Exam FX Questions Variable Michigan

Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity?

A Investment performance of the insured B Statewide predetermined annual interest rate C Insurer's guaranteed minimum rate of interest D Investment performance of the company

All of the following are true about variable products EXCEPT

A Policyowners bear the investment risk. B The premiums are invested in the insurer's general account. C The minimum death benefit is guaranteed. D The cash value is not guaranteed.

The annuity owner dies during the accumulation period without naming a beneficiary. Annuity's cash value exceeds premiums paid. Which of the following is TRUE?

A The cash value will be paid to the state government. B The cash value will be paid to the annuitant's estate. C The premium value will be paid to the annuitant's estate. D All benefits will be forfeited.

Which of the following is an example of a producer's fiduciary duty?

A The trust that a client places in the producer in regard to handling premiums. B An obligation to state every known fact about the policy the producer is selling. C A duty to base all transactions upon the principle of Utmost Good Faith. D The obligation to tell the truth to the best of one's knowledge

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?

A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written.

What is a material misrepresetation?

A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined and the cash value fell to $10,000. If the insured dies, how much will be paid out?

50k

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

A Liquidation period B Depreciation period C Annuitization period D Pay-out period

What is a risk retention group?

An insurance organization that most often addresses a commercial casualty concern

Which of the following is NOT true regarding an annuity certain?

Benefits stop at the annuitant's death.

To legally transact insurance in this state, an insurer must obtain which of the following?

Certificate of Authority

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

Express authority

The two main categories of policy loan interest rates are

Fixed or variable

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

Indemnity

Cash value in a variable life policy must be calculated at least

Once a month.

Which of the following best describes a pure life annuity settlement option?

Pure life provides payments for as long as the annuitant is alive.

What characteristic must an annuity have if it is used to accumulate funds in an IRA?

Tax-qualified

Which of the following determines the cash value of a variable life policy?

The performance of the policy portfolio

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

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

Which of the following features on a variable life insurance policy is guaranteed?

Though the cash value of a variable life insurance policy can increase or decrease due to the performance of stocks, the death benefits must be at least equal to the face value of the policy.

What is the major difference between a stock company and a mutual company?

ownership

Which of the following is NOT the consideration in a policy?

A The promise to pay covered losses B The application given to a prospective insured C Something of value exchanged between parties D The premium amount paid at the time of application

All of the following statements about equity index annuities are correct EXCEPT

A They invest on a more aggressive basis aiming for higher returns. B The annuitant receives a fixed amount of return. C They have a guaranteed minimum interest rate. D The interest rate is tied to an index such as the Standard & Poor's 500.

An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a/an

Authorized Insurer

Which of the following is the most common way to transfer risk?

Buy insurance

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

Commingling

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of

Concealment

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

A variable life insurance policy states all of the following current and maximum policy charges EXCEPT

Guaranteed cash value.

In insurance trasnactions, a fiduciary responsability means?

Handling insurer funds in a trust capacity

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

Homogenous

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?

Implied authority is not written in the agent's contract but is required in order for the agent to conduct business. Implied authority exists because not every single detail of an agent's authority can be written in a contract.

Which of the following would be considered the largest cost incurred on the value of a variable annuity?

Investment management fee

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

It has a guaranteed minimum interest rate.

Variable Whole Life insurance is based on what type of premium?

Level Fixed

The risk of loss may be classified as

Pure risk and speculative risk

Adverse selection is a concept best described as

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

If an agent wishes to sell variable life policies, what license must the agent obtain?

Securities

A domestic insurer issuing variable contracts must establish one or more

Separate accounts.

Events in which a person has both the chance of winning or losing are classified as

Speculative risk (not insurable)

Which of the following insurers are owned by stockholders?

Stock

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

The beneficiary

What determines the penalty for surrendering a market value adjusted annuity prematurely?

The current interest rate at the time of surrender

When an individual purchases insurance, what risk management technique is he or she practicing? ARetention

Transfer

Which type of variable annuities use accumulation units to track the owner's interest in the separate account?

Variable annuity

The requirement that agents not commingle insurance monies with their own funds is known as

Fiduciary responsibility

Which of the following types of agent authority is also called "perceived authority"?

Apparent

Which of the following is NOT true regarding the annuitant?

