Life Insurance Basics
At times, it is possible for a life insurance agent to affect a savings of premium rates by backdating an application for life insurance. What is the maximum amount of time that an application may be backdated? A. 6 months B. One year C. It is not allowed D. It varies from insurer to insurer
A. 6 months
When J applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by A. A paramedic or examining physician at the insurer's expense B. The agent C. A physician of the applicant's choice and at his expense D. A home office underwriter
A. A paramedic or examine physician at the insurer's expense
Which of the following documents delivered to the policy owner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years? A. A policy summary B. A notice regarding replacement C. A privacy notice D. A buyer's guide
A. A policy summary
Which of the following applicants could the insurer charge a higher rate of premium and not violate regulations regarding unfair discrimination? A. An applicant who is a smoker B. An applicant who was born in another country C. An applicant who is legally blind D. An applicant who has been a victim of domestic abuse
A. An applicant who is a smoker
If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered A. An unfair trade practice B. A misrepresentation C. A required statement D. A legal representation of the Association
A. An unfair trade practice
In terms of Social Security, what is the name for the time period after the youngest child of a family turns 16 and before the surviving spouse may start receiving retirement benefits? A. Blackout period B. Nonpayment interval C. Benefit reduction D. Accumulation period
A. Blackout period
How are state Insurance Guaranty Associations funded? A. By their members - authorized insurers B. By the Department of Insurance C. By NAIC D. By the Government
A. By their members - authorized insurers
All of the following are duties and responsibilities of producers at the time of application EXCEPT A. Change any incorrect statement on the application by personally initialing next to the corrected statement B. Explain the nature and type of any receipt the producer is giving to the applicant C. Probe beyondd the stated questions if the producer feels the applicant is misrepresenting or concealing information D. Check to make sure that there are no unanswered questions on the application
A. Change any incorrect statement on the application by personally initialing next to the corrected statement
If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to A. Charge a higher premium B. Require a yearly medical examination C. Lower its insurability standards D. Refuse to issue the policy
A. Charge a higher premium
When an applicant purchased a life insurance policy, the agent dated the application 4 months prior. When asked by the applicant, the agent said he was allowed to backdate policies up to 6 months if it would A. Lower the insured's premium B. Shorten the contestability period C. Eliminate pre-existing conditions D. Help him meet a sales quota for that period
A. Lower the insured's premium
Which of the following premium modes would result in the highest annual cost for an insurance policy? A. Monthly B. Quarterly C. Semi-annual D. Annual
A. Monthly
A prospective insured received a conditional receipt but dies before the policy is issued. The insurer will A. Pay the policy proceeds only if it would have issued the policy B. Pay the policy proceeds up to an established limit C. Not pay the policy proceeds under any circumstances D. Automatically pay the policy proceeds
A. Pay the policy proceeds only if it would have issued the policy
Which of the following is correct concerning that taxation of premiums in a key-person life insurance policy? A. Premiums are not tax deductible as a business expense B. Premiums are tax deductible by the key employee C. Premiums are tax deductible as a business expense D. Premiums are taxable to the employee
A. Premiums are not tax deductible as a business employee
Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance? A. Replacement rule B. Reinstatement rule C. Conversion rule D. Disclosure rule
A. Replacement rule
If an agent fails to obtain an applicant's signature on the application, the agent must A. Return the application to the applicant for a signature B. Sign the application for the applicant C. Sign the application, stating it was by the agent D. Send the application to the insured with a note explaining the absence of signature
A. Return the application to the applicant for a signature
Which of the following would provide an underwriter with information concerning an applicant's health history? A. The Medical Information Bureau B. A medical examination C. The agent's report D. The inspection report
A. The Medical Information Bureau
An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date? A. The date of medical exam B. The date of policy delivery C. The date of issue D. The date of application
A. The date of medical exam
All of the following are true of key person insurance EXCEPT A. The plan is funded by permanent insurance only B. There is no limitation on the number of key employee plans in force at any one time C. The employer is the owner, payor and beneficiary of the policy D. The key employee is the insured
A. The plan is funded by permanent insurance only
Whose responsibility is it to make certain that an application for insurance is filled out completely and correctly? A. The producer B. The beneficiary of the applicant C. The insurance company D. The applicant
