Exam Questions for Chapters 1-4
For a universal life policy's cash value accumulations to receive favorable tax treatment, a specific percentage of premiums must be used to purchase:
Death Benefit
Which of the following policies possesses the lowest initial annual premium?
Modified Life
A consumer's statements recorded on an application constitute a part of:
The Consideration
If an applicant for life insurance is considered a substandard risk by an insurer but still insurable, the insurer will probably take which of the following actions:
Accept the risk and rate-up the premium
Federal law states that an insurance producer who engages in material misrepresentation that contributes to the liquidation or insolvency of an insurer, may be subject to a monetary penalty of up to:
$50,000
A producer who engages in material misrepresentation which contributes to the financial impairment of an insurer or who engages in embezzlement, may be subject to a federal prison sentence of:
15 years
A survivorship life insurance plan is a specialty type of contract. This type of policy is generally purchased in order to cover how many individuals?
2
What type of whole life policy would you recommend to your client if she desired to have $30,000 in ten years?
A 10 Year Endowment
Which of the following is provided to an applicant when a premium is collected along with an application for life insurance?
A conditional receipt
Which of the following contract characteristics requires both the insurer and the policyowner to satisfy certain aspects before the contract can be executed?
A contract's conditional nature
Which of the following authorized insurance organizations offers insurance products exclusively to its members?
A fraternal organization
Which of the following best illustrates the doctrine of reasonable expectations?
A judge orders payment for a claim even though the contract clearly excludes coverage
Tom owns a $175,000 home. It is destroyed by a hurricane. Which of the following best describes the damage to Tom's property?
A loss
Which of the following individuals possesses the legal capacity to enter into an insurance contract?
A minor contracting for food and clothing
Statements made by an applicant which are recorded on an application are considered representations and not warranties. Which of the following best describes a warranty?
A statement or condition that the applicant represents to be absolutely true
Statements made on an application for insurance are representations and not warranties. Which of the following best defines a warranty?
A statement or condition that the applicant represents to be absolutely true
The cash savings value of a traditional whole life insurance policy will equal the policy's face amount at an insured's:
Age 100
Theresa is age 38 and purchases a twenty-pay whole life insurance policy. The death benefit is $50,000. It is attractive to Theresa since she will no longer be required to make premium payments at the end of the twenty-year period. When will her policy mature?
Age 100
Once an application for coverage is completed it is forwarded to the insurer by the producer. If the application is sent to the company without any premium, this can be described as:
An invitation
An underwriter reviews Accident & Health applications to assess an individual risk. Sound and competent underwriting helps the underwriter and insurer to accomplish which of the following?
Avoid adverse selection
Several types of life insurance plans are available to the public. Which of the following is true regarding a Universal Life insurance policy?
Cash values, premium and the coverage amount may be adjusted
An adjustable life insurance policy provides the policyowner the flexibility
Change the face amount at various intervals
If no premium is paid with an application for life insurance, what responsibilities does a producer possess when the policy is delivered?
Collect the premium and a statement of continued good health and issue a premium receipt
It is the fiduciary responsibility of a producer to account for all funds collected from a consumer. If a producer does not remit a renewal premium to the insurer, which of the following will occur?
Coverage will not lapse since payment to a producer is payment to the insurer
Jean Reamer borrowed $14,000 to purchase a new boat. What type of cost effective life insurance is best suited to make sure that her loan is paid off in the event of her death?
Decreasing term insurance
A producer makes a false statement to a policyowner. The policyowner relies on this statement and purchases insurance. Later the insurer attempts to deny a claim that the owner thought was covered due to the producer's original statement. The insurer will be prevented from denying this claim due to which of the following legal principles?
Estoppel
Which of the following must be true in order for a risk to be insurable ?
It must be calculable
A survivorship life policy generally covers two individuals. Which of the following provides a reason for purchasing such a life insurance policy?
It provides funds to pay off possible estate or inheritance taxes
An insurance company refuses to pay a legitimate claim that is covered by an insurance contract. This means that the insurer has violated which of the following?
Its Promise
Jack wishes to buy life insurance on his eighteen year old son. Who must sign the application?
