Insurance Exam Review

Which of these people would be not be legally disqualified from entering into a contract? a. a retired person b. an insane person c. a minor age person d. an intoxicated person

a. a retired person

When the original owner of a life insurance policy transfers all rights to a new owner, this is known as a(n) a. absolute assignment b. beneficiary designation c. fiduciary transaction d. collateral assignment

a. absolute assignment

Which one of the following products is designed to liquidate an estate? a. an annuity b. whole life insurance c. term life insurance d. variable life insurance

a. annuity

Common exclusions in a life insurance policy do not include which one of the following? a. aviation for fare-paying passengers on a regularly scheduled commercial flight b. hazardous occupation c. war or acts of war d. military service

a. aviation for fare-paying passengers on a regularly scheduled commercial flight

A requirement of contract law in which the insurer promises to pay benefits in exchange for the applicant's premium and application is called: a. consideration b. condition c. capital d. collateral

a. consideration

Which one of the following is not a type of annuity offered by insurers? a. flexible premium immediate b. single premium deferred c. single premium immediate d. flexible premium deferred

a. flexible premium immediate

A life insurance policy becomes _____________ after it has been in force for two years from the issue date, even in cases of material misrepresentation. a. incontestable b. permanent c. aleatory d. modified

a. incontestable

Annuities are categorized by all of the following except: a. issuer b. type of investment and which party bears the investment risk c. timing and amount of premium payments d. when income benefits begin after the first premium is paid

a. issuer

All of the following are true about the automatic premium loan provision, except: a. it is available on all policies for an additional premium b. the provision becomes effective if the premiums is not paid by the end of the grace period c. the automatic premium loan is treated like any other policy loan d. it is available on cash value policies only without an additional charge

a. it is available on all policies for an additional premium

Individual underwriting factors include all of the following except: a. marital status b. gender c. tobacco use d. age

a. marital status

Which of the following provides information regarding the applicant's medical history to a home office underwriter? a. part 2 of the application b. part 1 of the application c. an agent's report d. an inspection report

a. part 2 of the application

A form attached to the policy which enhances or supplements the existing policy benefits is called a(n): a. rider b. application c. exclusion d. receipt

a. rider

All of the following are characteristics of a mutual insurance company, except: a. stockholders own the company b. any divisible surplus is distributed as dividends to policyholders c. issues participating policies d. the policyholders vote for the Board of Trustees

a. stockholders own the company

If a terminated employee dies during the conversion period in a group policy without applying for an individual policy, what happens? a. the conversion policy will only pay a death benefit if proof of the decedent's insurability prior to death is verified b. the conversion policy will pay the full death benefit less the premium due c. the group policy will pay a full death benefit less any premiums due d. no claim will be paid because the group policy does not cover terminated employees, and a new policy was not applied for

a. the conversion policy will only pay a death benefit if proof of the decedent's insurability prior to death is verified

A policy owner agrees to give his entire policy's value over to a creditor as a promise to repay a loan. In the event the insured dies, how much will the creditor receive? a. the full death benefit b. nothing, such agreements violate public policy and are void as a matter of law c. the outstanding loan balance plus any unpaid interest or fees d. the balance of the death benefits, after paying not less than half of the death benefit to the beneficiaries

a. the full death benefit

Which one of the following elements is an advantage of group life insurance? a. the open enrollment and conversion privilege b. the group coverage automatically doubles at retirement c. it is typically permanent coverage with cash value d. evidence of insurability is always required for newly hired employees, and any employees during open enrollment

a. the open enrollment and conversion privilege

A life insurance waiver of premium rider usually has a ________ month elimination period prior to the premiums being waived by the insurer. a. 1 b. 6 c. 3 d. 2

b. 6

If the insured is certified as terminally ill (life expectancy less than 12 months), which provision would allow the policy owner to receive a specified amount of the face value prior to the death of the insured? a. disability income b. accelerated death benefit c. waiver of premium d. return of premium

b. accelerated death benefit

If an insured and primary beneficiary both die within 30 mins of each other as a result of the same incident, the common disaster clause applies as follows: a. automatically pays a benefit to the primary beneficiary's estate b. assumes the insured predeceased the primary beneficiary c. assumes the beneficiary predeceased the insured d. requires the District court to determine the order of death based on medical evidence

b. assumes the insured predeceased the primary beneficiary

When the youngest child reaches age 16, the widow/widower's Social Security Income is discontinued due to which of the following? a. probationary period b. blackout period c. eligibility for medicare d. open enrollment period

b. blackout period

Policy loans may: a. require the insured is credit-worthy before being granted b. charge either a fixed or variable loan interest rate c. be forgiven by the insurer upon death of the insured d. exceed the cash surrender value

b. charge either a fixed or variable loan interest rate

If the insured dies and the policy proceeds are paid to the beneficiary over a specified period of time, this would be an example of the ____________ settlement option a. life only b. fixed amount c. interest only d. fixed period

