Life, Accident, and Health
Which of the following is another term for an authorized insurer?
Admitted = authorized
The insured is also the policyowner of a whole life policy. What age must the insured attain in order to receive the policy's face amount?
100
A producer sold an insurance policy. Subsequently, his license was suspended. In this case, how much of the commission will the producer receive?
All An insurance entity or licensee cannot pay a commission or fee to a person if the person's license is suspended or revoked. However, a commission may be paid if the person was licensed at the time of the sale.
Which of the following is a short-term annuity that limits the amounts paid to a specific fixed period or until a specific fixed amount is liquidated?
Annuity certain Annuity certain option allows the annuitant to select the time period or the amount of the benefits to be paid out. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date.
Which of the following features of the Indexed Whole Life policy is NOT fixed?
Cash value growth FIXED Premium death benefit policy period
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?
Consideration Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.
All of the following are dividend options EXCEPT
Fixed period installments. Dividend options: Accumulated at interest Reduction of premium. Paid-up additions.
A Return of Premium term life policy is written as what type of term coverage?
Increasing
The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true?
The annuitant must be a natural person. Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.
An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin?
When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health
Which of the following types of policies will provide permanent protection?
Whole life
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?
immediate annuity
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the
other-insured rider
The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to
the insured's estate In the absence of a viable beneficiary, proceeds will be paid to the estate of the insured.
The most the Insurance Guaranty Association will pay for net cash surrender values is
$100,000
What is the civil penalty for the first violation of the Pennsylvania Insurance Fraud Prevention Act?
$5,000 The civil penalty for violation the Pennsylvania Insurance Fraud Prevention Act is up to $5,000 for the first violation, $10,000 for the second violation, and $15,000 for each subsequent violation.
Once it has been reasonably proven that a person has knowingly violated the Insurance Code regarding unfair methods of competition, the Department may impose a civil penalty of
$5,000 for each violation. Civil penalty for each intentional act of engaging in an unfair method of competition or practice is up to $5,000 per violation (not to exceed $50,000 in any 6-month period).
Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits?
$50,000 The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitant's death. Straight life annuity payments stop at death of the annuitant regardless of the principal left in the account.
In a viatical settlement, a terminally ill insured is expected to live no longer that how many months?
24
In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years
5 If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage.
Which term describes a situation in which people who are the most likely to have claims are also the most likely to seek insurance?
Adverse Selection The concept of adverse selection means that the people who are most likely to have claims are also the most likely to seek insurance. This concept is used primarily in the process of underwriting, when insurers decide which applicants to cover; insurers try to minimize adverse selection as much as possible.
Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?
Apparent (perceived)
Which is the primary source of information used for insurance underwriting?
Application
For how long must a company maintain a complete file of all advertisements used?
At least 4 years A company must maintain, at its home office, a complete file of every advertisement used for a period of 4 years or until the next regular examination (whichever is longer).
An underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require?
Attending Physican Statement The APS is used to obtain medical DETAILS about a specific condition which has shown up in the application; the insurance company orders the information directly from the physician, using a signed authorization which was part of the application.
What document describes an insured's medical history, including diagnoses and treatments?
Attending Physician's Statement
If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be
Authorized (admitted)
Which agreement specifies how a business will transfer hands when one of the owners dies or becomes disabled?
Disability Buy-Sell
Why is it essential for an insurer to document all correspondence with an insured?
Errors and omissions
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?
Executive is the owner, and the executive pays the premium. Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.
The authority granted to an agent through the agent's contract is referred to as
Express authority. Express powers are written into the contract between the insurer and the agent.
Fixed annuities provide all of the following EXCEPT
FALSE Hedge against inflation. TRUE Future income payments Equal monthly payments for life Minimum guaranteed rate of interest. Fixed annuities invest premium payments into a general account - a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, and therefore providing protection against inflation.
A producer is acting in what capacity when he or she is trying to obtain credible information about an applicant for health insurance?
Field underwriter A producer's function as the field underwriter is to gather credible information from an applicant that would assist the producer in screening marginal or unacceptable risks before taking an application for an insurance policy.
Fixed annuities provide all of the following EXCEPT
Hedge against inflation fixed annuities provide: Future income payments. Equal monthly payments for life. Minimum guaranteed rate of interest.
The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the
Incontestability clause If an insurer wishes to contest any statements on an application, they must do so within the first two years.
