Life Insurance Exam Practice

Which of the following statements is NOT true concerning insurable interest as it applies to life insurance?

A debtor has an insurable interest in the life of a lender.

A tornado that destroys property would be an example of which of the following?

A peril - A peril is the cause of loss insured against in an insurance policy.

Troy is 5 days late paying his premium when he dies in a car accident. The death benefit his beneficiary will receive will most likely

Be reduced to cover the premium.

Which of the following is NOT a government-funded insurance program?

Federal Deposit Insurance Corporation (FDIC)

In order for an insurer to legally transact insurance, it must obtain which of the following?

Certificate of Authority

Agent A shares his commissions with Agent B. This is called

Commission-splitting.

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing term

Which of the following types of insurance policies would perform the function of cash accumulation?

Whole life

All of the following are true of key person insurance EXCEPT

*There is no limitation on the number of key employee plans in force at any one time.

An insurer may delay or defer a request for a policy loan for up to

6 months.

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?

$50,000

Life insurance may be paid for in manageable installments called

* Premiums.

What percentage of a company's employees must take part in a noncontributory group life plan?

*100%

What is the minimum age to apply for an insurance license in Kentucky?

*18

An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n)

*403(b) Plan (TSA).

Events in which a person has both the chance of winning or losing are classified as

*Speculative risk.

Which of the following is a party to an application for life insurance? 1. Proposed insured 2. Applicant 3. Policyowner 4. All of the above

All of the above

Which of the following statements concerning buy-sell agreements is true?

Buy-sell agreements are normally funded with a life insurance policy.

As a field underwriter, a producer is responsible for all of the following tasks EXCEPT 1. Obtain appropriate signatures on the application for insurance. 2. Issue the policy that is requested. 3. Help prevent adverse selection. 4. Solicit business that will fall within the insurer's underwriting guidelines.

Issue the policy that is requested.

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.

Gotchurbak Insurance Company must set aside a specific amount of money that it can use solely for the purpose of paying policy values when insureds die or when policies mature. This sum of money is called a

Reserve

What is the primary purpose of qualified plans?

Retirement benefit

What is the purpose of a fixed-period settlement option?

To provide a guaranteed income for a certain amount of time

The Waiver of Cost of Insurance rider is found in what type of insurance?

Universal Life

An insurance company's cost of doing business is lower than the amount that it has collected in premiums. Which of the following is true?

*It will return a portion of the premiums to the policyowners.

Who would be eligible to obtain SGLI?

*Military personnel

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

A producer has just received his insurance license. For how many days may the producer initially transact insurance for an insurer without an appointment?

15 days - An agent may represent an insurer without first obtaining approval of the appointment for 15 days from the date the insurance application is executed by the agent. If the agent does not obtain confirmation of appointment from the Commissioner within 15 days, the agent must immediately discontinue acting on behalf of the insurer.

A request from the Commissioner for a person to stop committing a violation is called

A desist order.

Social security benefits are available for a surviving spouse until the youngest child reaches age 16. Benefits are again available for the spouse after reaching age 60. What is the time period called during which the surviving spouse does not receive benefits?

Blackout period

Which of the following types of policies will provide permanent protection?

Whole life

A person requesting a hearing should file the request within how many days of the act giving rise to the grievance?

*60 days

The Ownership provision entitles the policyowner to do all of the following EXCEPT

*Assign the policy

Which of the following best describes what the annuity period is?

*The period of time from the accumulation period to the annuitization period

f an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE?

*The policy will be interpreted as if the insurer waived its right to have an answer on the application

Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages?

3 - Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer can then contribute up to an amount equal to 3% of the employees' annual compensation. Contributions and earnings are both tax-deferred until funds are withdrawn.

What provision in an insurance policy extends coverage beyond the premium due date?

Grace period

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.

Which statement is NOT true regarding a Straight Life policy? 1. It has the lowest annual premium of the three types of Whole Life policies. 2. Its premium steadily decreases over time, in response to its growing cash value. 3. The face value of the policy is paid to the insured at age 100. 4. It usually develops cash value by the end of the third policy year.

Its premium steadily decreases over time, in response to its growing cash value.

What part of the Internal Revenue Code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences?

Section 1035 Policy Exchange

For an individual who is NOT covered by an employer-sponsored plan, IRA contributions are

Tax deductible.

An insurer hires a representative to advertise its company at a local convention. The representative lies about the details of some of the policies, in an attempt to secure more business for the company. Who is responsible for the representative's claims?

