LIFE INSURANCE EXAM SIMULATOR quizlet5

Z falls from the roof of his house while fixing it and damages his spinal column enough to render him disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will Z receive?

*1. Monthly premium waiver and monthly income* 2. Percentage of medical costs paid by the insurer 3. Payments for life 4. Yearly premium waiver and income

The causes of loss insured against in an insurance policy are known as

*1. Perils* 2. Losses 3. Risks 4. Hazards

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

*1. Conditional.* 2. Aleatory. 3. Personal. 4. Unilateral.

Which of the following is NOT a legitimate use of annuities by businesses?

a) Providing deferred compensation for employees b) Providing an investment vehicle *c) Creating a tax shelter* d) Funding employee retirement plans **Annuities are most often used by businesses to fund employee retirement plans, to provide deferred compensation for employees or as an investment vehicle.*

ny insurance agent who engages in the insurance business and violates the Code with respect to insurance replacement shall on the first violation

*a) Be fined a sum of $1,000.* b) Be fined a sum of $10,000. c) Be administratively suspended from licensing for a period of 180 days. d) Be fined a sum of $5,000. **An agent who violates the replacement provision of the Code will be fined a $1,000 for the first offense.*

Written binders provide insurance before the policy is actually issued. The time period between the issuance of the binder and the policy's effective date is called

*a) Temporary term.* b) Grace period. c) Binding period. d) Interim term. **The "temporary term" is the protection period offered by binding receipts. During this time period, an insurance company is liable for the maximum amount guaranteed under the binding receipt/temporary insurance agreement.*

What is the minimum free-look period for newly issued life insurance policies in this state?

1. 10 days 2. 20 days 3. 30 days 4. 90 days

Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance?

1. Medical history 2. Sex *3. Race* 4. Age

An applicant wants to buy a life insurance policy in which he can count on receiving the same benefits as stated in the contract. Which type should he buy?

1. Permanent 2. Variable 3. Any type of annuity 4. Fixed

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

a) The period of time from the accumulation period to the annuitization period b) The period of time during which money is accumulated in an annuity c) The period of time from the effective date of the contract to the date of its termination *d) The period of time during which accumulated money is converted into income payments* **The annuity period is the time during which accumulated money is converted into an income stream.*

All of the following are TRUE statements regarding the accumulation at 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. **The interest credited under this option is TAXABLE, whether or not the policyowner receives it.*

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change?

a) Value Adjustment Rider b) Return of Premium Rider c) Inflation Rider *d) Cost of Living Rider* **The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.*

According to Insurance Code, it is an unfair or deceptive act in the business of insurance for an insurer to advertise insurance that it does not market. Such action is a violation of the code and will result in a fine up to

*a) $10,000.* b) $15,000. c) $5,000. d) $7,000 **As dictated by the CIC 790.036, the penalty for advertising insurance that it does not market is a misdemeanor with a $10,000 fine.*

What is the term for a sales campaign conducted through the mail?

*a) Direct-response* b) Direct-mail c) Mass marketing d) Advertising **Solicitation conducted through the mail is one method of direct-response marketing.*

Al tells a client that she is guaranteed to be approved for LTC insurance if she pays the full year's premium at the time of application. The client applies for LTC insurance and writes a check for the annual premium to Al's agency. Al issues a Binder of Insurance but does not send the application to the insurer, and intentionally uses the premium for personal expenses instead. Al is guilty of

1. Misrepresentation. 2. Twisting. 3. Fraud. 4. Negligence.

An exclusive agent

1. Offers insurance from a variety of sources. 2. Must be an insured's sole source for coverage. 3. Has a contract with one company. 4. Must limit the number of clients.

Regarding the taxation of Business Overhead policies,

1. Premiums are not deductible, but expenses paid are deductible. *2. Premiums are deductible and benefits are taxed.* 3. Premiums are not deductible and benefits are taxed. 4. Premiums are not deductible, but benefits are deductible.

The risk of loss may be classified as

1. Pure risk and speculative risk. 2. Certain risk and uncertain risk. 3. Named risk and un-named risk. 4. High risk and low risk.