A. The producer
Which of the following is the best reason to purchase life insurance rather than annuities? A. To create an estate B. To liquidate a sum of money over a period of years C. To create regular income payments D. To liquidate a sum of money over a lifetime
A. To create an estate
If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than A. With the policy B. Upon issuance of the policy C. Within 30 days after the first premium payment was collected D. Prior to filling out an application for insurance
A. With the policy
Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? A. Illustrations B. Buyer's Guide C. Insurance Index D. Policy Summary
B. Buyer's Guide
An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a A. Attending Physician Statement B. Inspection report C. Medical Information Bureau report D. Medical examination
B. Inspection report
The Medical Information Bureau (MIB) was created to protect A. Medical examiners that perform insurance physical examination B. Insurance companies from adverse selection by high risk persons C. Insurance departments from lawsuits by policyowners D. Insureds from unreasonable underwriting requirements by the insurance companies
B. Insurance companies from adverse selection by high risk persons
The mode of premium payment A. Does not affect the amount of premium paid B. Is defined as the frequency and amount of the premium payment C. Is the factor that determines the amount of dividends in a policy D. Is the method used to compute the cash surrender value of the policy
B. Is defined as the frequency and the amount of premium payment
Which of the following best describes the MIB? A. It is a rating organization for health insurance B. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance C. It is a government agency that collects medical information on the insured from the insurance companies D. It is a member organization that protects insured against insolvent insurers
B. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance
Which of the following information about the applicant is NOT included in the General Information section of the application for insurance? A. Marital status B. Medical background C. Gender D. Occupation
B. Medical background
Which of the following may NOT be included in an insurance company's advertisement? A. An identification of a limited policy as a limited policy B. That its policies are covered by a state Guaranty Association C. Their policies' limitations or exclusions D. The name of a specific agent
B. That its policies are covered by a state Guaranty Association
Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? A. The key employee is the owner and the employer is the beneficiary B. The employer is the owner and beneficiary C. The employer is the owner and the key employee is the beneficiary D. The key employee is the owner and beneficiary
B. The employer is the owner and beneficiary
Are insurance company underwriters allowed to discriminate? A. Yes, but only for gender B. Yes, but not unfairly C. No, higher risks pay higher premium D. No, discrimination is an unfair practice
B. Yes, but not unfairly
The full premium was submitted with the application of life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective? A. As of the first of the month after the policy issue B. AS of the policy date C. As of the application date D. As of the policy delivery date
C. AS of the application date
If during the underwriting process an insurer obtains personal information about an applicant from the applicant, when must the insurer provide notice of its information practices? A. At the time of application B. At the time the insurer first collects the information C. At the time of policy delivery D. Never, since the information was obtained from the applicant
C. At the time of policy delivery
A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. Collect any premium due B. Explain the rating procedures if the policy is rated differently than applied for C. Disclose commissions earned from the sale of the policy D. Explain the policy provisions, riders, and exclusions
C. Disclose commissions earned from the sale of the policy
Which of the following entities protects policy owners, insureds, and beneficiaries under insurance contracts when insurers fail to perform contractual obligations due to financial impairment? A. Insurance Solvency Association B. Consumer Protection Agency C. Insurance Guaranty Association D. Insurance Consumer Protectorate
C. Insurance Guaranty Association
The mode of premium payment A. Is the method used to compute cash surrender value of the policy B. Does not affect the amount of premium paid C. Is defined as the frequency and the amount of the premium payment D. Is the factor that determines the amount of dividends in a policy
C. Is defined as the frequency and the amount of the premium payment
In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium? A. The applicant's habits and health do not affect the premiums B. It will likely be lower because the applicant is a preferred risk C. It will likely be higher because the applicant is a substandard risk D. It will likely be the average premium issued to standard risks
C. It will likely be higher because the applicant is a substandard risk
Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? A. Agent's Report B. General Information C. Medical Information D. Inspection Report
C. Medical Information
All of the following are factors that an underwriter could use to select and classify risks EXCEPT A. Occupation B. Avocation C. National origin D. Morals
