits of the employer are not protected.
If an insured changes his payment plan from monthly to annually, what happens to the total premium? A.) Stays the same B.) Doubles C.) Increases D.) Decreases
D.) Decreases Rationale: Because the insurer would have the entire premium to invest for a full year, they would reduce the premium amount.
