Final Test Questions
On group life, the premium that an employer pays is not considered to be taxable income to an employee as long as the amount of coverage does not exceed: A. $50,000 B. $75,000 C. $100,000 D. Premiums paid by employers for employee group life are never taxable as income to an employee
A. $50,000 On group life, the premium that an employer pays is not considered to be taxable income to an employee as long as the amount of coverage does not exceed $50,000 per employee. In other words, if your employer provided you with $100,000 of group life coverage, that portion of the premium your employer paid for your coverage that exceeded $50,000 would be taxable to you as ordinary income.
On life insurance, which of the following is incorrect regarding insurable interest: A. It may be based upon friendship B. A husband has an insurable interest in his spouse C. It may be based upon economics D. It must exist at the time of application
A. It may be base upon friendship. Insurable interest must exist at the time of application and is based either or kinship, such as an immediate family member, or upon economics, such as a business part
On life insurance, which of the following is incorrect regarding insurable interest: A. It must exist at the time of application and at the time of loss B. Everyone is considered to have an insurable interest in their own life C. It may be based upon economics D. It may be based upon family relationships
A. It must exist at the time of application and at the time of loss Although insurable interest must exist at the time of application, it need not exist at the time of loss. For example, you buy a policy on your spouse, naming yourself as beneficiary. If you get divorced, the policy is still valid and if your spouse dies, the proceeds will still be payable to you although you no longer have an insurable interest.
The Virginia Life and Annuity Marketing Practices rules apply to which of the following: A. Prepared agent presentations to customers B. Materials used only within an insurer's own organization not intended for public use C. General communications with policyholders D. Announcements from group policyholders to eligible individuals
A. Prepared agent presentations to customers The Virginia Life and Annuity Marketing Practices rules apply to communications used by agents, including radio and TV scripts, sales aides, agent training materials used to induce the public to purchase insurance and prepared presentations and materials.
All of the following are considered to be "qualified" plans EXCEPT: A. Split dollar plan B. IRA C. 401k D. 403b
A. Split dollar plan A split-dollar plan of life insurance is often used by employers to provide permanent life insurance to a valued employee with a minimum cash outlay. The employer contributes to the premium each year in an amount equal to the increase in the policy's cash value and the employee pays the difference. If the insured dies, the employer gets back the money they paid out in premiums and the balance is paid to the employee's beneficiary. However, split-dollar plans are non-qualified, since the premiums are not tax deductible.
In which of the following situations has replacement occurred: A. The policy owner borrows money from his existing policy in order to buy a new one B. A client buys a new life insurance policy but intends to keep his old one in force C. A client buys life insurance for the very first time D. A client lapses his group life insurance in order to buy a new whole life policy
A. The policy owner borrows money from his existing policy in order to buy a new one Although replacement of life insurance is not unlawful, it may be detrimental to a client since he will pay a higher premium because he is older and the incontestability and suicide clauses start over. Replacement occurs when a new policy is sold and the client's existing policy will be lapsed or surrendered, converted to reduced paid-up or extended term insurance, amended to effect either a reduction in benefits or the term of coverage, reissued with any reduction in cash value, or used in a "financed purchase" where the insured takes a loan on his old policy and uses the money to buy a new policy.
The rules regarding the suitability of annuity transactions apply to which of the following: A. Recommendations made regarding annuities used to fund qualified retirement plans B. A recommendation made to an individual consumer that results in an annuity purchase C. A general discussion of annuities that does not recommend specific products D. Recommendations made regarding annuities used to fund structured settlements
B. A recommendation made to an individual consumer that results in an annuity purchase The rules regarding Suitability in Annuity transactions establish the guidelines for recommendations to consumers that result in a transaction involving annuity products to ensure that the insurance needs and financial objectives of consumers are properly addressed. They do not apply to general discussions of annuities where no specific recommendations are made or recommendations involving annuities used to fund qualified retirement plans or to fund structured settlements required in lawsuits.
What life insurance policy provision prohibits an agent or insurer from modifying a policy once it has been issued: A. Incontestability B. Entire contract C. Insuring clause D.Consideration clause
B. Entire contract The Entire Contract provision states that the contract that is admissible in court consists of the policy and the application, if attached by the insurer at issue, which means that after the policy is issued, nothing can be added or changed without the consent of the other party.
If replacement is involved, the replacing insurer must do all of the following EXCEPT: A. Verify that the required forms were received from their agent B. Notify the existing insurer within 5 business days of receipt of a completed application C. Keep copies of the notice regarding replacement on file for at least 5 years D. Provide a 30 day free look on their new policy, starting at time of policy delivery
B. Notify the existing insurer within 5 business days of receipt of a completed application Replacing insurers must give clients a 10 day free look, not 30.
To qualify for accelerated benefits, an insured must prove that they cannot perform at least ____ activities of daily living: A. One B. Two C. Three D. Four
B. Two When a life insurance policy provides for accelerated benefits, it means that the insured may take an advance on his death benefit if he cannot perform 2 or more of the activities of daily living, such as bathing, dressing, eating, walking, etc., or if a qualified health care provider or court has determined that the insured requires substantial supervision by another person to protect the health and safety of the insured or any other person. However, although they are not considered to be a policy loan, accelerated benefits paid to the insured will reduce the amount payable to his beneficiary when he dies.
All of the following would have to sign an application for life insurance EXCEPT the: A. Agent B. Insured C. Beneficiary D. Policy owner, if other than the insured
C. Beneficiary Beneficiaries are not a party to the application and need not sign it. Remember, most beneficiary designations are revocable, and can be changed by the policy owner at any time without notice.
