life insurance ch1
Which of the following is TRUE about credit life insurance? A. Creditor is the Policyowner B. Debtor is the annuitant C. Creditor is the insured D. Debtor is the policy beneficiary
A In credit life insurance, the creditor is the Policyowner and the beneficiary; the debtor is the insured.
All of the following information about a customer must be used to determining annuity suitability EXCEPT A. Beneficiary's age B. Tax status C. Financial experience D. Annual income
A To ensure suitability of annuity products, producers must obtain relevant information about the consumer's age, income, financial status, tax status, financial experience and objectives. Beneficiary's age is not a suitability factor.
Which of the following applicants would NOT qualify for a Keogh Plan? A. Someone who works 400 hours per year B. Someone who has been employed for more than 12 months C. Someone who is over 25 years of age D. Someone who works for a self-employed individual
A A person must have worked at least 1,000 hours per year to be eligible for a Keogh Plan
If an insurer becomes insolvent, which entity would pay benefits to policyholders? A. The insurance Guaranty Association B. Nobody C. The federal reserve fund D. The NAIC
A. All admitted insurers must be a member of the Insurance Guaranty Association as a condition of their license. The insurance guaranty association is in existence to protect policy owners and beneficiaries against losses caused by the insolvency of an insurance company
An insured is covered under his employee's group life plan. His son has been covered as a dependent under this policy and is now attending college on a full-time basis. What is the maximum age that his son could be covered under this policy, provided that he remains in college? A. until he graduates B. Under age 23 C. Under age 24 D. Under age 25
B A dependent is a child of the insured individual who is either under 18 years old, under 23 and attending college full-time, or, regardless of age, is incapable of self-sustaining employment due to mental incompetence or physical handicap
Which of the following terms is used to name the non taxed return of unused premiums? A. Surrender B. Dividend C. Premium return D. Interest
B The return of unused premiums is called a dividend. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums.
Which of the following would be a unique feature of a policy that offers participation in surplus? A. Stock options B. Cash value C. Dividends D. Group participation
C Participating policies must include a provision that states that beginning no later than 3rd policy year, the company will annually determine and distribute policy dividends to policy owners
The Hawaii Insurance Guaranty Association is obligated to pay covered claims only if under the amount of A. 100,000 B. 250,000 C. 300,000 D. 1,000,000
C Claims under $500,000 are covered by the Hawaii Insurance Guaranty Association
Which of the following would be considered a non-qualified retirement plan? A. Keogh plan B. Roth IRA C. Split-dollar plan D. 401(k)
C Examples of non qualified plans are individual annuities and deferred compensation plans for highly paid executives, split-dollar insurance arrangements, and section 162 executive bonus plans
Which of the following is NOT true regarding policy Loans? A. An insurer can charge interest on outstanding policy loans B. A policy loan may be repaid after the policy is surrendered C. Money borrowed from the cash value is taxable D. Policy loans can be repaid at death
C Money borrowed from the cash value is not taxable. Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.
Which type of retirement account does not require the owner to start taking distributions at age 72? A. standard IRA B. Traditional IRA C. Roth IRA D. Nonqualified IRA
C Roth contributions can continue regardless of the account owner's age, and in contrast with a traditional IRA, distributions do not have to begin at age 72
Which of the following best defines the "owner" as it pertains to life settlement contracts? A. A financial entity that sponsors the transaction B. A fiduciary for the contract C. The insurance provider D. The Policyowner of the life insurance policy
D The term owner refers to the owner of the policy who may seek to enter into a life settlement contract. The term does not include an insurance provider, a qualified institutional buyer, a financial entity, a special purpose entity, or related provider trust.
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? A. The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. B. One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies C.The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies D. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
D When the reduced option is written as "joint and 2/3 survivor", the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.
