Life Insurance Exam
Ed and his employer were involved in purchasing a $500,000 life insurance policy using a split dollar arrangement. Ed paid 40% of the policy premiums and his employer paid the other 60%. When Ed passes away, how much will his personal beneficiary receive from the policy?
$200,000
On January 1, 2010, the federal estate tax was officially repealed. However, it was reinstated on January 1, 2011, with an exemption amount of $____________.
$5 million
A standard suicide clause will prevent the payment of a death benefit if the insured's death is determined to be by suicide within which period of time after the issuance of the policy?
1 - 2 years
How many days are typically given to a life insurance buyer as a free-look?
10-30 days
Keith, Kevin, and Tom are all partners in a business. If they construct a cross purchase agreement, how many total life insurance policies will be needed?
6
The beneficiary in a life insurance policy does not have to be a person. Which of the following can be named a beneficiary, assuming the presence of an insurable interest?
A trust An estate A business entity
Some of the companies that rate insurance companies regarding their financial strength and claims paying ability include
A.M. Best Fitch Moody's
The premium that is charged to an applicant for life insurance takes into consideration which of the following factors:
Age Height Weight Lifestyle Income
An insurance company will take into account all of the following factors when determining premium rates:
Applicant's height and weight Insurance company's overhead costs Life expectancy
Insurable interest in life insurance must be present at the time of ____________.
Application
Which of the following needs to have an insurable interest for an underwriter to issue an insurance policy?
Beneficiary
Which of the following will have to meet an insurable interest requirement in order for a policy to issue?
Beneficiary
Bert is 45-years old. He is a married father of two teen-aged sons and is the partner in a successful consulting business. He owns a nice house in a tight-knit suburban community and his neighbors appreciate the improvements he's made to his lot, as it helps maintain property values. For life insurance purposes, who would be deemed as having an insurable interest in Bert if he were to pass away?
Bert's business partner Bert's wife Bert's children
The requirement that a life insurance company must keep enough cash in place to pay claims as they arise is known as the __________ requirement.
Capital reserves
All of the following can be considered life-changing events that could result in a change in the amount of life insurance coverage needed Except:
Change in job title
While filling out an application for life insurance coverage an applicant for insurance appears to the agent to not qualify for coverage. The agent is certain that she will not qualify. What is the agent's responsibility at that point?
Continue completing the application and submit to underwriting.
State laws have established some guidelines as to who may or may not have an insurable interest in an individual. These persons or entities fall into different categories, including those who are related by blood or marriage and those with business relationships. Which of the following is also recognized to have an insurable interest in an individual?
Creditors
Which of the following will partners in a business use to purchase a life insurance policy on the other partners?
Cross purchase agreement
What is the most common component in all life insurance policies?
Death benefit
Permanent life insurance policies always have two components. What are they?
Death benefit & Cash value
Who names the beneficiary in a split dollar plan?
Employee & Company
Group life insurance can be purchased via:
Employer Professional organization Alumni Association
An insurance agent has concerns that he may be sued and incur personal liability if he gives the wrong advice to a client. In order to protect himself, the insurance agent should obtain which of the following?
Errors and omissions insurance
What purpose do mortality tables serve?
Estimating how long an individual may live
A 35-year old client wants to put a retirement plan in place. It is not necessary to consider life insurance needs when creating a retirement plan. (T/F)
False
A new start-up internet company, Ecompany, applied for a business loan. The bank was concerned with the company's lack of assets and asked that its executives take out life insurance policies with the bank as a beneficiary. The bank's request violated the Federal Insurance Office Act of 2010 under Dodd-Frank.(T/F)
False
An applicant's marital status has no bearing on policy underwriting. (T/F)
False
If an applicant is approved for coverage with a life insurance company at a sub-standard rating, the insured will not thereafter be able to move up to a more favorable premium category.(T/F)
False
If someone has an employer-sponsored group life insurance policy, they do not need individual coverage. (T/F)
False
Life insurance is regulated only at the federal level. (T/F)
False
Term life insurance should always be used in buy / sell agreements.(T/F)
False
The sole and final say in terms of whether an applicant will be an acceptable risk for an insurance company is the responsibility of the insurer's actuaries.(T/F)
False
Those who do not have any dependents have no need for life insurance coverage?(T/F)
False
Unmarried people without children do not need life insurance. (T/F)
False
With group life insurance, the risk is spread across a wider number of people. This results in higher premiums for unhealthy people and lower premiums for the healthier participants. (T/F)
False
For estate planning purposes, life insurance proceeds are always received income tax free and estate tax free.(T/F)
False Reason: While life insurance proceeds are typically received by the beneficiary free of income tax, such proceeds are still includable in the gross estate of the insured and are in most cases subject to estate taxes.