The regulations regarding telemarketing and the do-not-call list are administered by the: A. Federal Communications Commission B. State Insurance Commissioner C. Federal Trade Commission D. National Association of Insurance Commissioners
C. Federal Trade Commission The Federal Trade Commission (FTC) enforces the regulations regarding telemarketing, including the administration of the do-not-call list. Telemarketing calls may be made only between the hours of 8 am to 9 pm in the time zone where the customer is located.
Which of the following is incorrect regarding group life insurance: A. It is cheaper than individual life insurance B. It is usually written as annual renewable term C. It is convertible at the insurer's option D. Groups cannot be formed just to buy insurance
C. It is convertible at the insurer's option Group life is convertible at the insured's option. In other words, the insured has 31 days after termination of employment to convert his group life insurance to an individual life insurance policy issued by the same insurer without a physical exam
On an annuity, which of the following may change the beneficiary: A. Annuitant B. Insured C. Owner D. Either the annuitant or the insured
C. Owner Although the owner of an annuity is usually also the annuitant, that is not always the case. For example, you buy an annuity based upon the life of your child. You are the owner and the child is the annuitant. Only the contract owner may change the beneficiary.
The rules regarding replacement apply when replacing which of the following: A. Credit life B. Group life C. Renewable term D. Group annuities
C. Renewable term The rules regarding replacement do not apply when the existing policy to be replaced is credit life, group life or group annuities. However, the replacement rules do apply when replacing term insurance unless the existing term policy is non-convertible and non-renewable and will expire in 5 years or less.
On non-contributory group life insurance, what percentage of eligible employees must enroll: A. 25% B. 50% C. 75% D. 100%
D. 100% To help avoid adverse selection, most group life policies contain "participation requirements" which are designed to ensure that a high percentage of the healthy employees are enrolled. If the group premium is paid entirely by the employer (non-contributory), 100% of the eligible employees must be enrolled in the group, unless they reject coverage. If the premium is shared by the employer and the employees (contributory), then at least 75% of those eligible must enroll.
Group life insurance policies must contain a grace period of at least: A. 7 days B. 10 days C. 30 days D. 31 days
D. 31 days The grace period on group life must be at least 31 days, during which coverage remains in effect. The insured also has 31 days after termination of employment to convert his group life insurance to an individual policy, without providing any evidence of insurability.
All of the following are true regarding viatical settlements EXCEPT: A. A person seeking to sell their policy is known as a "viator" B. A Viatical Settlement Broker is considered to be an agent of a Viatical Settlement Provider C. Alternatives to viatical settlements include accelerated benefits and policy loans D. A Viatical Settlement Broker may pay finder's fees to a doctor who provides medical services to a viator
D. A Viatical Settlement Broker may pay finder's fees to a doctor who provides medical services to a viator A Viatical Settlement Provider or Broker may not pay finder's fees or commissions to the viator's physician, attorney, accountant or any other person who provides medical, legal or financial planning services to the viator.
The rules regarding replacement of life insurance apply to which of the following: A. Agents B. Insurers C. Insureds D. Agents and insurers
D. Agents and insurers The rules regarding replacement apply to both agents and insurers.
All of the following are true regarding life insurance policy loans EXCEPT: A. The policy is the sole collateral for the loan B. The maximum fixed annual interest rate is 8% C.The amount of an unpaid loan will be subtracted from proceeds upon the insured's death D. All types of life insurance policies must contain provisions for loans
D. All types of life insurance policies must contain provisions for loans Since term life insurance does not have any cash value, loans are not permitted.
Proceeds from which of the following life insurance contracts may be taxable to the beneficiary: A. Term B. Whole life C. Endowment D. Annuity
D. Annuity Life insurance proceeds payable upon the insured's death to a beneficiary are never taxable. However, although annuities are life insurance products, they do not offer any life insurance protection against death. If an annuitant dies during the pay-in period, their account balance (which consists of the amount of premium paid in plus any accrued interest) is payable to their beneficiary. The interest portion of the account balance is taxable to the beneficiary as ordinary income.
Which of the following is correct regarding the conversion of group life insurance: A. It is convertible to any type of life insurance B. There is no coverage if an employee dies within 31 days without applying for conversion C. It is convertible based upon the employee's original age D. Conversion may be made without providing proof of insurability
D. Conversion may be made without providing proof of insurability Most group life is annual renewable term insurance. Although it is convertible without a physical exam for 31 days after termination of employment, it must be converted to a type of life insurance other than term, such as whole life. Conversion is based upon the insured's current age and the insured cannot convert to more coverage than he previously had with the group.
All of the following are true regarding group life insurance EXCEPT: A. There is usually little or no underwriting B. The grace period must be at least 31 days C. The employees receive Certificates of Insurance D. Premiums paid by the employer are considered to be taxable income to the employee
D. Premiums paid by the employer are considered to be taxable income to the employee Generally, premiums paid by employers for group life insurance are tax deductible as a business expense and are not considered to be taxable income to employees.
A person who arranges viatical settlements for persons seeking to sell their life insurance policies must be licensed as a(n): A. Agent B. Viator C. Viatical Settlement Provider D. Viatical Settlement Broker
D. Viatical Settlement Broker A "viator" is a person with a terminal illness who seeks to sell his policy to an investor. A Viatical Settlement Provider provides investors who may want to buy such policies. A Viatical Settlement Broker is a middle man who puts the viator in touch with the viatical settlement provider they represent.
The principle or doctrine that says that life insurance must be purchased on a "take it or leave it" basis is known as the: A. Principle of Indemnity B. Doctrine of Adhesion C. Doctrine of Utmost Good Faith D. Principle of Aleatory contracts
Doctrine of Adhesion Since the language in a life insurance contract is not subject to negotiation, customers must buy coverage on a "take it or leave it" basis. However, if the language in the contract is unclear, any ambiguity is always construed in favor of the customer, under the Doctrine of Adhesion.