The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specific period of time is know as the: A. incontestability clause B. Reinstatement clause C. Insuring clause D. Misstatement of age clause
A If an insurer wishes to contest any statements on an application they must do so within the first 2 years
Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT? A. 100% participation of members is required noncontributory plans B. Each member covered receives a policy C. Coverage cannot be converted when an individual leaves the group D. Premiums are determined by age, occupation, and individual underwriting
A If the employer pays all the premium then all employees must be included
What is the number of credits required for fully insured status for social security disability benefits? A. 4 B. 10 C. 30 D. 40
D The term "fully insured" refers to someone who has earned 40 quarters of coverage (10 years of work times 4 max annual credits)
An insurer must appoint a licensee before he/she is authorized to transact insurance business. The insurer must file a notice of appointment within A. 15 days from the date of application B. 15 days from the date of the first insurance application is submitted C. % days from the date of the first insurance application is submitted D. 10 days from the date of application
B The insurer must file a notice within 15 days from the date of the first insurance application is submitted
For how long is an insurance company allowed to defer policy loan request? A. 30 days B. 60 days C. 6 months D. 1 year
C Insurers writing variable life insurance policies may defer loan requests for up to 6 months. This excludes loan requests used to pay policy premiums.
If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy? A. It is only taxable if the cash value exceeds the amount paid for premiums B. It is not considered to be taxable C. It is taxable only if it exceeds the amounts paid for premiums by 50% D. It is automatically taxable
A The cash value of a surrendered policy is only considered to be taxable as income if the cash value exceeds the amount of premium paid for the policy
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? A. one of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. B. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. C. The beneficiary will receive 2/3 lump sum up front, and the remaining 1/3 will be paid over time D. The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies
B When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.
Death benefits payable to a beneficiary under a life insurance policy are generally A. Exempt from income taxation if under $10,000 B. Exempt from income taxation if over $10,000 C. Not subject to income taxation by the Federal Government D. Subject to income taxation by the Federal government
C When premiums are paid with after tax dollars, the death benefit is general not subject to federal income taxation
Who makes up the Medical Information Bureau? A. Former insured B. Physicians and paramedics C. Insurers D. Hospitals
C. The medical information Bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.
An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? A. Representation B. Adhesion C. Consideration D. Good faith
C. the binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.
When an insurer begins underwriting procedures for an applicant, what will be the main source for its underwriting information? A. Interview B. State records C. Medical records D. Application
D. the application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.
Which of the following statements about a suicide clause in a life insurance policy is TRUE? A. Suicide is excluded for a specific period of years and covered thereafter B. Suicide is covered for a specific period of years and excluded thereafter C. Suicide is covered as long as the policy is in force D. Suicide is excluded as long as the policy is in force
A In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise What dividend option could she use? A. Paid-up option B. One-year term C. Reduction of premium D. Accumulation at interest
A With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.
Which of the following is a key distinction between variable whole life and variable universal life products? A. Variable whole life has a guaranteed death benefit B. Variable universal life is regulated solely through FINRA C. Variable whole life allows policy loans from the cash value D. Variable universal life ha a fixed premium
A. Variable universal life insurance may or may not have a minimum death benefit, unlike variable whole life insurance which guarantees a minimum death benefit
Which of the following statement is correct regarding a whole life policy? A. the policy owner is entitled to policy loans. B. Cash values are not guaranteed C. The policy premium is based on the attained age. D. The death benefit may increase or decrease during the policy period
A. Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans.
A policy which stipulates that the company will return any unused premiums to policy owners, is called A. Cost-based B. Participating C. Equalized D. Return of surplus
B A policy that stipulates that the company will return any unneeded premiums to policy owners, is called a "participating policy." This return of premium is the surplus after the company has deducted for claims and expenses
According to the Hawaii Insurance Code, an insured under a group life policy has the right to convert group coverage to an individual policy without providing insurability upon termination of employment if an application for the individual policy is made and the first premium is paid to the insurer within how many days after termination? A. 10 days B. 30 days C. 60 days D. 180 days
B Hawaii law grants individuals whose group policies cease because of termination of employment, if application is made and premium paid within 30 days, to request an individual policy on any form customarily issued by the insurer at the age and in the amount applied for without evidence of insurability.