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

a) Adjustable Life. *b) Interest-sensitive Whole Life.* c) Credit Life. d) Annual Renewable Term. **Because the cash values are generated by investments, interest rates will affect the amount of the cash value.*

Credit Life insurance

a) Is purchased on an installment basis. b) Insures the life of a creditor. c) Has a maximum term for insurance of 20 years. *d) Insures the life of a debtor.* **Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor.*

The key factor of representation that allows the injured party to rescind the contract is

a) Representations are statements believed to be true and hold no legal consequences. b) The promise or assurance of the representation. *c) If the representation is false in a material point.* d) That any misrepresentation is considered fraud. **If a representation is false in a material point the injured party is entitled to rescind the contract from the time the representation becomes false.*

Which statement regarding insurable risks is NOT correct?

a) An insurable risk must involve a loss that is definite as to cause, time, place and amount. *b) Insureds cannot be randomly selected.* c) Insurance cannot be mandatory. d) The insurable risk needs to be statistically predictable. **Granting insurance must not be mandatory, selecting insureds randomly will help the insurer to have a fair proportion of good risks to poor risks. All other statements are true.*

Which of the following statements regarding Business Overhead Expense policies is NOT true?

a) Any benefits received are taxable to the business. b) Leased equipment expenses are covered by the plan. *c) Benefits are usually limited to six months.* d) Premiums paid for BOE are tax-deductible. **Business Overhead Expense (BOE) insurance is sold to small business owners for the purpose of reimbursing the policyholder for business overhead expenses during a period of total disability. Premiums are tax-deductible for a business, but any benefits received are taxable as income. Overhead expenses, including equipment and employee salaries, are covered by the plan. Salaries and profits of the employer are not protected.*

What is the term used when a person sells his assets as a way to gain money?

*a) Liquidation* b) Buy-Sell c) Commerce d) Transfer **Liquidation is the process of selling one's assets in order to accumulate money. Keeping assets is called retention.*

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) Consideration* b) Good faith c) Representation d) Adhesion **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.*

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

1. Insurance company 2. Estate *3. Beneficiary* 4. Owner

The Medical Information Bureau (MIB) was created to protect

1. Medical examiners that perform insurance physical examinations. *2. Insurance companies from adverse selection by high risk persons.* 3. Insurance departments from lawsuits by policyowners. 4. Insureds from unreasonable underwriting requirements by the insurance companies.

Which of the following CANNOT be included along with illustrations used to sell life insurance?

1. Rating information 2. Original death benefit *3. Vanishing premium information* 4. Name of the insurer

An Adjustable Life policyowner can change which of the following policy features?

1. The coverage period 2. The mortality expense 3. The investment account 4. The insured

Which of the following is NOT a characteristic of pure risk?

1. The loss must be measurable in dollars. 2. The loss exposure must be large. *3. The loss must be catastrophic.* 4. The loss must be due to chance.

What is the number of credits required for fully insured status for Social Security disability benefits?

40

When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy?

*a) They can convert their coverage to permanent life insurance without evidence of insurability.* b) They can convert their coverage to permanent life insurance with evidence of insurability. c) Family members are not provided any rights. d) They can surrender the coverage for its cash value. **Family members may convert their term coverage to permanent insurance if requested within the time stated in the policy.*

Which of the following is NOT a goal of risk retention?

*a) To minimize the insured's level of liability in the event of loss* b) To reduce expenses and improve cash flow c) To increase control of claim reserving and claims settlements d) To fund losses that cannot be insured **Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.*

An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe?

1. Accumulation at Interest 2. Cash option 3. Flexible Premium 4. Reduction of Premium

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

1. Additional insured rider 2. Family term rider 3. Spouse rider 4. Children's rider

As it pertains to IRA eligibility, which of the following would NOT be considered earned income?

1. An annual salary 2. Unemployment benefits 3. Wages for a part-time job 4. Commissions

57. For the purpose of insurance, risk is defined as

1. An event that increases the amount of loss. 2. The uncertainty or chance of loss. 3. The certainty of loss. 4. The cause of loss.

Who is a third-party owner?

1. An irrevocable beneficiary 2. A policyowner who is not the insured 3. An insurer who issues a policy for two people 4. An employee in a group policy

Which of the following is true regarding written binders?

1. Binders prove that the insured has insurance coverage, even though the policy has not been issued yet. 2. Binders apply only to Life insurance. 3. Both the applicant and insurer can write a binder. 4. Binders serve as a receipt that the insurer is processing the application. No coverage applies.