Jack and his son
Each of the following is a traditional whole life insurance plan, EXCEPT:
Joint Life
This type of insurance contract insures two or more persons under a single contract and pays a death benefit upon the death of any insured party.
Joint Life
Traditional whole life policies include each of the following, EXCEPT:
Joint life
Jeff is 42 years of age and is attempting to decide what type of whole life policy he should buy. If cash flow is his primary consideration, which of the following policies would be most beneficial to Jeff?
Life paid-up at age 65
Jack owns a life insurance policy that requires that he pay premiums for a specified period only or until he dies, assuming this occurs prior to the end of the specified period. Which of the following types of policy does Jack possess?
Limited Pay Life
Which of the following policies would best suited for an individual who wants permanent life insurance coverage but does not wish to pay premiums indefinitely?
Limited Whole Life Insurance
If an individual desires life insurance protection and cash value buildup and is willing to pay premiums until retirement, what type of policy would he or she purchase?
Limited payment life
Brad buys a permanent life insurance policy that has a fixed premium for five years. In year six, the premium increases to a higher amount and stays level for life. What type of life insurance policy did Brad purchase?
Modified Life
Life insurance protection will be provided to an insured in consideration of a premium payment. Which of the following life insurance policies possesses the lowest initial premium?
Modified Life
Dishonest activities on the part of a policyowner or insured are an illustration of a:
Moral Hazard
An individual who is indifferent, careless or irresponsible is also known as a:
Morale hazard
Which of the following factors involved in premium determination is associated with the death rate of an individual ?
Mortality Factor
When a life insurance policy renews at the end of a specified period, what may the policyowner do in order to continue coverage?
Pay a higher premium for a new specified period
Which of the following best describes the cause of a loss?
Peril
An applicant who conceals material information from an insurer may be subject to which of the following?
Policy cancellation with returned premium
An insurance contract is not enforceable unless it includes a valid agreement. Which of the following indicates that an acceptance of an offer has occurred?
Policy issuance
Which of the following risk classifications is characterized by a lower annual premium?
Preferred Risk
In order for an insurance contract to be legal and enforceable it must contain four elements. One of these elements is called a consideration. A consideration is something of value that must be exchanged between the parties to the contract. Which of the following is the consideration on the part of the policyowner or insured?
Premium paid and application representations
The insured's consideration in a life insurance contract is the:
Premiums paid and statements made
A life insurance policy is a legal contract between an insurer and policyholder. Prior to an application being approved by a life insurance company's underwriting department, the individual to be covered by the policy death benefit is known as the:
Proposed insured
An agent fills out an application but neglects to list the beneficiary designation. What will the insurer do when it receives the incomplete application?
Return the application to the agent
Which of the following life insurance policies is a type of limited payment life insurance plan and provides a greater tax advantage than other permanent plans?
Single premium whole life
Whole life insurance provides death protection and a cash savings feature. Which of the following policies is potentially the least expensive over the life of the contract?
Single premium whole life policy
Risk is defined as the uncertainty of loss or chance of loss. Which of the following types of loss is not insurable?
Speculative Risk
Which of the following life insurance policies generally covers two lives only?
Survivorship life
Which of the following policies is characterized by permanent life insurance protection?
Survivorship life
How does the cash value of a universal life insurance policy accumulate?
Tax Deferred
Which of the following best describes a life insurance policy with no cash value and increasing premiums over a period of time?
Term Life
An applicant has been denied insurance coverage because of information contained in a consumer report. According to the Fair Credit Reporting Act (FCRA), all of the following statements are true with regard to this scenario, EXCEPT:
The applicant has the right to secure the information in the report directly from the insurance company
The binding force in an insurance contract is:
The consideration
Jack and Jerry are partners in a business. They buy life insurance on one another. Twelve years later the partnership is dissolved. Insurable interest no longer exists but no changes are made to the policy and premiums continue to be paid. Which of the following will occur if Jack dies following the dissolution ?
The death benefit is paid to Jerry.
Which of the following may occur if an insured makes an additional premium payment on a life insurance policy?
The future premium may be reduced
Insurers utilize several sources of information in order to make underwriting decisions. Each of the following are important underwriting factors, EXCEPT:
The initial premium paid
There are two parties involved in an insurance contract. Which of the following has the right to determine the language or wording to be included in the contract?
