Life Insurance QUIZ Questions
Which of the following would NOT be considered an unfair and deceptive practice? A) Controlled business B) Rebating C) Defamation D) Misrepresentation
A) Controlled business (All are unfair and deceptive practices except for controlled business)
Which of the following authorities monitors the financial strength of insurers? A) Department of Insurance B) National Association of Insurance Commissioners C) Financial Industry Regulatory Authority D) Insurance companies
A) Department of Insurance (The Commissioner and the Department of Insurance are charged with monitoring the financial strength and integrity of insurers authorized to conduct business in PA in order to determine whether the continued operation of any insurer might be financially hazardous to policyholders, creditors, or to the public in general)
Insurance producers must ensure that contracts they recommend are in the best interest of the insured. This is called: A) Suitability B) Client protection C) Approval D) Underwriting
A) Suitability (Insurance producers must adhere to the concept of suitability by ensuring that, to the best of their belief, the purchase, sale or exchange of a policy is in the best interest of the insured)
An insurance application cannot ask about which of the following information about an applicant? A) Address B) Sexual orientation C) Age D) Gender
B) Sexual orientation (It would be considered unfair discrimination to ask an applicant for their sexual orientation, as well as using sexual orientation as a rating factor to determine insurability)
All of the following are characteristics of a group life insurance plan EXCEPT: A) The cost of the plan is determined by the average age of the group B) There is a requirement to prove insurability on the part of the participants C) The participants receive a Certificate of Insurance as their proof of insurance D) A minimum number of participants is required in order to underwrite the plan
B) There is a requirement to prove insurability on the part of the participants (There is no individual underwriting for group life insurance)
A person applying for a manager or exclusive general agent license must meet all of the following criteria EXCEPT: A) Be found sufficiently fit, competent and reliable by the Department of Insurance B) Have paid all applicable fees C) Be responsible for at least 25% of total commissions collected by the office that he or she manages D) Have an authority to act on the insurer's behalf
C) Be responsible for at least 25% of total commissions collected by the office that he or she manages (Those applying for a manager or exclusive general agent license must meet all of the criteria listed above except a set share of sales)
Which of the following would be required to be licensed as an insurance producer? A) A person whose activities are limited to producing insurance advertisements B) A salaried full-time employee who furnished information for group insurance C) An insurance company director who performs executive, administrative and managerial duties D) A salaried employee who advertises and solicits insurance
D) A salaried employee who advertises and solicits insurance (A person does not require an insurance producer licence if he or she only advertises without intent to solicit insurance. However, once there is solicitation, a license is required)
When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? A) In lesser amounts for the remaining policy term of age 100 B) Equal to the cash value surrendered from the policy C) The same as the original policy minus the cash value D) Equal to the original policy for as long as the cash values will purchase
D) Equal to the original policy for as long as the cash values will purchase (With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age)
What is the main purpose of the Seven-pay Test? A) It requires level premium payments for 7 years B) It ensures that the policy benefits are paid out in 7 years C) It guarantees interest minimum D) It determines if the insurance policy is an MEC
D) It determines if the insurance policy is an MEC (The Seven-pay Test determines whether an insurance policy is "over-funded" or if it's a Modified Endowment Contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest)
Which of the following is an example of a producer being involved in an unfair trade practice of rebating? A) Inducing the insured to drop a policy in favor of another one when it's not in the insured's best interest B) Charging a client a higher premium for the same policy as another client in the same insuring class C) Making deceptive statements about a competitor D) Telling a client that his first premium will be waived if he purchased the insurance policy today
D) Telling a client that his first premium will be waived if he purchased the insurance policy today (Rebating is defined as offering any inducement in the sale of insurance products that is not specified in the policy, including money, reductions in commissions, promises, and personal services. Both the offer and acceptance of a rebate are illegal)
How long is the right to examine period for new individual annuities issued in this state? A) 10 days B) 20 days C) 45 days D) 90 days