What are the two components of a universal policy?
Insurance and cash account A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher.
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 With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.
Which of the following best describes a bail-out provision?
It allows the owner to surrender the annuity without a charge.
Which of the following best describes annually renewable term insurance?
It is level term insurance Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.
Which of the following best describes annually renewable term insurance?
It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.
When a reduced paid-up nonforfeiture option is chosen, what happens to the face amount of the policy?
It is reduced to the amount of what the cash value would buy as a single premium. In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?
Joint Life A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.
If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this?
Jumping juvenile policy
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report
Must be informed of the source of the report. Under the Fair Credit Reporting Act, if an insurance policy is declined or modified because of information contained in a consumer report, the consumer must be advised and provided with the name and address of the reporting agency.
An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?
Mutual
All of the following are business uses of life insurance EXCEPT
NON-USE Funding against company's general financial loss. USES Compensating executives. Funding against financial loss caused by the death of a key employee. Funding business continuation agreements.
Which of the following is NOT a characteristic of an insurable risk?
NOT The loss must be catastrophic. IS The loss must be due to chance. The loss must be measurable. The loss exposure must be large.
Which statement regarding insurable risks is NOT correct?
NOT Correct Insureds cannot be randomly selected. CORRECT An insurable risk must involve a loss that is definite as to cause, time, place and amount. Insurance cannot be mandatory. The insurable risk needs to be statistically predictable. Granting insurance must not be mandatory, selecting insureds randomly will help the insurer to have a fair proportion of good risks to poor risks. All other statements are true.
Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life?
NOT TRUE BNeed is predicted using the number of years until the insured's retirement. TRUE It must be assumed that the death of the insured will occur immediately. Coverage is based on the predicted needs of that family. The death of an insured must be premature.
Which of the following is TRUE about nonforfeiture values?
Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.
Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive
Nothing; the payments will cease.
Under a pure life annuity, an income is payable by the company
Only for the life of the annuitant With pure life annuity, income payments cease at the annuitant's death and there is no refund or payments to survivors. This type of annuity is also referred to as Life Only or Straight Life.
Which renewability provision allows an insurer to terminate a policy for any reason, and to increase the premiums for any class of insureds?
Optionally renewable The renewability provision in an optionally renewable policy gives the insurer the option to terminate the policy for any reason on the date specified in the contract (usually a renewal date). Furthermore, this provision allows the insurer to increase the premium for any class of optionally renewable insureds.
The causes of loss insured against in an insurance policy are known as
Perils
All of the following are characteristics of group life insurance EXCEPT
Premiums are determined by the age, sex and occupation of each individual certificate holder. Premiums are determined by the age, sex and occupation of the entire group. ALL characteristics of group life: Amount of coverage is determined according to nondiscriminatory rules. Individuals covered under the policy receive a certificate of insurance Certificate holders may convert coverage to an individual policy without evidence of insurability.
What is the term for the entity that an agent represents regarding contractual agreements with third parties?
Principal
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to
Purchase a single premium policy for a reduced face amount. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.
Which of the following best describes a pure life annuity settlement option?
Pure life provides payments for as long as the annuitant is alive. Pure or straight life annuity settlement option will only pay for as long as the annuitant lives; however, if he/she dies after receiving the first payment, no more payments would be made to any other person. For this reason, pure life has the potential to pay larger monthly benefits than other options.
Another name for a substandard risk classification is
Rated Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.
Which of the following insurance options would be considered a risk-sharing arrangement?
Reciprocal WRONG Stock Mutual Surplus lines
Which nonforfeiture option provides coverage for the longest period of time?
Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.
An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe?
Reduction of Premium
An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe?
Reduction of Premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.
Insurance producers that do not have company appointments are considered a/an
Representative of the consumer. Insurance producers that do not have company appointments are considered a representative of the consumer. Such producers must have a written agreement with the consumer before acting on the consumer's behalf. The agreement should specify the services to be provided and disclose any fee to be paid to the producer. This type of producer was formerly referred to as a broker.
A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy
Required a premium increase each renewal Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.
Which of the following describes attachments made to policies that either add or modify coverage?
Riders
A person steps off a street car and trips and breaks his ankle. This type of injury can be described as
Sudden and unforeseen. Accidental bodily injury is an unforeseen and unintended injury that resulted from an accident rather than a sickness.