When a person is in a position of financial trust, they are considered to be a:
Fiduciary
Bob wanted to purchase life insurance coverage. He recently suffered an adverse health condition. Which type of life insurance will Bob have the easiest time qualifying for?
Group term
__________ life insurance policies are usually less expensive than ____________ policies.
Group, individual
Which of the following ensures that a minimum benefit amount is available for every policy holder in the event that an insurance company cannot pay claims and the reinsurance system fails?
Guarantee corporation
Which of the following riders will allow the insured to purchase additional amounts of life insurance coverage at regular intervals without the need to show evidence of insurability?
Guaranteed insurability
Life insurance underwriters look at a variety of factors when determining the acceptance of an applicant. These factors can include?
Health history Occupation Hobbies
Joseph had suffered from signs of early-onset diabetes several years ago, although through better diet and exercise, he has been able to keep his condition under control. Joseph will be considered by the life insurance company as being a(n) ____________.
Impaired risk
Acceptable methods for delivering a life insurance policy to the newly insured include:
In person Mail
____________ is the number one reason why people buy life insurance.
Income replacement
John makes a good living and got a life insurance policy for the benefit of his wife. He recently experienced a life-changing event with the birth of his son. John should:
Increase his life insurance policy death benefit.
Which of the following is considered to determine how a life insurance applicant will be rated by the insurance company as well as the premium that will be charged?
Insurability
Whose death will cause the insurance company to pay the benefit proceeds of the policy?
Insured
All of the following are parties to a life insurance contract:
Insurer Owner
Blake was a New York City police officer. Because of his more dangerous occupation, Blake was placed into the sub-standard risk category on his life insurance policy. And, although he was accepted for coverage, the premium that he was charged was More than a standard risk category Which of the following deals with a set of relationships where one person is authorized to act on behalf of another in order to create a legal relationship with a third party?
Law of agency
Life insurance companies rely on the ____________ as a way of better predicting how many losses will actually take place within a given group of individuals.
Law of large numbers
If a whole life insurance policy holder needed funds for long-term care expenses, which part of the policy could they access in order to do so?
Living benefits
Which of the following is used to predict with accuracy the likelihood of future losses to the insurance company resulting from an insured's death?
Mortality tables
Which of the following will prevent a life insurance policy from lapsing for failure to pay the premium?
Non-forfeiture option
Which of the following factors have an effect on a life insurance policy's premium calculation?
Occupation Health Lifestyle
Which of the following has the rights that are stipulated in the insurance contract?
Owner
In most cases, the company is the __________ and the __________ of the business life insurance policy.
Owner, beneficiary
In many instances, the __________ and the __________ on a life insurance policy may be the same person or entity.
Owner, insured
A __________ whole life insurance policy will share in the insurance company's excess profits in the form of dividends.
Participating
Upon delivery of a life insurance policy, the policy owner may be required to: Pay any additional premium that is due
Pay any additional premium that is due. Sign a delivery receipt
Some of the ways in which the death benefit proceeds from a life insurance policy may be used by one's heirs include:
Paying off a mortgage Funding a child's future education costs Paying ongoing bills such as utilities and food
Joel's primary purpose for purchasing life insurance was to pay estate taxes. Therefore, he should consider ____________ life insurance.
Permanent
In order to remove life insurance proceeds from one's estate, the insured could:
Place the policy in an irrevocable trust
Which of the following distinguishes an individual policy from a typical group policy?
Portability
A person in excellent health may be placed into the ____________ category on his or her life insurance policy.
Preferred risk
Ralph wanted his beneficiary to receive an additional amount of death benefit if he should die in an accident. Therefore, what should Ralph add to his policy?
Rider
With a ____________ whole life insurance policy, the policy holder will have a paid-up policy after they make one large premium payment.
Single Premium
Which of the following is true concerning smoking and insurance applicants?
Smokers are considered a higher risk than non-smokers to an insurance company.
Most life insurance applicants fall into which of the following underwriting risk categories?
Standard
Regarding term life insurance policies, "rated" life insurance policies are rated according to a table and the extra premium that is charged is called a ____________.
Table rating
Which of the following is typically the lowest cost type of life insurance?
Term
Which of the following types of life insurance policies have a very specific period of coverage?
Term
After 10 years, Michael's life insurance policy expired, requiring him to re-qualify for coverage, likely at a higher premium rate due to his increased age. What type of policy did Michael likely own?
