License Exam Practice Questions

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory

Which of the following reports will provide the underwriter with the information about an insurance applicant's credit?

Consumer report

Variable whole life insurance is based on what type of premium

Level fixed

Which of the following riders would NOT cause the death benefit to increase? - cost of living rider - accidental death rider - payor benefit rider - guaranteed insurability rider

Payor Benefit Rider - it only pays the premium if the payor is disabled or dies

Under an extended term nonforfeiture option, the policy cash value is converted to

The same face amount as in the whole life policy

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?

The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

An absolute assignment is a: a) Change of beneficiary b) Change of insurer c) Transfer of all ownership rights in a policy d) Transfer of some ownership rights in a policy

Transfer of all ownership rights in a policy

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the - other-insured rider - change of insured rider -juvenile rider -payor rider

other insured rider (is useful in providing insurance for more than one family member. the type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.)

Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?

3 days

Which nonforfeiture option provides coverage for the longest period of time?

Extended Term (This option has the same face amount as the original policy, but for a shorter period of time)

Fixed annuities provide all of the following EXCEPT - future income payments - hedge against inflation - equal monthly payments for life - minimum guaranteed rate of interest

Hedge against inflation

When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will

Issue the policy anyway and pay the face value to the beneficiary

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

Unilateral

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

Warranty

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent.

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

5 days

All of the following statements concerning dividends are true EXCEPT: - favorable investment results generate higher dividends - dividend amounts are guaranteed in the policy - lower insurance company costs generate higher dividends - they stem from favorable underwriting experience

dividend amounts are guaranteed in the policy (Dividends cannot be guaranteed)

Which of the following is NOT true regarding the annuitant? - the annuitant receives the annuity benefits - the annuitant must be a natural person - the annuitant cannot be the same person as the annuity owner - the annuitant's life expectancy is taken into consideration for the annuity

the annuitant cannot be the same person as the annuity owner

What type of insurance would be used for a Return of Premium rider? - Level Term - Decreasing Term - Annually Renewable Term - Increasing Term

Increasing Term (the return of premium rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary)

An applicant signs an application for a $25k life insurance policy, pays teh initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE? - The app will be voided - the beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy - the premium would be returned to the insured's estate because the policy was not issued - the death claim will be rejected

the beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy - the conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the app was signed or the date of the medical examination

The full premium was submitted with the app for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage became effective?

As of the application date

Which of the following is TRUE regarding the accumulation period of annuity? - it is a period of time during which the beneficiary receives income - it is limited to 10 years - it is a period during which the payments into the annuity grow tax deferred - it is also referred to the annuity period

It is a period during which the payments into the annuity grow tax deferred

What is the purpose of a conditional receipt?

It is intended to provide coverage on a date prior to the policy issue.

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Limited pay whole life

The two types of assignments are:

Absolute and collateral. (Absolute assigns the entire policy. Collateral assigns a part or all of the benefits)

If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information EXCEPT the applicant's - prior insurance - ancestry - credit history - habits

Ancestry (they can obtain credit history, character, reputation, habits)

Which of the following best defines target premium in a universal life policy?

the recommended amount to keep the policy in force throughout its lifetime

Which of the following is another term for the accumulation period of an annuity? - premium period - liquidation period - annuity period - pay-in period

pay-in period

An insured receives an annual life insurance dividend check. What term best describes this arrangement? - reduction of premium - annual dividend provision - accumulation at interest - cash option

Cash option: the cash option allows an insurer to send the policyholder an annual, nontaxable dividend check

What are the essential elements of an insurance contract?

Agreement (offer and acceptance) Consideration Competent parties Legal Purpose

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contrat is

Conditional: the contract is formed on the basis that certain conditions are met

In an annuity, the accumulated money is converted into a stream of income during which time period?

Annuitization period

The Medical Information Bureau (MIB) was created to protect

Insurance companies from adverse selection by high risk persons

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose? -interest only option -life income with period certain -joint and survivor - fixed amount option

Interest only option

Children's riders attached to whole life policies are usually issued as what type of insurance? - variable life - adjustable life - whole life - term

Term (Children's term riders provide term insurance with coverage expiring when the minor reaches a certain age)