C. National Origins
A policy that does not pay dividends to policyowners is a A. Whole life policy B. Mutual life policy C. Nonparticipating policy D. Participating policy
C. Nonparticipating policy
During replacement of life insurance, a replacing insurer must do which of the following? A. Designate a new producer for a replaced policy B. Send a copy of the Notice Regarding Replacement to the Department of Insurance C. Obtain a list of all life insurance policies that will be replaced D. Guarantee a replacement for each existing policy
C. Obtain a list of all life insurance policies that will be replaced
Which of the following individuals must have insurable interest in the insured? A. Underwriter B. Producer C. Policyowner D. Beneficiary
C. Policyowner
Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a A. Backdated receipt B. Warranty C. Premium receipt D. Statement of good health
C. Premium receipt
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT A. Payment of premium B. Delivery receipt C. Signed waiver of premium D. Statement of good health
C. Signed waiver of premium
An employee will be taxed on the cost of group life insurance paid by the employer if the amount of coverage exceeds A. $10,000 B. $15,000 C. $25,000 D. $50,000
D. $50,000
Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? A. Business partners have an insurable interest in each other B. A married person has an insurable interest in their spouse C. An individual has an insurable interest in their own life D. A debtor has an insurable interest in the life of a lender
D. A debtor has an insurable interest in the life of a lender
Which of the following statements concerning buy-sell agreements is true? A. Premiums paid are deductible as a business expense B. Benefits received are considered income taxable C. Buy-sell agreements pay in the event of a medical emergency D. Buy-sell agreements are normally funded with a life insurance policy
D. Buy-sell agreements are normally funded with a life insurance policy
What does "liquidity" refer to in a life insurance policy? A. The death benefit replaces the assets that would have accumulated if the insured had not died B. The Policyowner receives dividend checks each year C. The insured receives payments each month in retirement D. Cash values can be borrowed at any time
D. Cash values can be borrowed at any time
A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. Explain the policy provisions, riders, and exclusions B. Collect any premium due C. Explain the rating procedures if the policy is rated differently than applied for D. Disclose commissions earned from the sale of the policy
D. Disclose commissions earned from the sale of the policy
If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT A. Draw a line through the first answer, record the correct answer, and have the applicant initial the change B. Note on the application the reason for the change C. Destroy the application and complete a new one D. Erase the incorrect answer and record the correct answer
D. Erase the incorrect answer and record the correct answer
What kind of policy issues certificates of insurance to insureds? A. Individual insurance B. Nonqualified annuity C. Any insurance D. Group Insurance
D. Group Insurance
What kind of policy issues certificates of insurance to insureds? A. Individual insurance B. Nonqualified annuity C. Any insurance D. Group insurance
D. Group Insurance
Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation? A. Needs approach B. Blackout approach C. Lump-sum approach D. Human life value approach (HLVA)
D. Human life value approach
What describes the specific information about a policy? A. Illustrations B. Buyer's guide C. Producer's report D. Policy summary
D. Policy Summary
Which of the following individuals must have insurable interest in the insured? A. Beneficiary B. Underwriter C. Producer D. Policyowner
D. Policyowner
Which of the following will be included in a policy summary? A. Copies of illustrations and application B. Comparisons with similar policies C. Primary and secondary beneficiary designations D. Premium amounts and surrender values
D. Premium amounts and surrender values
An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE? A. The premium would be returned to the insured's estate because the policy was not issued B. The death claim will be rejected C. The application will be voided D. The beneficiary will received the full death benefit if it is determined that the applicant qualified for the policy
D. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then A. The benefit is subject to the exclusionary rule B. IRS has no jurisdiction C. The benefit is received as taxable income D. The benefit is received tax free
D. The benefit is received tax free
All of the following are true of key person insurance EXCEPT A. There is no limitation on the number of key employee plans in force at any one time B. The employer is the owner, payor and beneficiary of the policy C. The key employee is the insured D. The plan is funded by permanent insurance only
D. The plan is funded by permanent insurance only
Which is generally true regarding insureds who have been classified as preferred risks? A. They can borrow higher amounts off of their policies B. They can decide when to pay their monthly premiums C. They keep a higher percentage of any interest earned on their policies D. Their premiums are lower
D. Their premiums are lower