A) 10 days (Any individual fixed-dollar annuity or pure-endowment contract delivered in PA must include a notice on the first page that clearly states that the annuity owner may return the contract within 10 days of its delivery if dissatisfied with it for any reason, and to have any premium paid refunded)
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A) 5 days B) 7 days C) 10 days D) 3 days
A) 5 days (Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information)
Once a viatical contract has been established, how long does the viator have to rescind the contract? A) 3 business days B) 15 calendar days C) 30 calendar days D) 90 days
B) 15 calendar days (The viator has 15 calendar days to rescind a viatical settlement. If the insured dies in the rescission period, the settlement contract will be deemed rescinded)
An Internal Revenue Code provision that specifically provides for an individual retirement plan for public school teachers is a(n): A) SEP B) 403(b) Plan (TSA) C) Keogh Plan D) Roth IRA
B) 403(b) Plan (TSA) (Under a 403(b) Plan, tax-sheltered annuities may be established for the employees of specific nonprofit charitable, educational, religious and other 501c(3) organizations, including teachers in public school systems. Such plans generally are not available to other kinds of employees)
If an insurer meets the state's financial requirements and is approved to transect business in the state, it is considered to be: A) Qualified B) Approved C) Authorized D) Certified
C) Authorized (Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer)
Which component increases in the increasing term insurance? A) Interest on the proceeds B) Premium C) Death benefit D) Cash value
C) Death benefit (Increasing term features level annual premiums and a death benefit that increases each year over the duration of the policy term)
How often must the Commissioner examine rating organizations? A) Annually B) Every 2 years C) Every 3 years D) Every 5 years
D) Every 5 years (The Commissioner will examine each rating organization as often as deemed necessary, but at least once every 5 years)
A situation in which a person can only lose or have no change represents: A) Speculative risk B) Adverse selection C) Hazard D) Pure risk
D) Pure risk (Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type insurance companies are willing to accept)
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? A) Joint Life B) Decreasing Term C) Whole Life D) Ordinary Life
A) Joint Life (A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death)
A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select? A) Joint and survivor B) Joint annuity C) Cash refund annuity D) Straight life
A) Joint and survivor (Under a joint settlement option, payments would stop at the first death, but under the joint and survivor, payments would continue until both recipients die. Usually, the surviving beneficiary receives 1/2 or 2/3 of the amount received when both beneficiaries were alive)
A participating insurance policy may do which of the following? A) Pay dividends to the policyowner B) Provide group coverage C) Pay dividends to the stockholder D) Require 80% participation
A) Pay dividends to the policyowner (A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs)
In forming an insurance contract, when does acceptance usually occur? A) When an insurer's underwriter approves coverage B) When an insurer delivers the policy C) When an insurer receives an application D) When an insured submits an application
A) When an insurer's underwriter approves coverage (In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy)
What is the advantage of reinstating a policy instead of applying for a new one? A) The cash values have gained interest while the policy was lapsed B) The original age is used for premium determination C) Proof of insurability is not required D) The face amount can be increased
B) The origninal age is used for premium determination (The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status)
A licensee serving in the military is unable to fulfill her continuing education requirement. What would the licensee have to do to renew the license? A) Nothing; licenses of active duty military service personnel are automatically reinstated for a full licensing term B) The licensee must complete the continuing education requirements and pay the lapse renewal fees. Requirements cannot be waived C) The licensee may submit a request to the department to have requirements and fees waived. The department will then determine if the request is permissible D) Nothing; the license is automatically reinstated for an additional 6 months following return from military service
C) The licensee may submit a request to the department to have requirements and fees waived. The department will then determine if the request is permissible (Licensees who are unable to comply with continuing education requirements as a result of military service or other extenuating circumstance may submit a request to the department after the fact. Requests must include sufficient details and supporting documentation. The department will then determine if waiving the requirements is permissible)
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT: A) The employer pays a bonus to a selected employee to fund the policy B) It is considered a nonqualified employee benefit C) The policy is owned by the company D) Any type of insurance policy may be used