The insurer

Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors?

*Life expectancy

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this?

*Reinstatement provision

All of the following would be considered dependents under a group life policy EXCEPT

*An employee's elderly mother

If an insured receives accelerated death benefits, what is the least amount of the original death benefit that the beneficiary would receive after the insured's death?

0%

Mortality tables are statistical tables used by life insurance companies to help predict

Life expectancy and the death rates for specific groups of individuals.

Which of the following statements about group life is correct?

The cost of coverage is based on the ratio of men and women in the group.

If an insured under a permanent life insurance policy lives to the maturity of the contract, he/she may choose to take the cash value in what way? 1. Lump Sum 2. Installments 3. Lifetime Income 4. All of the above

All of the above

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

Annuitization period

If the irrevocable beneficiary of a life insurance policy becomes legally incompetent and cannot perform any legal act, the policyowner could obtain a loan for the benefit of

That beneficiary. - If the irrevocable beneficiary of a life insurance policy becomes legally incompetent and cannot perform any legal act, the policyowner could obtain a loan for the benefit of that beneficiary; these funds could be used to pay for the medical expenses and care (in an institution) for the beneficiary.

Are insurance company underwriters allowed to discriminate?

Yes, but not unfairly

At the time of annuitization of a variable annuity, which of the following CANNOT fluctuate?

*Both the performance of the investment and the monthly benefit

Which of the following best describes fixed-period settlement option?

*Both the principal and interest will be liquidated over a selected period of time.

At age 30, an applicant wants to start an insurance program, but realizing that his insurance needs will likely change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most likely fit his needs?

Adjustable Life

What documentation grants express authority to an agent?

Agent's contract with the principal - The principal grants authority to an agent through the agent's contract.

Which of the following applicants could the insurer charge a higher rate of premium and not violate regulations regarding unfair discrimination?

An applicant who is a smoker

Joe named his wife Donna as the irrevocable beneficiary of his life insurance policy. He now wants to take out a loan on the policy. Who must Joe get consent from to take out this loan?

Donna, the irrevocable beneficiary

A policy which pays monthly income upon the death of the breadwinner for a predetermined number of years after death, plus a lump sum at death, and combines level term and whole life is known as which policy?

Family maintenance - Whole life pays a lump sum, and level term pays monthly benefits for the predetermined years of the policy.

What is the advantage of having a qualified annuity?

Favorable tax treatment

If you do not pay your premium on time, what will protect your insurance policy from an immediate lapse?

Grace Period

The source of funds from which life insurance policy dividends are paid include all of the following EXCEPT

Loss of insureds.

Jacob is insured by Social Security and his wife and children are all entitled to receive benefits. What kind of limitations will Jacob's family run into?

Maximum family benefits

In which of the following instances would the premium be tax deductible?

Premiums paid by an employer on a $30,000 group term life insurance plan for employees

Vision, Inc. employs 500 people. The company offers group life insurance to its employees after 90 days of service. Who is considered the policyholder of the life insurance policies Vision, Inc. offers?

Vision, Inc.

An insured has a life insurance policy with a face amount of $500. He pays a premium each week to the agent who sold him the policy. What kind of policy does the insured have?

*Industrial life

Which of the following is the most common time for errors and omissions to occur on the part of an insurer?

*Policy delivery

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

*Ancestry.

A family's income need is greatest during which of the following periods?

*Family Income Dependency period

The fixed interest rate differs from company to company, but yearly, it is usually in the range of

*4 to 5 percent.

In a direct rollover, how is the money transferred from one plan to the new one?

*From trustee to trustee

The formation and recommendation of model insurance legislation and regulations designed to bring uniformity from state to state is one of the purposes of

The NAIC. - The National Association of Insurance Commissioners is the organization of insurance regulators that resolve insurance regulatory problems. They are active in the formation and recommendation of model legislation and regulations designed to bring uniformity from state to state and simplify the marketing of insurance.

In insurance, an offer is usually made when

The completed application is submitted.

All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT a) Upon conversion, the premium for the permanent policy will be based upon attained age. b) Upon conversion, the death benefit of the permanent policy will be reduced by 50%. c) Evidence of insurability is not required. d) Most term policies contain a convertibility option.

Upon conversion, the death benefit of the permanent policy will be reduced by 50%.

All of the following statements are TRUE concerning Debtor Groups EXCEPT

The amount of insurance on the life of any debtor may exceed the greater of the scheduled or actual amount of unpaid indebtedness to the creditor.