What is the purpose of the buyer's guide? A. To provide the name and address of the agent/producer issuing the policy B. To list all policy riders C. To provide information about the issued policy D. To allow the consumer to compare the costs of different policies
D. To allow the consumer to compare the costs of different policies
What is the purpose of key person insurance? A. To provide health insurance to the families of key employees B. To insure retirement benefits are available to all key employees C. To maintain an account that insures the owner of a company remains solvent D. To lessen the risk of financial loss because of the death of a key employee
D. To lessen the risk of financial loss because of the death of a key employee
When replacing a policy, how long must an insurer maintain the documents related to the replacement? A. 3 years B. 5 years C. 6 months D. 1 year
A. 3 years
Which is the primary source of information used for insurance underwriting? A. Application B. Applicant interviews C. Medical records D. Private investigations
A. Application
What is the purpose of a conditional receipt? A. It is given only to applicants who fully prepay the premium B. It is intended to provide coverage on a date prior to the policy issue C. It guarantees that a policy will be issued in the amount applied for D. It serves as proof that the applicant has been determined insurable
B. It is intended to provide coverage on a date prior to the policy issue
For how many years is an insurer required to maintain a complete file of its advertisements? A. 1 year B. 2 year C. 4 years D. 5 years
C. 4 years
All of the following are requirements for life insurance illustrations EXCEPT A. They must identify nonguaranteed values B. They must differentiate between guaranteed and projected amounts C. They must be part of the contract D. They may only be used as approved
C. They must be part of the contract
When is the earliest a policy may go into effect? A. When the insurer approves the application B. After the underwriter reviews the policy C. When the application is signed and a check is given to the agent D. When the first premium is paid and the policy has been delivered
C. When the application is signed and a check is given to the agent
Another name for a substandard risk classification is A. Controlled B. Declined C. Elevated D. Rated
D. Rated
Which of the following is an example of liquidity in a life insurance contract? A. The money in a savings account B. The cash value available to the policyowner C. The death benefit paid to the beneficiary D. The flexible premium
B. The cash value available to the policyowner
Which of the following would be the best option that would help the surviving spouse of the insured to put her child through daycare after the insured's death? A. Viatical settlement B. Estate conversion C. Life insurance proceeds D. State Education Waiver
C. Life insurance proceeds
If someone wants to buy a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should that person buy? A. A Modified Endowment Contact B. Term C. Permanent D. An annuity
C. Permanent
Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? A. Insured's annual expenses B. Effect of inflation on income over time C. Predicted needs of the family after the insured's death D. Insured's current and future income
C. Predicted needs of the family after the insured's death
How must a replacing producer respond to an applicant wishing to replace existing life insurance? A. The producer must request the permission of the existing insurer B. The producer has no specific duties C. The producer must provide the applicant with a Notice Regarding Replacement D. The producer must collect the existing policies and turn them over to the replacing insurer
C. The producer must provide the applicant with a Notice Regarding Replacement
Why should the producer personally deliver the policy when the first premium has already been paid? A. To find out how the family has been doing since the initial presentation B. To make sure the policy is not stolen or lost C. To help the insured understand all aspects of the contract D. To ensure the producer gets paid commission
C. To help the insured understand all aspects of the contract
Which of the following would least likely be considered a legitimate need that would be paid by insurance proceeds? A. Debt cancellation B. Day care C. Vacation travel expenses D. Travel expenses for family to come to the funeral
C. Vacation travel expenses
Which of the following is NOT an example of a valid insurable interest? A. Business partners in each other's lives B. Employer in key employee's life C. Child in parent's lives D. Debtor in the life of the creditor
D. Debtor in the life of the creditor
Which of the following is usually true of a participating life insurance policy? A. It may be converted to a term life policy B. It pays dividends to stockholders C. It assesses premiums against stockholders D. It may pay dividends to policyowners
D. It may pay dividends to policyowners
Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? A. Inspection Report B. Agent's Report C. General Information D. Medical Information
D. Medical Information
Part 2 of the application for life insurance provides questions regarding all fo the following EXCEPT A. Family health history B. Alcohol and tobacco consumption C. Recent surgeries D. Other insurance coverages
D. Other insurance coverages