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

a) The insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums. *b) The insured's premiums will be waived until she is 21.* c) The premiums will become tax deductible until the insured's 18th birthday. d) Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected. **If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.*

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT

a) The insurer determines the amount for each payment. *b) It is a life contingency option.* c) It will pay the benefit only for a designated period of time. d) The payments are not guaranteed for life. **Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only, and there are no life contingencies.*

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen?

a) The policy will be reduced to an extended term option. *b) The policy will terminate when the loan amount with interest equals or exceeds the cash value.* c) The insurer will increase the interest rate on the loan and charge a penalty. d) The insurer will not permit the policyowner to take out any more loans. **In most policies, failure to pay back a loan will result in termination of the policy if the total amount of the loan and accrued interest equals the cash value.*

Which of the following is NOT true regarding the Needs Approach method of determining the value of an individual's life?

a) Coverage is based on the predicted needs of that family. b) The death of an insured must be premature. c) It must be assumed that the death of the insured will occur immediately. *d) Need is predicted using the number of years until the insured's retirement.* **In the Needs Approach method, need is determined by the predicted needs of the family after the premature death of the insured, which must be assumed will happen immediately. The policy allows for benefits to be collected upon the insured's death.*

Life income joint and survivor settlement option guarantees

a) Payout of the entire death benefit. b) Equal payments to all recipients. *c) Income for 2 or more recipients until they die.* d) Payment of interest on death proceeds. **The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.*

If an insured continually uses the automatic premium loan option to pay the policy premium,

*a) The policy will terminate when the cash value is reduced to nothing.* b) The face amount of the policy will be reduced by the automatic premium loan amount. c) The cash value will continue to increase. d) The insurer will increase the premium amount. **This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid form the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.*

f a settlement option is not chosen by the beneficiary or policyowner, which option will be used?

1. Fixed amount 2. Lump sum 3. Life income 4. Fixed period

An association could buy group insurance for its members if it meets all of the following requirements EXCEPT

1. Has a constitution and by-laws. 2. Holds annual meetings. 3. Is contributory. 4. Has at least 50 members.

When an agent does not hold any active appointments with insurers, what happens to the agent's license?

1. It must be returned to the Department of Insurance. 2. It must be renewed with a new appointment. 3. It expires. 4. It becomes inactive.

. What is the main purpose of the Seven-pay Test?

1. It requires level premium payments for 7 years. 2. It ensures that the policy benefits are paid out in 7 years. 3. It guarantees interest minimum. 4. It determines if the insurance policy is an MEC.

A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called

1. Qualified distribution. 2. Premature distribution. 3. Rollover. 4. 1035 exchange.

When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called

1. Revocable designation. 2. Irrevocable designation. 3. Stirpes designation. 4. Class designation.

In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment?

1. The annuitant will receive the lower of either the guaranteed minimum rate or current rate. 2. The annuitant will only receive the guaranteed minimum specified in the contract. *3. The annuitant will receive the higher of either the guaranteed minimum rate or current rate.* 4. The annuitant will always receive the current interest rate.

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

1. The gender of the applicant. 2. The type of policy requested. 3. Which individual will pay the premium. 4. Whether an insurable interest exists between the individuals.

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

1. The person must have at least completed secondary education. 2. The person must not be under the influence of drugs or alcohol. 3. The person must be of legal age. 4. The person must be mentally competent to understand the contract.

Which of the following is true regarding a policy with a face value less than $10,000?

1. The policy can be cancelled with full refund of premium at any time. 2. If it's returned during the free look period, the agreement will be void. 3. An insured cannot return the policy. 4. If it's returned during the free look period, the contract will be cancelled, but the insurer will retain the premium paid.

All of the following statements are true of a nonqualified retirement plan EXCEPT

a) They do not qualify for special tax treatment by the IRS. *b) Contributions are tax exempt.* c) Increases of funds are not taxed until received. d) Contributions grow tax deferred. **Nonqualified retirement plans do not meet the IRS' requirements for favorable tax treatment. Contributions to these plans grow tax deferred; however, they are not tax exempt. Increases of funds during the accumulation period are not taxed until they are actually received.*

Which of the following statements is the most accurate concerning the Commissioner's term of office?

*1. Serves 4 year terms, limited to not more than two* 2. Serves 4 year terms with no limits 3. Serves until removed by the Governor 4. Serves one year terms, with no limits

A contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events is

*a) A policy.* b) A rider. c) A premium. d) A guaranteed benefit. **A contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events is a policy.*

All of the following are personal uses of life insurance EXCEPT

*a) Buy-sell agreement.* b) Survivor protection. c) Estate creation. d) Cash accumulation. **Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. A buy-sell agreement is for business uses of life insurance.*

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?