b. fixed amount

Annuities funded with continuing premium contributions that fluctuate based on amount and timing are referred to as: a. fixed premium immediate annuities b. flexible premium deferred annuities c. single premium deferred annuities d. flexible premium immediate annuities

b. flexible premium deferred annuities

All of the following statements regarding the tax treatment of group life insurance are true, except: a. employee-paid premiums are not eligible for a tax deduction b. if the employer paid premiums are tax deductible as a business expense, the death benefit payable to a named beneficiary are taxable c. group term life insurance premiums paid by an employer are tax deductible to the business as an ordinary and necessary business expense d. employer-paid premiums are not considered taxable income to the employee unless the death benefit paid for by the employer exceeds $50,000

b. if the employer paid premiums are tax deductible as a business expense, the death benefit payable to a named beneficiary are taxable

____________ is the principle that an insured must not profit from an insured loss, and should only be restored to the same financial or physical condition that existed prior to the loss a. subrogation b. indemnity c. utmost good faith d. risk sharing

b. indemnity

The ___________ states the insurer's essential promise to provide the benefits described in the contract a. suicide provision b. insuring agreement c. consideration clause d. right of assignment

b. insuring agreement

If written consent of the beneficiary is required to change policy ownership or to assign the policy, then the beneficiary designation must be: a. tertiary b. irrevocable c. revocable d. per stirpes

b. irrevocable

The policy owner must obtain permission from which of the following in order to take out a policy loan? a. owner's spouse b. irrevocable beneficiary c. insurance company d. named insured

b. irrevocable beneficiary

An annuity that is payable to annuitants A & B while both are living and continues to pay after A dies until B's death, but reduced to just 50% of the original payment amount, is providing _________________________. a. joint life b. joint and survivor life income c. life income with refund d. life income with period certain

b. joint and survivor life income

Which one of the following annuity/settlement options offer the highest monthly income, all other factors remaining the same? a. life with cash refund b. life with 10 year period certain c. life only d. joint and survivor

b. life with 10 year period certain

If a life insurance policy is said to have failed the 7-pay test, the policy is known as a(n): a. irreversible annuity contract b. modified endowment contract c. STOLI contract d. void contract

b. modified endowment contract

Which non-forfeiture option provides the longest period of coverage? a. cash surrender value b. reduced paid-up c. cash value d. extended term

b. reduced paid-up

Which one of the following types of term life insurance would be the most expensive all else being equal? a. renewable and convertible b. renewable and nonconvertible c. nonrenewable and nonconvertible d. nonrenewable and convertible

b. renewable and nonconvertible

All of the following are components or features of an Indexed Universal Life (UIL) insurance policy, except: a. the insurer may use the premiums to purchase options and hedges tied to a stock market or other index b. the cash value is a liability of the insurer's separate account c. interest credits to the policy are linked to the performance of a stock index, such as the S&P 500 d. in "down markets" there is no reduction of the cash value due to the markets' declining performance

b. the cash value is a liability of the insurer's separate account

What happens when the insured dies with a policy loan outstanding against their life insurance policy? a. the spendthrift trust will pay off any creditors prior to claim payment b. the insurer deducts the outstanding loan balance from the death proceeds paid c. the insurer writes off the loan as un-collectable d. the loan is repaid in full by the beneficiary prior to any death claim payment

b. the insurer deducts the outstanding loan balance from the death proceeds paid

A mother purchases a $50,000 whole life policy on the life of her 13-year-old son, and includes a payer benefit rider. If she dies or becomes disabled before he turns the age 21: a. the policy automatically converts to reduced paid-up insurance b. the policy becomes fully paid-up c. the policy is in danger of lapsing due to nonpayment of premiums d. the insurance company will credit the policy's cash value as if the premiums were paid

b. the policy becomes fully paid-up

If an annuity is described as having accumulation units that convert to annuity units, what type of an annuity is it? a. equity indexed b. variable c. single premium d. fixed

b. variable

How is a qualified annuity distribution taxed? a. 50% of the distribution is taxable to the recipient, 50% taxable to the employer b. distributions from "qualified" annuities are entirely tax-free c. 100% of the distribution is taxable to the recipient d. 100% of the distribution is taxable to the employer

c. 100% of the distribution is taxable to the recipient

If all of the following policies were issued to a 25-year-old individual with the same risk classification, face amount, and from the same company, which policy will the cash value grow at the fastest rate? a. ordinary (straight) life b. life paid up to 65 c. 20-pay life d. annual renewable term

c. 20-pay life

If a life insurance policy is issued with questions left unanswered in the application, the a. policy is null and void b. contract can be contested by the insurer at any time in the future c. contract will be interpreted as if the answer to the unanswered question was not material to the issuance of the policy and the insurer waives its right to contest a claim based on that information d. insurer can refuse to pay a claim if death was a result of the missing information on the application

c. contract will be interpreted as if the answer to the unanswered question was not material to the issuance of the policy and the insurer waives its right to contest a claim based on that information

