Life insurance practice test

Which term describes the benefits of a life insurance policy that the policyowner does not automatically relinquish even if the policy lapses?

Nonforfeiture values

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT

Other insurance coverages

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

The gramm-leach-bliley act was passed to

Protect private customer information filed with a financial institution.

All of the following are true regarding rebates except

Rebates are allowed if it's in the best interest of the client.

An agent offers his client free tickets to a sporting event in exchange for the purchase of an insurance policy. The agent is guilty of

Rebating

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will

Pay the policy proceeds only if it would have issued the policy

Which of the following is not true about a joint and survivor annuity benefit option?

Payments stop after the first death among the annuitants.

Which of the following is not true regarding a policy summary?

The policy summary may be part of the policy

All of the following are true about variable products except

The premiums are invested in the insurer's general account.

Which is generally true regarding insureds who have been classified as preferred risks?

Their premiums are lower.

Regulations for annuity recommendations would apply when a consumer is at least what age?

65 years old

What is the maximum allowed value of promotional gifts that an agent may give to a prospective insured?

$100

An individual purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy?

$100,000 (in joint life policies, the DB is paid upon the first death only)

An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement?

$200,000

An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy?

$9,800

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

Adjustment in the amount of death benefit. If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.

Which of the following would not be a violation of state insurance regulations?

Agent C uses her license to write only business other than controlled.

When transacting business in this state an insurer formed under the laws of another country is known as a/an

Alien insurer- alien insurer is defined as an insurer formed under the laws of another country

Licensed life insurance agents are expected to be familiar with which of the following laws?

All of the insurance laws and regulations

What is reinsurance?

An agreement between a ceding insurer and assuming insurer

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

Annuitization period

All of the following are requirements of eligibility for social security disability income benefits except

Being age 65

When replacing life insurance, the duties of the replacing insurance company include all of the following except

Maintaining a copy of the Notice Regarding Replacement and all sales proposals used for at least 5 years.

Which of the following best describes the unfair trade practice of defamation?

Making derogatory oral statements about another insurer's financial condition

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to

Charge a higher premium

What term is used for replacing insurance policies for the sole purpose of making commissions?

Churning. "Churning" is defined as replacing insurance policies for the sole purpose of making commissions.

A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the consumer price index, is called

Cost of Living Rider

Which of the following authorities grants and revokes licenses?

Department of Financial Services. The Department is responsible for issuing, reissuing, and terminating licenses.

Who does the secondary notice provision protect?

Elderly Insureds

What does "level" refer to in level term insurance?

Face amount

The death benefit under the universal life option b

Gradually increase each year by the amount that the cash value increases.

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?

If the father is disabled for more than 6 months

An insured purchased a life insurance policy in his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit?

If the primary beneficiary predeceases the insured

An insurer publishes intimidating brochures that portray the insurer's competition as financially and professionally unstable. Which of the following best describes this act?

Illegal under any circumstances

Under which of the following annuity options does the annuitant select the time period for the benefits and the insurer determines how much each payment will be?

Installments for a fixed period

Which statement is NOT true regarding a straight life policy?

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

What is the other term for the cash payment settlement option?

Lump sum. Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

Which type of retirement account does not require the owner to start taking distributions at age 72?

Roth IRA

An IRA purchased by a small employer to cover employees is known as a

Simplified Employee Pension Plan (SEP)

Which of the following is a risk classification used by underwriters for life insurance?

Standard. The three ratings classifications that denote the risk level of insureds are standard, substandard, and preferred. This classification system helps insurers to decide if an insured should pay a higher premium.

Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information?

The Fair Credit Reporting Act The purpose of the Fair Credit Reporting Act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers.

All of the following entities regulate variable life policies except

The Guaranty Association

How will a life insurance beneficiary designation naming a spouse be changed by divorce?

The beneficiary designation will be voided.

Who does the secondary addressee provision protect?

The insured over the age of 64. The secondary notice/addressee provision protects elderly insured. Coverage for persons age 64 and older that has been in force for at least 1 year cannot lapse for nonpayment of premium after expiration of the grace period without the insurer notifying the policyowner and a specified secondary addressee (if designated in writing by the policyowner) of the impending lapse in coverage.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called

Waiver of premium. Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

All of the following benefits are available under social security except

Welfare benefits Social Security is an entitlement program, not a welfare program.

When would a 20-pay whole life policy endow?

When the insured reaches age 100

In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium?

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

All of the following information about a customer must be used in determining annuity suitability except

beneficiary's age

All of the following are personal uses of life insurance except

buy-sell agreement

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary of the policy is approved. This is an example of what kind of contract?

conditional

An insurance company has published a brochure that inaccurately portrays the advantages of a particular insurance policy. What is this an example of?

false advertising

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?

fixed period

Life income joint and survivor settlement option guarantees

income for 2 or more recipients until they die

Stranger-originated life insurance policies are in direct opposition to the principle of

insurable interest- because the purchaser of a stranger-oriented life insurance policy doesn't know the insured, ore have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest

Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?

joint life - least expensive because premiums are based on average age and it only pays a death benefit at the first death

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

paid-up option. the insurer can accumulate dividends at interest and then use them in to pay the policy earlier than planned

Which of the following products requires a securities license?

Variable annuity

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

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?

Any form of life insurance

SIMPLE Plans require all of the following EXCEPT

At least 1,000 employees. SIMPLE plans are for small businesses that employee no more 100 people receiving at least $5,000 in compensation from the employer during the previous year.

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?

Life income with period certain The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called

Life income with period certain. If the annuitant dies before the period certain, the payments continue to a beneficiary or the estate for the remainder of the period certain

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Limited pay whole life insurance

Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?

They are tax free to terminally ill insured. 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.

What is the purpose of settlement options?

They determine how death proceeds will be paid

An agent transacts business for Insurer A and Insurer B, both selling life insurance, and for Insurer C, selling health insurance. How many appointments must the agent hold?

Three - one for each insurer

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

To provide a guaranteed income for a certain amount of time

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

Unilateral In a unilateral contract, only one of the parties to the contract is legally bound to do anything.

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?

Universal Life - Option A (Level Death Benefit option)