*a) Insuring clause* b) Entire contract clause c) Beneficiary clause d) Consideration clause **The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.*

All of the following are the responsibilities of every long-term care insurer in California EXCEPT

*a) Provide enough business to solicit long-term care insurance.* b) Establish marketing procedures to assure that any comparison of policies will be fair and accurate. c) Establish marketing procedures to assure excessive insurance is not sold or issued. d) Submit to the Commissioner a list of all agents authorized to solicit individual consumers for the sale of long-term care insurance. **Long-term care insurers must maintain strict requirements. These include establishing marketing procedures to assure that comparison is fair and accurate and to assure that excessive insurance is not sold. In addition, insurers must semiannually submit to the Commissioner a list of all agents authorized to solicit for the sale of long-term care insurance.*

Signing and dating a delivery receipt for a life insurance policy helps to establish all of the following timeframes EXCEPT

*a) The Grace Period.* b) The Incontestability Period. c) The Free-Look Period. d) The Right of Rescission. **When the customer signs and dates the policy delivery receipt, the exact date of acceptance is established, which starts the incontestability period. The client also has between 10 to 30 days to review the policy and return for a full refund, called the Right of Rescission, or Free Look Period. The grace period refers to the time period allowed after subsequent premium payments during which a policy will not lapse.*

All of the following entities regulate variable life policies EXCEPT

*a) The Guaranty Association.* b) Federal government. c) The SEC. d) The Insurance Department. **Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.*

The notice to senior consumers regarding their right to cancel a policy must be printed on the cover or policy jacket in at least what type of print?

a) 12-point standard print *b) 12-point bold print* c) 14-point standard print d) 14-point bold print **Each individual life policy annuity contract delivered to a senior consumer must have the regarding their right to cancel either printed on the cover page or policy jacket in 12-point bold print with one inch of space on all sides, or printed on a sticker attached to the cover page or policy jacket.*

An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of

a) A prearranged funeral plan. b) A viatical settlement. c) Third-party ownership. *d) A STOLI policy.* **Stranger-originated life insurance (STOLI) policies are usually purchased by people who have no relationship with the insured with the intention of selling them for life settlements.*

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

a) Conditional *b) Unilateral* c) Unidirectional d) Aleatory **In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.*

Which of the following is TRUE about credit life insurance?

a) Debtor is the annuitant. b) Creditor is the insured. c) Debtor is the policy beneficiary. *d) Creditor is the policy owner.* **In credit life insurance, the creditor is the policyowner and the beneficiary; the debtor is the insured.*

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?

a) Grace period *b) Reinstatement provision* c) Waiver of premium provision d) Incontestable clause ** A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.*

Which of the following statements is TRUE concerning the Accidental Death Rider?

a) It is also known as a triple indemnity rider. b) This rider is only available to insureds over the age of 65. c) It is only available in group insurance. *d) It will pay double or triple the face amount.* **The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.*

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?

a) Law of masses b) Law of averages c) Law of group evaluation *d) Law of large numbers* **The law of large numbers, which states that the larger a group is, the more accurately losses reported will equal the underlying probability of loss, is the basis for statistical prediction of loss upon which rates for insurance are calculated.*

During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal?

a) Neither interest nor principal is taxed, but penalties may be imposed. *b) Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½.* c) Nontaxable principal may be withdrawn first, but the 10% penalty will be imposed if under age 59 ½. d) Both interest and principal are taxed; no other penalties are imposed. **When money is withdrawn from the annuity during the accumulation phase, the amounts are taxed on a last in first out basis (LIFO). Therefore, all withdrawals will be taxable until the owner's cost basis is reached.*

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called

a) One-year term purchase. b) Accumulation at interest. c) Reduction of premiums. *d) Paid-up additions* **When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.*

An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a/an

a) Self-insurer. *b) Authorized insurer.* c) Local insurer. d) Certified insurer. **Insurers who meet the state's financial requirements and hold a Certificate of Authority to transact business in the state are considered authorized or admitted.*

Which of the following would NOT be considered a form of direct response marketing?

a) Self-insurer. *b) Authorized insurer.* c) Local insurer. d) Certified insurer. **Insurers who meet the state's financial requirements and hold a Certificate of Authority to transact business in the state are considered authorized or admitted.*

The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true?

a) The contract can be issued without an annuitant. *b) The annuitant must be a natural person. c) A corporation can be an annuitant as long as it is also the owner.* d) A corporation can be an annuitant as long as the beneficiary is a natural person. **Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.*