Insurance Review
Which of the following is NOT guaranteed in a whole life policy?
Dividend scale
Which statement about group life insurance is INCORRECT?
Each participant requires evidence of insurability
When using the needs approach for life insurance planning, lump sums may be created for all of the following reasons EXCEPT
Employee benefits
Which life insurance settlement option pays a stated monthly payment until both principal and interest are exhausted?
Fixed amount installment option
What is considered a valid reason for small businesses to insure the lives of its major shareholders?
Fund a buy-sell agreement
A business may purchase an annuity for all of the following reasons EXCEPT
Funding a non-qualified deferred compensation plan
When an individual is planning to protect his family with life insurance, one method of doing so is called needs analysis. What exactly does needs analysis involve?
Identifies the needs of the individual and his/her dependents
XYZ Insurance Company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?
Implied authority
What must be given to a life insurance applicant when the agent receives an application and the initial premium?
Conditional receipt
The exclusion ratio determines
the amount of an annuity payment subject to income tax
An insured has a $25,000 whole life insurance policy with $6,000 cash value available. Under the extended term nonforfeiture option, what is the amount of insurance available to the insured?
$25,000
Which of these do NOT indicate the presence of insurable interest in a life insurance contract?
Lifelong friendship
How long do most states allow an insurance company to delay the payment of a cash surrender under the Delayed Payment provision?
6 months
What is a juvenile life insurance policy?
A life policy that covers the life of a minor
Which situation would not require the insured's consent when a life insurance policy is issued?
A policy is purchased by a parent for a minor child
Which of these is an accurate statement regarding the fixed period settlement option on a life insurance policy?
A portion of the payments paid to the beneficiary comes from interest calculated on the proceeds of the policy
What is the reason that insurance companies require a minimum number of employees participating in a group insurance plan?
Adverse selection is minimized
Which of these would NOT be a valid reason to add the waiver of premium rider to a life insurance policy?
Allows a policyowner to take out a policy loan to cover premium payments in the event of total disability
What type of policy can group term life insurance normally be converted to?
An individual permanent life insurance policy
Which is an accurate description of the premium in a graded premium life insurance policy?
Annual increases in premium for a stated number of years then levels off for the remainder of the contract
A description of a qualified plan's insurance contract may be found in which ERISA reporting form?
Annual return/report (Form 5500)
During the liquidation phase of an annuity contract, to whom are the income benefits normally payable to?
Annuitant
In what situation could an insurance policy's coverage be modified?
Applicant is a substandard risk
Traditional individual retirement annuity (IRA) distributions must start by
April 1st of the year following the year the participant attains age 70 1/2
Kevin has an existing life insurance policy and assigns it to another insurer for a new contract. How would this transaction be treated for tax purposes?
As a Section 1035 exchange
Which of these statements regarding insurance is false?
As the number of insured units increases, the number of losses decreases
Which statement regarding the cash value of a whole life insurance policy is correct?
Available to the policyowner when policy has been surrendered
A policyowner pays the first annual premium for a $50,000 life insurance policy and dies one month after the policy effective date. Which of these statements is normally true?
Beneficiary receives $50,000 income tax-free
What is the tax treatment of benefit payments for a non-qualified annuity?
Benefit payments are always fully taxable
Who normally pays the premiums for group credit life insurance?
Borrower
Which of these is NOT considered to be a cost connected with an individual's death?
Business expenses
Which of these is true regarding the exchange of consideration among parties involved in an insurance contract?
Can be unequal
Which of the following is a syndicate established by a group of insurers to share underwriting duties?
Lloyd's organization
Which of the following can be defined as a cause of a loss?
Peril
What happens to the death benefit of a life insurance policy if the insured elects a partial payment from the accelerated (living) benefit provision?
Reduced
A life insurance policyowner would like a dividend option that results in a limited current outlay of funds. Which dividend option would be chosen?
Reduction of premium payment
How can an insurance company minimize exposure to loss?
Reinsuring risks
What happens when a policyowner borrows against the cash value of his life insurance policy?
The death benefit would be reduced by the outstanding loan balance
Which statement concerning adjustable life insurance is accurate?
The face amount and premiums can be changed simultaneously by the policyowner
All of these statements concerning group credit life insurance are false EXCEPT
The face amount is determined by the outstanding loan balance
Which statement regarding a fixed period settlement option is correct?
The installment payment amount is determined by the total number of installments
What determines how much an annuitant is paid for a variable annuity?
The market value fluctuations of the securities backing it
What type of reinsurance contract between two insurers involves an automatic sharing of the risks assumed?
Treaty reinsurance
Which of the following is NOT considered to be an expense for surviving family members of a deceased wage earner?
Unemployment tax expenses
When does the producer give a premium receipt for a life insurance application?
When the initial premium has been collected with the application
An agent's authority to bind an insurer to an insurance contract may be granted in the
agent's contract and the insurance company's appointment
XYZ Corp has implemented a qualified retirement plan. This plan may NOT discriminate
in favor of highly compensated employees
Which term describes the elimination of a hazard?
Risk avoidance
A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today?
$80,000
Which of these statements about traditional individual retirement accounts is accurate?
10% penalty is applied to withdrawals prior to age 59 1/2
What is the excise tax rate the IRS imposes on individuals aged 70 1/2 or older who do not take the required minimum distributions from their qualified retirement plan?
50%
What could be the potential result of taking out a cash value loan on a life insurance policy?
Cash surrender value will be reduced if policy is forfeited
Which of the following is NOT a condition that must be met for an accidental death benefit to be paid?
