Life Insurance Practice Test

An insured has a terminal illness and needs access to half of his death benefit to pay for medical expenses. Which rider would meet the insured's current needs?

Accelerated (Living) Benefit

Which of the following distributions from a qualified retirement plan will incur a 10% tax penalty?

Before the participant's age 50 1/2

An individual has a $50,000 convertible term life insurance policy. If he chooses, he can

Convert to a whole life policy for the same face amount without proof of insurability

Decreasing term insurance is often used to

Cover a mortgage

All of the following information needs to be included on an application for life insurance EXCEPT

Health insurance policies in force

Which of the following would be the most likely to start a tax-sheltered annuity?

Public school teachers

A person is required to be licensed to do which of the following?

Receive commissions

What is the purpose of settlement options in life insurance?

The determine how death proceeds will be paid

After 12 years, a policyowner decides she no longer needs the large death benefit on her whole life policy. She calls her agent, who informs her that she can use the reduced paid-up nonforfeiture option. Which of the following is NOT true about the new policy?

The new policy will expire in 10 years

What is the purpose of the agent's report in the application process?

To provide additional information about the applicant to the underwriters

Which statement about reinstatement is FALSE regarding a policy reinstatement provision?

A reinstated policy is incontestable

When agents, brokers, or solicitors handle premiums for an insurer, they are acting in which capacity?

As a fiduciary

Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive

Nothing; the payments will cease

When a life insurance policy continues because of a payor benefit clause, it means

The owner of the policy is disabled or has died

What is the default nonforfeiture option when the policyowner neglect to select an option?

Extended term

If the agent feels that there could be misrepresentation on the part of the applicant for insurance, what must the agent do?

Inform the insurance company

All of the following statements describe unfair trade practices EXCEPT

Discriminating against a group of individuals because of poor risk

If a beneficiary is NOT named for annuity benefits, to which of the following will the benefit be paid?

The annuitant's estate

An insured, age 45, has a paid-up at age 65 whole life insurance policy with a death benefit of $150,000. The policy's cash value will be $150,000 at the insured's age

100

An insured missed her premium payment on her cash value policy, and the grace period has lapsed. The policy is still in force because the insurer has deducted the cost of the premium from the policy's cash value. What provision allows this?

Automatic premium loan

Which of the following would be considered a peril?

Fire

An insurer invests the cash value of a fixed annuity in which of the following?

General account

Which statement best describes "agreement" as it relates to insurance contracts?

One party accepts the exact terms of the other party's offer

All of the following are general requirements of a qualified plan EXCEPT

The plan must be temporary

When the insured becomes disabled under the requirements of a life insurance policy, which of the following provisions keeps the policy in force even though the owner stops making the premium payments?

The waiver of premium

An insured's flexible premium is invested into a separate account. What type of insurance product does the insurance have?

Variable universal life

If $100,000 of life insurance proceeds were used in a settlement option that paid $13,000 per year for ten years, which of the following would be taxable annually?

$3,000

Under the cost of living adjustment rider, what will happen to the face amount in the policy?

An increase with the inflation rate

An out-of-state producer wants to start selling insurance in this state. What type of license should the producer obtain?

Nonresident

Which nonforfeiture option allows a policyowner to use the existing cash value to purchase a policy of the same face amount as the original policy for as long as the policy will buy?

Extended term insurance

An individual owns a participating whole life policy and uses her policy dividends to buy more of the same type of coverage for herself. She has chosen the

Paid-up additions option

When is the earliest a life policy may go into effect?

When the application is signed a check is given to the agent

Which of the following risk classifications would pay the lowest premium?

Preferred

Which of the following is NOT a feature of a whole life policy?

Increasing premium

Which of the following are members of the Medical Information Bureau?

Insurers

All of the following are dividend options in life insurance policies EXCEPT

Interest only

Statements made by the applicants for insurance policies that are true to the best of their knowledge are known as

Disclosures

Under the terms of the 10-day free-look period, a claim will be paid

If the premium has been paid and the policy has not been returned

An employee wants to join a group insurance plan. In order to avoid proving insurability, what must the applicant do?

Join during the enrollment period

What is the usual federal income tax treatment of individual life insurance?

Nondeductible premiums, nontaxable death benefits

An insurer is issued a cease and desist order for misrepresentation. What is the insurer required to do to comply with the order?

Stop the action in violation

Which of the following types of insurance products would be appropriate for an individual with a low income and high insurance needs?

Term insurance

To which of the following must insurance producers report changes of business or residence address?

The Department of Insurance

Which division of an insurance company is responsible for the selection, evaluation, and distribution of risks?

Underwriting

A beneficiary decides to take a settlement option that will pay the largest amount per payment, knowing that after the beneficiary's death no monies will be paid out to any descendants. The settlement option is

Life Income (Straight Life)

Which of the following is the default settlement option for life insurance policy proceeds?

Lump sum

When an applicant makes a material statement on the insurance application, the statement is considered to be a/an

Representation

If a life agent wants to sell variable life policies, what license must the agent obtain?

Securities

For an insurance contract, the principle of utmost good faith means

Each party relies upon the truthfulness of the other

For a flexible premium deferred annuity, the time during which the owner makes premium payments and the time before benefit payments begin is known as the

Accumulation period