All of the following are true regarding the Medical Information Bureau (MIB) EXCEPT
TRUE MIB information is reported to underwriters in coded form. MIB reports contain previous insurance information Insurers may not refuse to accept an application solely due to information in an MIB report. FALSE MIB reports are based upon information supplied by doctors and hospitals.
All of the following are true of key person insurance EXCEPT
TRUE The key employee is the insured. There is no limitation on the number of key employee plans in force at any one time. The employer is the owner, payor and beneficiary of the policy. FALSE The plan is funded by permanent insurance only.
Which circumstance describes someone who is terminally ill?
Terminally ill individuals have an illness or sickness that can reasonably be expected to result in death within 24 months
Which of the following may NOT be included in an insurance company's advertisement?
That its policies are covered by a state Guaranty Association
Which of the following is true about the requirements regarding HIV exams?
The applicant must give prior informed written consent.
An insured pays a monthly premium of $100 for her health insurance. What would be the duration of the grace period under her policy?
The grace period is 7 days if the premium is paid weekly, 10 days if paid monthly, and 31 days for all other modes.
AI n insured has entered into a viatical settlement but decides that he would like to back out of the contract. Which of the following is true?
The insured has 15 calendar days from the effective date of the contract to rescind it.
An insured has entered into a viatical settlement but decides that he would like to back out of the contract. Which of the following is true?
The insured has 15 calendar days from the effective date of the contract to rescind it.
What happens if a deferred annuity is surrendered before the annuitization period?
The owner will receive the surrender value of the annuity If a deferred annuity is surrendered prior to annuitization, the surrender value of the annuity is guaranteed according to the nonforfeiture provision.
Which of the following best describes what the annuity period is?
The period of time during which accumulated money is converted into income payments
An insured notifies the insurance company that he has become disabled. What provision states that claims must be paid immediately upon written proof of loss?
Time of Payment of Claims The Time of Payment of Claims provision specifies that claims are to be paid immediately upon written proof of loss.
Which of the following is NOT a goal of risk retention?
To minimize the insured's level of liability in the event of loss. Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.
The paid-up addition option uses the dividend
To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.
Evaluating information that establishes adverse selection risk is the purpose of which stage of insurance?
Underwriting
Which of the following Life Insurance policies would be considered interest sensitive?
Universal Life
The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as
Utmost good faith.
Who negotiates viatical settlement contracts on behalf of a viator?
Viatical settlement broker A viatical settlement broker is a licensed person that, for a fee, negotiates viatical settlement contracts between the viator and viatical settlement providers. The viatical settlement broker represents the viator.
Who effectuates viatical settlement contracts?
Viatical settlement providers Viatical settlement providers are the people/entities who enter into or effectuate a viatical settlement contract, other than the viator. The viator is the person who sells the insurance policy to the provider.
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
Warranty A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.
When is the insurability conditional receipt given?
When the premium is paid at the time of application
Which of the following is NOT an example of a business use of Life Insurance?
Workers Compensation ARE examples Buy-sell funding Executive bonuses Key Person
Which of the following is TRUE about a class designation?
beneficiaries are not identified by name A class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive.
A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change
cost of living rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.
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 With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.
Which of the following is NOT a feature of a noncancellable policy?
is NOT a feature The insurer may terminate the contract only at renewal for certain conditions.
Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive
nothing; the payments will cease Straight or pure life annuity will pay a specific amount of income for the remainder of the annuitant's life. This payment will cease at death, regardless of the amount of principal that hasn't been paid out. There is no refund or payments to survivors.
A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?
proof of insurability is not required
Annuities can be used to fund which of the following?
retirement plans
If the annuitant dies during the accumulation period, who will receive the annuity benefits?
the beneficiary
An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen?
the insurer will pay the full death benefit from the group policy to the beneficiary The employee usually has a period of 31 days after terminating from the group in order to exercise the conversion option. During this time, the employee is still covered under the original group policy.
If an insured continually uses the automatic premium loan option to pay the policy premium,
the policy will terminate when the cash value is reduced to nothing. This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid form the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.
Which of the following has the right to convert the existing term coverage to permanent insurance?
the policyowner Convertible term insurance gives the policyowner the right to convert the policy to a permanent insurance policy without evidence of insurability.