Cause of death must be from a job-related injury
What happens when an initial offer is answered with a counteroffer?
Initial offer is void
Which of these policies is considered a whole life policy?
Single premium life
When would evidence of insurability be required for a person already covered with a variable universal life policy?
The death benefit is increased
How does a continuous premium whole life policy differ from a limited pay whole life policy?
The time period in which premiums will be paid
How is a collateral assignment used in a life insurance contract?
Transfers specific ownership rights to a creditor
Field underwriting by a producer
may result in the disclosure of hazardous activities of the applicant
Where is the difference between a standard risk and a substandard risk reflected?
premium charges
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?
100%
What minimum percentage of all eligible employees must participate in a group life insurance plan if the premiums are completely paid for by the employer?
100%
A survivorship life insurance policy usually covers how many lives?
2
Mike applied for life insurance and was issued a conditional receipt. He is later found to be insurable and is issued a policy. When does his coverage become effective?
Date of issuance of the conditional receipt
What is the term used for an insurance contract that identifies individuals by relationship to a specific organization?
Group insurance
Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2?
Income tax and penalty tax
Which life insurance clause prohibits an insurance company from questioning the validity of the contract after a stated period of time has passed?
Incontestable clause
Which statement regarding the certificate of insurance is accurate?
Indicates evidence of an employee's insurance coverage
Which statement is INCORRECT about the interest-only settlement option in a life insurance policy?
Interest on proceeds must be paid by the beneficiary
All of these are duties that a producer may be required to perform when delivering an insurance policy EXCEPT
Leave a conditional receipt with client
A policyowner has a life insurance policy where she had listed her age on the application as 5 years younger than her actual age. If she dies and the insurer discovers the misstatement of age, how much will the insurance company pay?
Less than the face amount
Joe is a life insurance policyowner who has failed to pay interest on his policy loan. What will result from this nonpayment?
Loan amount is increased to reflect the amount of interest due
Which of these is NOT relevant when determining the amount of personal life insurance needed?
Local unemployment rates
Which of these is NOT used as selection criteria in the underwriting process of a life insurance application?
National origin
All of these statements correctly describe an aleatory contract EXCEPT
Only one party makes any kind of legally enforceable offer
Dividends from a mutual insurance company are paid to whom?
Policyholders
The beneficiary of a life insurance policy is normally selected by whom?
Policyowner
Which of the following describes a participating life insurance policy?
Policyowners are entitled to receive dividends
What type of risk involves the potential for loss with no possibility for gain?
Pure risk
An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?
Reinsurance contract
Which of these factors does NOT influence an applicant's need for life insurance?
Self-maintenance expenses
Assets that back the non-guaranteed values of variable life insurance products are held in which account?
Separate account set up by the insurer
When an annuity contract has been surrendered, how will the surrender charges affect the final contract settlement?
Settlement will be reduced
What type of risk involves the potential for loss and the possibility for gain?
Speculative
Which one of these is NOT considered to be an element of an insurable risk?
Speculative risk
XYZ Corp gives money to an employee to purchase a life insurance policy and allows the employee to select the beneficiary. What kind of plan is this?
Split-dollar
When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for
Ten year term insurance for a person aged 55
Which of the following statements is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made?
The account can be rolled into the surviving spouse's IRA
What is payable to a policyowner if a whole life policy is surrendered prior to its maturity date?
The cash value
Which of the following is true regarding a person receiving a waiver of premium benefit?
The insured must be disabled for a period of time
An individual who purchases a modified life insurance policy expects
an improvement in future income
In a qualified retirement plan, the yearly contributions to an employee's account
are restricted to maximum limits set by the IRS
The insurer's obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions. This makes the policy a(n)
conditional contract
The courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is a(n)
contract of adhesion
The policy provision that permits an employee to change from a group plan to an individual plan is called the
conversion provision
Al surrenders his life insurance policy for its cash value. The total of the premiums paid into the policy minus total dividends received in cash or used to offset premiums is referred to as the
cost basis
A qualified profit-sharing plan is designed to
distribute a portion of company earnings to its employees
When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest minus
expenses and withdrawals
When premiums are calculated, one factor would be the expenses of the
insurance company
After the extended term life nonforfeiture option is chosen, the available insurance will be
level term for a stated period of time
A life insurance company's spendthrift clause would have no effect if the beneficiary is paid the proceeds as a
lump-sum payment
According to the needs approach, an emergency reserve fund's primary purpose is to
pay for unexpected expenses
Any employee insured under a group life insurance plan is normally
protected by term life insurance
Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will
remain a constant dollar amount for the duration of the annuity period
What is considered the accounting measurement of an insurance company's future obligations to its policyowners?
reserves
A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a
risk retention group
Contributions made by an employee to a qualified retirement plan are required to be
subject to a vesting schedule
The back-end charge typically associated with an annuity that has been cancelled during the early contract years is called a
surrender charge
If an employer pays for accidental death and dismemberment insurance for its employees, the amount paid by the employer is generally
tax deductible to the business
The premiums paid by an employer for his employee's group life insurance are usually considered to be
tax-deductible to the employer
An insurable risk requires
that the chance of loss be calculable
A material change in a modified endowment contract (MEC) results in
the seven pay test, adjusted for cash value, being applied again
Purchasing insurance is an example of risk
transference
Insurable interest in one's own life generally is regarded as
unlimited
An insurance company's failure to enforce a contract's provision is called a(n)
waiver
An insurance company can be liable for a producer's unauthorized acts
when the agency contract is unclear concerning the authority given
The conversion option for group term insurance may be exercised by an employee
within 31 days of terminated employment