Person A has an insurable interest in Person B and wants to insurer B's life. A will be the policy beneficiary. Which of the following is true? A. Person B must have an insurable interest in Person A. B. Person A must be related to the insured by blood C. Person A must be an irrevocable beneficiary D. Person B must consent to be insured in writing
D. Person B must consent to be insured in writing
If an insured changes his payment plan from monthly to annually, what happens to the total premium? A. Decreases B. Stays the same C. Doubles D. Increases
A. Decreases
Who makes up the Medical Information Bureau? A. Insurers B. Hospitals C. Former insured D. Physician and paramedics
A. Insurers
Which of the following best describes the MIB? A. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance B. It is a government agency that collects medical information on the insured from the insurance companies C. It is a member organization that protects insured against insolvent insurers D. It is a rating organization for health insurance
A. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance
Which of the following statements regarding HIV testing for life insurance purposes is NOT true? A. HIV testing is regulated at the state level B. Insurers are barred from requesting HIV testing C. Positive test results will be forwarded to the state's Department of Health if a physician is not selected by the applicant D. The testing practices must meet the criteria of the U.S. Department of Health and Human Services
B. Insurers are barred from requesting HIV testing
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 standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will A. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued B. Issue the policy anyway and pay the face value to the beneficiary C. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved D. Return the premium to Y's estate, since it has no obligation to pay the death claim
B. Issue the policy anyway and pay the face value to the beneficiary
All of the following are factors that an underwriter could use to select and classify risk EXCEPT A. Avocation B. National origin C. Morals D> Occupation
B. National origin
Which of the following documents must be provided to the policyowner or applicant during policy replacement? A. Policy illustrations B. Notice Regarding Replacement C. Disclosure Authorization Form D. Buyer's Guide and Policy Summary
B. Notice Regarding Replacement
An applicant wants to buy a policy that has a cash value element. Which type should she buy? A. Term B. Permanent C. Stock D. Investment
B. Permanent
An insurer wants to obtain information from investigators regarding an applicant for insurance. What must the insurer do in order to legally acquire this information? A. Sign a waiver that the information will be kept confidential B. Present the insured with a Disclosure Authorization Notice C. Receive written permission from the Department of Insurance D. Receive a signed statement from the insured which authorizes the investigation
B. Present the insured with a Disclosure Authorization Notice
Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? A. Standard risk is also known as high exposure risk B. Standard risk is representative of the majority of people C. Standard risk pays a higher premium than a substandard risk D. Standard risk requires extra rating
B. Standard risk is representative of the majority of people
The term "illustration" in a life insurance policy refers to A. A depiction of policy benefits and guarantees B. Pictured accompanying a policy C. Charts and graphs D. A presentation of non guaranteed elements of a policy
D. A presentation of non guaranteed elements of a policy
Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? A. Term insurance only B. Permanent insurance only C. Universal life insurance only D. Any form of life insurance
D. Any form of life insurance
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? A. On the designated effective date B. On the application date C. When the agent submits the application to the company and the company issues a conditional receipt D. When the agent delivers the policy, collects the initial premium, and the application completes an acceptable Statement of Good Health
D. When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health
If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about A. The gender of the applicant B. The type of policy requested C. Which individual will pay the premium D. Whether an insurable interest exists between the individuals
D. Whether an insurable interest exists between the individuals
A key person insurance policy can pay for which of the following? A. Hospital bills of the key employee B. Costs of training replacement C. Loss of personal income D. Workers compensation
C. Costs of training a replacement
When must insurable interest exist in a life insurance policy? A. At the time of loss B. At the time of application C. At the time of policy delivery D. When there is a change of the beneficiary
B. At the time of application
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? A. Statement of Continued Good Health B. Attending Physician Statement C. A complete medical record D. Sworn health affidavit from the applicant
B. Attending Physician Statement
What is the time period called during which of the surviving spouse of the insured does not received Social Security income benefits? A. Probationary period B. Blackout period C. Waiver of premium D. Retention of capital
B. Blackout period
All of the following are personal uses of life insurance EXCEPT A. Cash accumulation B. Buy-sell agreement C. Survivor protection D. Estate creation
B. Buy-sell agreement