An insurer organized under the laws of Kansas is considered _____________ to Kansas: a. admitted b. alien c. domestic d. foreign

c. domestic

Which nonforfeiture option allows the policy owner to stop paying premiums but maintain the same face amount of coverage? a. cash surrender b. premium reduction c. extended term insurance d. reduced paid-up insurance

c. extended term insurance

_______________ term riders are normally used to fund Return of Premium benefits a. level b. decreasing c. increasing d. re-entry

c. increasing

The premium "mode" a. determines if the premium can be mailed in or is collected by the producer in person b. is the frequency of the insurer's computation of the policy's cash values c. is the frequency of payments d. identifies whether the insured is paying by cash, check/money order, or credit/debit card

c. is the frequency of payments

In a group insurance plan, the insurer issues a ________ to the plan sponsor a. franchise policy b. blanket policy c. master policy d. certificate of insurance

c. master policy

What is the name of the dividend option that is used to offset any or all future premium payments on a continuing basis? a. reduced paid-up b. accumulate at interest c. paid-up additions d. premium reduction

c. paid-up additions

A life insurance transaction in which a new life insurance policy is being purchased and an existing policy will be surrendered, lapsed, or forfeited, is known as: a. extension b. conversion c. replacement d. twisting

c. replacement

_____________________ are the statements that are believed to be true to the best of the knowledge and belief of the applicant/insured at the time of the application a. misrepresentations b. warranties c. representations d. concealment

c. representations

The cash values of which one of the following policies builds up the quickest? a. limited pay whole life b. ordinary straight whole life c. single premium whole life d. indeterminate premium whole life

c. single premium whole life

A(n) _____________ insurer is authorized by the Insurance Commissioner to transact business in California and has received a Certificate of Authority a. permitted b. admitted c. surplus lines d. endorsed

c. surplus lines

Which one of the following policies covers two insureds, but pays the death benefit only after the second death? a. variable whole life b. variable universal life c. survivor-ship life d. joint life

c. survivor-ship life

The guaranteed insurability rider provides for which of the following? a. the insurer waives the premium in case of the insured's disability b. the insurer guarantees the policy will not be cancelled if the insured's health changes c. the ability to purchase more of the same kind of insurance without evidence of insurability d. the ability to convert whole life into term

c. the ability to purchase more of the same kind of insurance without evidence of insurability

If the primary beneficiary dies and the insured dies later with no other beneficiaries listed in the policy, the proceeds are payable to: a. the contingent beneficiary b. the tertiary beneficiary c. the estate of the insured d. the estate of the beneficiary

c. the estate of the insured

Which one of the following statements about fixed annuities is false? a. the fixed payout amount is subject to loss of purchasing power over time b. the fixed annuity's values are backed by the insurer's general account c. the insured bears the investment risk d. a fixed annuity has a guaranteed minimum interest rate

c. the insured bears the investment risk

J buys a life insurance policy. 9 months later, he commits suicide. How much will the insurer pay the beneficiary? a. the face amount b. the cash value c. the premium paid d. nothing

c. the premium paid

Which policy's cash accumulation is tied directly to the performance of the stock market? a. whole life b. universal life c. variable universal life d. adjustable life

c. variable universal life

If a terminally ill insured sells an insurance policy to a third party for less than the death benefit but more than the cash surrender value, the transaction is known as a a. replacement b. 1035 exchange c. viatical life settlement d. endowment

c. viatical life settlement

An applicant's answers to questions in a disability income may be changed at any time except: a. before the policy is issued by the insurer b. after the application is received by the insurer c. before the application is submitted by the agent d. after the policy is issued by the insurer

d. after the policy is issued by the insurer

An insurance company admitted to transact business in California, but incorporated under the laws of Spain, would be considered: a. domestic b. international c. foreign d. alien

d. alien

Overall, the least expensive mode of premium is: a. quarterly b. monthly c. semi-annual d. annual

d. annual

How does a policy owner reinstate a lapsed life insurance policy? a. by paying all past-due premiums plus interest within 30 days of the insured's death b. by paying past-due premiums plus interest and proving insurability c. by paying all past-due premiums for the number of years stated in the policy d. by submitting a completed reinstatement application

d. by submitting a completed reinstatement application

The insured no longer has life insurance coverage if which non-forfeiture option is exercised? a. automatic premium loan b. reduced paid-up c. extended term d. cash surrender

d. cash surrender

The non-forfeiture options in an individual life insurance policy are: a. life only, life with refund, and joint life and survivor b. cash, paid-up additions, and one-year term c. interest only, period certain, and fixed amount d. cash surrender value, reduced paid-up insurance, and extended term insurance