An agent did not give the annuity applicant the disclosure document and the buyer's guide at the time of annuity application. When the annuity contract is issued, how long will the free-look period be? A. 10 days B. 15 days C. 20 days D. 30 days
B If the disclosure document and the buyer's guide are not provided at or before the time of application, the insurer must give the applicant a free-look period of at least 15 days to return the policy without penalty
During replacement of life insurance, a replacing insurer must do which of the following? A. Send a copy of the Notice Regarding Replacement to the Department of Insurance B. Obtain a list of all life insurance policies that will be replaced C. Guarantee a replacement for each existing policy D. Designate a new producer for a replaced policy
B The replacing insurance company must require from the producer a list of the applicant's life insurance policies to be replaced and a copy of the replacement notice provided to the applicant, and send each existing insurance company a written communication advising of the proposed replacement.
What is a foreign insurer? A. An insurer with licensed agents who are citizens in more than one country B. An insurer with a home office in another state C. An insurer with a home office in another country D. An insurer with licensed agents doing business in other countries
B A domestic insurer's home office is in this state, a foreign insurer's is in another state, an alien insurer's in another country
Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT? A. Employer contributions are not included in the employee's gross income B. SEPs are suitable for large companies C. SEPs have a higher tax deductible contribution limit than an IRA D. SEPs have a higher tax deductible contribution limit than an IRA
B An SEP is a benefit plan that is designed to be provided by a small employer for the benefit of the employees
All of the following statements concerning an employer sponsored non qualified retirement plan are true EXCEPT A. The plan is not approved for favorable tax treatment by the IRS B. The employer can receive a current tax deduction for any contributions made to the plan C. The plan is a legal method of accumulating money for retirement needs D. The plan can discriminate as to who may participate
B Employers do not receive a current tax deduction for any contributions made to a non qualified plan. The plans are legal; however, they do not qualify for any favorable tax treatment under the IRS rules
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? A. Company is the owner, and the company pays the premium B. Executive is the owner, and the executive pays the premium C. COmpany is the owner, but the executive pays the premium D. Board of directors is the owner, and the board of directors pays the premium
B 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 receiving compensation, the amount paid by the employer would be considered taxable income.
All of the following would be different between qualified and non qualified retirement plans EXCEPT A. IRS approval requirements B. Taxation on accumulation C. Taxation of withdrawals D. Taxation of contributions
B Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ
J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid? A. Anytime, because the agent did not deliver the policy promptly B. feb. 28th, or 10 days after the time the policy is delivered C. The time varies from one policy to another D. It was already too late when J received the policy bc the 10day free look period had expired.
B The 10 day free look period begins when the policy is delivered
Which of the following is INCORRECT concerning a noncontributory group plan? A. The employer pay 100% of the premiums B. The employees receive individual policies C. They help to reduce adverse selection against the insurer D. They require 100% employee participation
B The employer receives a master policy, and employees receive a certificate of insurance
Which of the following settlement options in life insurance is known as straight life? A. Fixed amount B. Life income C. Single life D. Life with period certain
B The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. It pays the benefit while the beneficiary is alive; however the payment stop at the beneficiary's death
Every year, the commissioner submits to the Hawaii legislature a report that contains all of the following EXCEPT A. the complaints made to the Commissioner B. A list of all new licensees and analysis of insurance contracts they transacted C. The condition of all insurers authorized to do business in Hawaii during the preceding year D. The extent of compliance and noncompliance by each insurer with insurance regulations.
B The report the Commissioner submits includes the condition of all insurers authorized in the state during the preceding year; a summary of abuses and deficiencies in benefit payments, complaints and their disposition, and extent compliance and noncompliance of insurance code by each insurer; and any additional information relative to insurance activities
An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision? A. second-to-die B. Common Disaster C. Accidental Death D. Survivor Life
B Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides the the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.