A The annuitant's life expectancy is taken into consideration for the annuity. B The annuitant receives the annuity benefits. C The annuitant must be a natural person. D The annuitant cannot be the same person as the annuity owner.

In insurance, an offer is usually made when

An applicant submits an application to the insurer

Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits?

50k

Which of the following is NOT true regarding a Certificate of Authority?

A It is equivalent to an insurance license. B It is issued by the state department of insurance. C It is issued to group insurance participants. D It may be necessary for transacting business in a specific state.

In order for an investor to make informed investment decisions, all of the following information must be included in a prospectus EXCEPT

A Policies to be transferred. B Tax information. C Sales charges. D Securities in the account.

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called

Avoidance

A tornado would be an example of which of the following

A peril is the cause of loss insured against in an insurance policy.

For variable products, underlying assets must be kept in

A separate account.

What is a foreign insurer?

An insurer with a home office in another state

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

Warranty

In what way can an agent demonstrate a high standard of ethics?

Putting the clients best intrests before their own

Your client is planning to retire. She has accumulated $100,000 in a retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for as long as she lives. As her agent, you should recommend

Stright life

In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment?

The annuitant will receive the higher of either the guaranteed minimum rate or current rate.

Which of the following is NOT true regarding Equity Indexed Annuities?

A They have guaranteed minimum interest rates. B They are less risky than variable annuities. C They earn lower interest rates than fixed annuities. D The insurance company keeps a percentage of the returns.

Which of the following best describes the aleatory nature of an insurance contract?

Exchange of unequal values

What type of premium do both Universal Life and Variable Universal Life policies have?

Flexible

Which of the following types of policies would allow a policyowner to choose a premium amount and payment schedule?

Flexible premium

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?

The balance of the loan will be taken out of the death benefit.

Which of the following is an example of a producer's fiduciary duty?

The trust that a clent has when

Which of the following is NOT a goal of risk retention?

To minimize the insured's level of liability in the event of loss

Which of the following types of policies allows for a flexible premium and a variable investment component?

Variable universal life insurance

An insurance company receives an application with some information missing and issues the policy anyway. What is this called?

Waiver

What limits the amount that a policyowner may borrow from a whole life insurance policy?

cash value

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 is another term for an authorized insurer?

Admitted

What documentation grants express authority to an agent?

Agents contract with the princiapl

Question 4 of 10 Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Aletory (unequal)

When transacting business in this state an insurer formed under the laws of another country is known as a/an

Alien insurer.

Which of the following produces evaluations of insurers' financial status often used by state departments of insurance?

Am Best

What is reinsurance?

An agreement between a ceding insurer an assuming insurer

How often must an insurer provide an insured with a summarized statement, listing out administrative costs?

Annually

When an annuity is written, whose life expectancy is taken into account?

Annuitant

Question 1 of 10 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?

Apparant (perceived)

When is the actual cash surrender value of a variable life insurance policy calculated?

At the time of surrender

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be

Authorized

A variable annuity has a payout that is

Contingent upon the profitability of the investment portfolio.

An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n)

Equity Indexed Annuity.

ABC insurance company receives an incomplete application and issues the policy anyway. Six months later ABC realizes the missing information. What term is used that prevents ABC from forcing the policyowner to answer further questions?

Estoppel

Which of the following is used to determine interest rates on variable products?

Interest rate index

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as

Loss

Which of the following is the basis for a claim against an insurance policy?

Loss

What is a definition of a unilateral contract?

One sided, one party makes an enforceable promise

Under a pure life annuity, an income is payable by the company

Only for the life of the annuitant.

All of the following are examples of risk retention EXCEPT

Premiums

A situation in which a person can only lose or have no change represents

Pure risk

Which services are associated with Standard & Poor's and AM Best?

Rating the financial strength of insurance companies

If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept?

Reasonable expectations

The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true?

The annuitant must be a natural person.

If a beneficiary is NOT named for annuity benefits, to which entity will the benefit be paid?

The annuitant's estate

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?

The insured will a written consent of the insurer

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen?

The policy will not be affected.

If an insured continually uses the automatic premium loan option to pay the policy premium,

The policy will terminate when the cash value is reduced to nothing.

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.