What characteristic makes whole life permanent protection?

*Coverage until death or age 100

Which of the following are established by the employer to provide specific benefits to eligible employees at retirement?

Pension plans

Which of the following information about the applicant is NOT included on Part 1 of the application for insurance?

* Medical background

Graded-Premium Whole Life policy premiums are typically lower initially, but gradually increase for a period of 5 to 10 years. After the period of increase the premiums will

*Be level thereafter.

An insurance producer who by contract is bound to write insurance for only one company or group of companies is classified as a/an

*Captive agent.

Which of the following is NOT true about a group annuity?

*It can be owned by individual employees.

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act?

Direct response marketing

What required provision protects against unintentional lapse of the policy?

Grace period

Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application?

Return the application to the applicant for completion

B just bought a new car, which he anticipates will be paid for 4 years from now. He also wants to buy a life insurance policy, but is financially limited until the car is paid off. Which of the following types of policies would be best for B?

Modified Life

Harry is the owner of a $150,000 whole life policy with a cash value of $55,000. During the 40 years that Harry has owned this policy, he has paid a total of $43,200 in premiums. Harry, now age 64, borrowed $40,000 from the cash value to take his wife on an Alaskan cruise. The excitement was just too much for Harry, and he died during the cruise. How much will his wife, the named beneficiary, receive as a death benefit from this policy?

*The death benefit ($150,000) minus the outstanding loan amount of $40,000 plus any interest that has accrued.

Which of the following would be the best place for disclosure statements in an insurance advertisement?

Close to each statement the disclosure statement refers to

An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an

*Interest-sensitive Whole Life.

Which of the following types of insurance policies would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources?

*Term

Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?

Depreciation period

All other factors being equal, which of the following terms best describe the coverage provided by term policies, as compared to any other form of protection?

Greatest

An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?

It will increase because the insured will be 5 years older than when the policy was originally purchased.

Life insurance premium rates are based upon the anticipated number of individuals within a given group who will die within a specified period of time, as indicated on

Mortality tables.

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?

Paid-up option - 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.

What is the advantage of reinstating a policy instead of applying for a new one?

Proof of insurability is not required

An individual has been contributing to a retirement account after taxes are taken out of his paycheck. His financial advisor told him that he will be allowed to make contributions after age 70½. The account owner does not have to pay taxes on the growth of his account. What type of retirement account is it?

Roth IRA

When a closely held corporation enters into an agreement with its stockholders to insure each of them individually for the purpose of buying their stock, should any of them die, it is called

Stock redemption plan.

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as

Survivor protection - Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection.

All of the following would be different between qualified and nonqualified retirement plans EXCEPT

Taxation on accumulation - Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.

When do full Social Security retirement benefits begin?

When the worker reaches age 65 and has earned the required amount of work credits.

Which of the following is TRUE about the 10-day free-look period in a Life Insurance policy?

*It begins when the policy is delivered.

Which of the following is a necessary condition for reinstatement of a lapsed policy?

*The insured must provide proper evidence of his or her insurability.

In terms of parties to a contract, which of the following does NOT describe a competent party?

*The person must have at least completed secondary education.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

*The policy is owned by the company.

Becky applied for life insurance, but died in an accident before the application was approved. Because Becky had temporary insurance from the insurance company, the insurer will

Pay in line with the terms of the receipt, regardless of whether Becky would have ultimately been approved.

Which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting?

Stock

Nonforfeiture values guarantee which of the following for the policyowner?

That the cash value will not be lost

Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT

The loss may be intentional.

All of the following are business uses of life insurance EXCEPT 1. Compensating executives. 2. Funding against financial loss caused by the death of a key employee. 3. Funding business continuation agreements. 4. Funding against general company financial loss.

Funding against general company financial loss.

What type of insurance would be used for a Return of Premium rider?

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

L&D Insurance earned a higher return on their invested premiums than they expected to. They will use this money to pay dividends on life insurance policies. This is called

Investment Experience

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?

It will likely be higher because the applicant is a substandard risk.

An agent tries to sell insurance over the phone to an applicant who appears to be confused, but is eventually able to give enough information for the application to be completed. After the policy was issued, the agent talked to the insured's family, and they explained that the insured was recovering from a surgery and might have been under the influence of medication at the time of application. Which of the following is true?

The policy may be voided if it can be proven that the applicant was not capable of making a buying decision at the time of application.