d. cash surrender value, reduced paid-up insurance, and extended term insurance

While life insurance may be used to fulfill numerous personal insurance needs, it is mostly used for all of the following situation, except: a. providing immediate funds available upon the insured's death allowing survivors to pay creditors, taxes, and the costs of the deceased's final expenses b. immediate creation of an estate upon death of the insured to help maintain the survivor's standard of living c. preserving an estate by creating funds necessary to pay estate taxes due upon the death of the insured d. creating an investment vehicle for a specified number of years to accumulate funds to pay for the cost of a child's college education

d. creating an investment vehicle for a specified number of years to accumulate funds to pay for the cost of a child's college education

Q secured a $12,000, 48-month, loan from a bank to purchase a boat. In order to provide for payment of the outstanding loan balance over the entire 48 months, which one of the following policies would be the best choice? a. level term b. universal life c. increasing term d. decreasing term

d. decreasing term

The policy owner has all of the following rights in a whole life insurance policy except: a. borrowing against the cash values or accessing living values b. receiving dividends and selecting among the dividend options made available c. naming or changing revocable beneficiaries d. determining the premium to be paid

d. determining the premium to be paid

All of the following are true regarding employer qualified plans, except: a. employer contributions are not taxable to the employee until withdrawn b. employer contributions are immediately tax deductible to the employer at the time the contribution is made c. distributions taken prior to 59.5 are generally subject to taxation and a 10% penalty d. employer contributions are not tax deductible and upon withdrawal, only the earnings are taxable

d. employer contributions are not tax deductible and upon withdrawal, only the earnings are taxable

Which one of the following is not a dividend option? a. one-year additional term insurance b. paid-up additional insurance c. accumulate at interest d. extended term insurance

d. extended term insurance

Which one of the following policy provisions starts at the time the policy is delivered and allows the owner to return the policy for a full refund within a specified period of time? a. grace period b. contestable clause c. suicide clause d. free look period

d. free look period

The ____________ period is the time allowed to pay premiums after the due date before a policy lapses. a. dividend payment b. nonforfeiture c. automatic premium loan d. grace

d. grace

Death proceeds paid under the Life Income (Life Only) settlement option are: a. made for a set period of time or the beneficiary's lifetime, whichever is longer b. a specified dollar amount paid out until principal and interest is depleted c. guaranteed to be paid out for the lifetimes of a primary and a contingent beneficiary d. guaranteed to be paid out over the lifetime of the beneficiary

d. guaranteed to be paid out over the lifetime of the beneficiary

All of the following regarding participating policy dividends are true, except: a. the dividends themselves are not taxable since dividends are considered a return of unearned premium b. when dividends are left on deposit with the insurance company, the interest earned on the dividends is taxable as ordinary income in the year earned c. if the sum of dividends received exceeds the total premium paid for the life insurance policy, the excess dividends are considered taxable income d. higher dividends are the result of higher mortality and expense costs than the insurer expected

d. higher dividends are the result of higher mortality and expense costs than the insurer expected

The sale of the an existing life insurance policy to a third-party for more than its cash surrender value but less than its death benefit because the premiums are too high describes which of the following transactions? a. viatical settlement b. replacement c. conversion d. life settlement

d. life settlement

Which of the following statements concerning federal taxation of individually owned life insurance is true? a. both the premiums and the death benefits are taxable to the beneficiary or the insured's estate b. only the death benefit is taxable c. policy premium are fully tax deductible to the policy owner d. lump-sum death benefits normally receive 100% tax-free by the beneficiary

d. lump-sum death benefits normally receive 100% tax-free by the beneficiary

B decides to buy a single premium immediate annuity with a straight life only income option. How long will the insurer make payments to B? a. for a guaranteed period of time, whether or not B survives to the end of that period b. for a period of time in which B recovers the initial premium amount or life, whichever is longer c. only until the principal and interest are exhausted d. only for as long as B is alive

d. only for as long as B is alive

The party that has the right to exercise all the rights in an individual life insurance policy is called the: a. insurer b. beneficiary c. insured d. policy owner

d. policy owner

All of the following are true of variable annuities, except: a. they are regulated as both a securities and insurance product b. the account values fluctuate based on the performance of one or more separate accounts c. they can be used to fund qualified retirement plans or IRAs d. the account values can go up but can never go below the minimum guaranteed amount

d. the account values can go up but can never go below the minimum guaranteed amount

All of the following statements about life insurance settlement options are true, except: a. the policy owner has the right to select a settlement option prior to the insured's death b. if the policy owner did not select a settlement option prior to the insured's death, a beneficiary is free to do so c. the settlement option can be changed by the policy owner while the insured is still alive d. the beneficiary can change the settlement option at any time

d. the beneficiary can change the settlement option at any time