The insurer
Which of the following will occur if an application for insurance includes some unanswered questions and the policy is still issued?
The insurer has waived the right to require an answer to the questions
A Universal Life policy provides an insured with a combination of death protection and a cash savings plan. It also provides the insured with the ultimate in flexibility. Which of the following statements is true regarding this type of policy?
The interest rate paid on the cash savings plan is guaranteed but interest sensitive
Acceptance of an offer for insurance is indicated by:
The issuance of the policy
Premiums for policies covering multiple insureds, such as a survivorship life plan, are based upon which of the following?
The joint probabilities of both proposed insureds
Interest sensitive whole life policies utilize changing interest rates for which of the following purposes?
To determine the cash value
Which of the following insurance plans allows the policyowner to increase coverage every year?
Universal Life
Which of the following provides a combination of level renewable term insurance and a cash value fund?
Universal life
Which of the following life insurance policies permits a beneficiary to receive a death benefit and the cash value upon the death of the insured?
Universal life option B
A hazard is a condition present that increases the chance of loss. Which of the following would be considered a hazard?
Using tobacco products
Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit?
Variable Life
A life insurance policy that provides an opportunity for investment growth potential and is characterized by a flexible premium best describes:
Variable Universal Life
Which of the following life insurance policies provides a policyowner with flexibility and control over the investment portion of the contract?
Variable life policy
Which of the following has an investment characteristic and includes a flexible premium?
Variable universal life
Which of the following life insurance policies permits a policyholder to direct where the cash value will be invested?
Variable universal life
A person applying for insurance intentionally misrepresents material facts in order to obtain an insurance policy. The insurer discovers the deceit ten months later after the policy has been issued. What action will the insurer take?
Void the Contract
A person age 40 desires a life insurance policy that will allow him to increase or decrease the death benefit in the future. What would you recommend that he purchase?
Adjustable life policy
An individual frantically searching for insurance protection the day after being diagnosed with a terminal illness best describes:
Adverse Selection
A whole life policyowner's cash savings value will equal the policy's face amount at what age?
At Age 100
Insurable interest in life insurance must exist:
At the time of application
What is the most accurate way an agent can become aware of her express powers?
By reading her agent contract
A universal life insurance policy provides a combination of term insurance protection and:
Cash savings plan
Which of the following best describes self-insurance?
Identifying and funding one's losses
An insurer that permits the producer to collect past due premiums in order to reinstate a lapsed policy even though the producer's contract does not allow such action, is an indication of:
Implied authority
A licensed producer who engages in material misrepresentations in such volume as to threaten the solvency of the insurer which sponsored him or her may be subject to which of the following?
Imprisonment
Which of the following is not a responsibility of a field underwriter?
Issue a Policy
A home office underwriter receives the greatest amount of insurability information from which of the following sources?
The Insurance Application
Illustrations may appear in an insurance policy which allow a policyowner to assume what they may imply. If the policy jacket or face page includes a picture of a male, female and three children, it is reasonable for the owner to assume which of the following?
The policy covers the entire family
Which of the following best describes how an insurance company receives an application for life insurance?
The producer submits it directly to the insurer
Insurance companies use age 100 to calculate life insurance death benefits because:
They assume everyone will have died by that age
A life or health insurer that underwrites risks properly and according to company guidelines will be more profitable than an insurer that does not engage in such activity. What is the primary purpose of underwriting?
To avoid adverse selection
When an insurer fails to enforce a policy provision it has engaged in a:
Waiver
In order for an insurance policy to be legal, there must be a valid offer and acceptance present. The offer is usually made in which of the following instances?
When the application is submitted to the underwriting department
Which of the following is characterized by fixed premiums and coverage for life?
Whole life insurance
Which of the following reinsurance agreements involves a ceding insurer desiring to transfer risk to a reinsurance company and the latter accepts or rejects it on a case-by-case basis?
Facultative reinsurance
Intentional deception can most closely be associated with which of the following terms?
Fraud
Which of the following is true regarding an interest sensitive whole life policy?
Interest credited increases cash value and shortens the premium payment period