Which of the following is true regarding taxation of accelerated benefits under a life insurance policy? A. There is a 10% penalty for early distribution of the death benefit B. They are tax free to terminally ill insured C. They are always taxable to chronically ill insured D. They are always taxed
B When accelerated benefits are paid under a life insurance policy, they are received tax free by terminally ill insured, and tax free up to a limit for chronically ill insured.
All of the following are TRUE statements regarding the accumulation nat interest option EXCEPT: A. The policyholder has the right to withdraw the accumulations at any time B. The interest is not taxable since it remains inside the insurance policy C. The annual dividend is retained by the company D. The interest is credited at a rate specified by the policy
B. The interest credited under this option is TAXABLE, whether or not the Policyowner receives it
All of the following statements about equity index annuities are correct EXCEPT A. The interest rate is tied to an index such as the Standard & Poor's 500 B. They invest on a more aggressive basis aiming for higher returns C. The annuitant receives a fixed amount of return D. They have a guaranteed minimum interest rate
C Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.
Who can make a fully deductible contribution to a traditional IRA? A. Someone making contribution to an educational IRA B. A person whose contributions are funded by a return on investment C. An individual not covered by an employer-sponsored plan who has earned income D. Anybody; all IRA contributions are fully deductible regardless of income level
C Individuals are not covered by an employer-sponsored plan may deduct the amount of their IRA contributions regardless of their income level
Under Spouses and Dependent Coverage legislation in Hawaii, all of the following statements are true EXCEPT: A. Dependent children may be covered up to the age of 23 B. The spouse and dependent children may be covered for the same amount as the covered employee C. Premiums must be paid in full by the covered employee D. The spouse may need to provide evidence of individual insurability in order to receive coverage
C Premium for dependents can be paid by the employer or employee, or both. All the other statements are true
An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy? A. $20,000 B. $25,000 C. $50,000 D. The face amount will be determined by the insurer
C The face of the term policy would be the same as the face amount provided under the whole life 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 may be used to fund a buy-sell agreement
To qualify for a license renewal in Hawaii, a licensee must complete continuing education requirements of A. 44 hours for two lines of authority B. 34 total hours C. 20 total hours D. 24 hours for one line of authority
D Continuing education requirements are 24 hours per 2 years per line of authority
A producer holds a life and accident and health or sickness insurance license and a property insurance license. How many hours of continuing education must the producer complete every license renewal period? A. 12 B. 18 C. 20 D. 24
D For a licensee authorized in both, life and accident and health or sickness and property and casualty lines of authority, a total of 24 credit hours are required.
Which type of insurance is based on mutual agreements among subscribers? A. Mutual insurance B. Limited liability C. Reinsurance D. Reciprocal insurance
D Reciprocals are insurance companies made up of subscribers, who are collectively known as a reciprocal insurance company or exchange. These types of companies are administered by an appointed Attorney in Fact
Which of the following is INCORRECT concerning a noncontributory group plan? A. They help to reduce adverse selection against the insurer B. They require 100% employee participation C. The employer pays 100% of the premiums D. The employees receive individual policies
D The employer receives a master policy, and employees receive a certificate of insurance
A tax-sheltered annuity is a special tax-favored retirement plan available to: A. Anyone B. Certain groups depending on factors such as race, gender, and age D. Certain group of employees only
D. A tax-sheltered annuity is a specific tax-favored retirement plan available only to certain groups of employees (nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education)
All of the following are business use of life insurance EXCEPT A. Compensating executives B. Funding against financial loss caused by the death of a key employee C. Funding business continuation agreements. D. Funding against company's general financial loss.
D. Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees
An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? A. Dividend options B. Guaranteed renewable option C. Nonforfeiture options D. Guaranteed insurability option
D. The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability
Which of the following would help prevent a universal life policy from lapsing? A. Face amount B. Adjustable premium C. Corridor of insurance D. Target premium
D. The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.