Term Life Insurance
Jack and his wife Lyn just purchased a home with a 15-year mortgage. Wanting to make sure that Lyn would be able to pay off the mortgage balance in the event of Jack's death, Jack had a "temporary" need for life insurance. What type of policy should Jack purchase?
Term Life Insurance
Jason, a healthy 25-year old, knew that he needed life insurance coverage to protect his wife and newborn son should he pass away suddenly. However, at the present time, he simply did not have a large budget in which to purchase such coverage. Which type of life insurance would be best for Jason's current needs?
Term Life Insurance
Which type of life insurance coverage offers the least expensive cost per $1,000 of death benefit purchased?
Term Life Insurance
Which type of live insurance offers only a pure amount of death benefit with no component for cash value or investment funds?
Term Life Insurance
What are the two primary classes of life insurance?
Term and Permanent
Those who have a "temporary" need for life insurance coverage should consider what type of policy?
Term life
Which circumstance(s) could cause life insurance proceeds to be included in the decedent's estate?
The decedent at death possessed an incident of ownership in the policy. The proceeds of the policy are paid to the executor of the decedent's estate. There is a transfer of ownership within three years of death (within certain guidelines).
Insurance agents have a responsibility to all of the following:
The insurance company The applicant The policy holder
Roger decided to take out a life insurance policy on himself but was not sure who he wanted to be the beneficiary. He put his own name in as the beneficiary and wanted to make a change to the beneficiary designation later when he had resolved some issues with his children. Unfortunately, Roger passed away before changing his beneficiary. Which of the following is true regarding life insurance and probate in this situation?
The insurance proceeds will not go through probate since insurance contracts are "will substitutes" and the proceeds will be distributed however the executor decides.
For the purpose of life insurance, everyone is considered to have an insurable interest in:
Their own life Their spouse's life Their dependents' lives
Corporate owned life insurance proceeds may be used for the following purposes:
To find, replace, and train a new employee or executive To fund other corporate debt obligations To redeem the deceased employee's stock.
What is, in part, the primary purpose of insurance regulation?
To maintain the solvency of insurance companies
Business owners often have a need for life insurance. (T/F)
True
IIt is required that a copy of the insured's policy application be included with the actual life insurance policy upon delivery.(T/F)
True
Life insurance can be used as a deferred compensation benefit for corporate employees.(T/F)
True
Under the laws of agency, any person who is involved in soliciting, transmitting, examining, or collecting, or in any way associated with the sale of, insurance is an agent. (T/F)
True
With the cash value component of a permanent life insurance policy, the policyholder can borrow, as well as withdraw, funds.(T/F)
True
____________ life insurance policies are considered to be interest rate sensitive because the policy's cash value is used to purchase short-term interest bearing instruments.
Universal
Which type of life insurance policy allows the policyholder to move funds between the death benefit component and the savings component?
Universal Life Insurance
Sally is a sole proprietor of a hair salon. She is concerned that if something happens to her, her business will close and her employees will lose their jobs and face financial distress. Sally asks her insurance agent about any life insurance options that may help. What should the agent discuss with her?
Use of a business continuation agreement
Insurance agents must obtain their securities license in order to offer which type of life insurance product?
Variable Life Insurance
John is concerned that if he becomes ill or disabled and loses his job that he will not be able to afford to keep his life insurance in place. Which of the following riders should an agent advise John about?
Waiver of premium rider
Joe wanted to establish a future college education fund for his 2-year old daughter. He wanted to ensure that the funds in the account were safe and could grow at a guaranteed rate of interest, while also allowing for the payment of a guaranteed amount of death benefit should he pass away. What is the best type of life insurance for Joe to purchase?
Whole Life
Andrew wanted to obtain a life insurance policy where the coverage and the premium would remain level throughout his entire life. Which type of policy should Andrew purchase?
Whole Life Insurance
Which type of life insurance is considered to be more risky based on its investment component?
Whole Life Insurance
When Derek met with a life insurance applicant to fill out an application, the applicant mentioned that he had certain adverse health conditions, however, the applicant did not list such conditions on the application for coverage. Is Derek responsible for informing the insurance company of the applicant's conditions?
Yes, as it could affect the correct underwriting decision.
After 25 years, Bob and Karen are finally empty-nesters. With all of their children grown and earning a living of their own, Bob and Karen decide to purchase a second home in Florida. Given their situation, will Bob and Karen still have a need for life insurance coverage?
Yes, for mortgage payoff and estate taxes