C) The policy is owned by the company (The policy is owned by the employee, NOT the company)
How are contributions to a tax-sheltered annuity treated with regards to taxation? A) They are taxed as income for the employee B) They are taxed as income for the employee, but are tax free upon withdrawal C) They are not included as income for the employee, but are taxable upon distribution D) They are never taxed
C) They are not included as income for the employee, but are taxable upon distribution (Funds contributed are excluded from the employee's current taxable income, but are taxable upon withdrawal)
Which of the following applicants could the insurer charge a higher rate of premium and not violate regulations regarding unfair discrimination? A) An applicant who was born in another country B) An applicant who is legally blind C) An applicant who has been a victim of domestic abuse D) An applicant who is a smoker
D) An applicant who is a smoker (Smoking or not smoking is a rating factor)
All other factors being equal, the least expensive first-year premium payment is found in: A) Increasing Term B) Decreasing Term C) Level Term D) Annually Renewable Term
D) Annually Renewable Term (Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year)
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? A) Term life insurance only B) Permanent insurance only C) Universal life insurance only D) Any form of life insurance
D) Any form of life insurance (Any form of life insurance may be used to fund a buy-sell agreement)
Which of the following terms describes making false statements about the financial condition of any insurer that are intended to injure any person engaged in the business of insurance? A) Undercutting B) Twisting C) Slandering D) Defamation
D) Defamation (Defamation is making statements that are false as to the financial condition of any insurer and which are calculated to injure any person engaged in the business of insurance)
In a direct rollover, how is the money transferred from one plan to the new one? A) From trustee to the participant B) From the participant to the new plan C) From the original plan to the original custodian D) From trustee to trustee
D) From trustee to trustee (In a direct rollover, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan)
The automatic premium loan provision is activated at the end of the: A) Free-look period B) Elimination period C) Policy period D) Grace period
D) Grace period (Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force)
When would a misrepresentation on the insurance application be considered fraud? A) Never: statements by the applicant are only representations B) When the application is incomplete C) Any misrepresentation is considered fraud D) If it is intentional and material
D) If it is intentional and material (A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract)
When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will: A) Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved B) Return the premium to Y's estate, since it has no obligation to pay the death claim C) Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued D) Issue the policy anyway and pay the face value to the beneficiary
D) Issue the policy anyway and pay the face value to the beneficiary (The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for)
Which of the following is true about the premium on the children's rider in a life insurance policy? A) It decreases when the oldest child reaches the age of 21 B) It increases when a newborn baby is added to the policy C) It decreases when an adopted child is added to the policy D) It remains the same no matter how many children are added to the policy
D) It remains the same no matter how many children are added to the policy (The premium does not change on the inclusion of additional children; it is based on an average number of children)
What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military? A) Limited B) Aviation C) Hazardous occupation D) Military service of war
D) Military service or war (There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war)
An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called? A) 401(k) plan B) Tax-sheltered account plan C) HR 10 plan D) Profit sharing plan
D) Profit sharing plan (A profit sharing plan is one where the employer will contribute monies into an employee's retirement plan when the company shows a profit. The others are all qualified plans, but company profit isn't an issue with them)
What is the primary purpose of a 401(k) plan? A) Education funds B) To receive dividends over a certain period C) Life insurance distribution D) Retirement
D) Retirement (Profit-sharing plans are qualified plans where a portion of the company's profit is contributed to the plan and shared with employees. A 401(k) qualified retirement plan allows employees to take a reduction in their current salaries by deferring amounts into a retirement plan. The company can also somehow match the employee's contribution, whether it is dollar for dollar or on a percentage basis)
The annuity owner dies during the accumulation period without naming a beneficiary. Annuity's cash value exceeds premiums paid. Which of the following is TRUE? A) The premium value will be paid to the annuitant's estate B) All benefits will be forfeited C) The cash value will be paid to the state government D) The cash value will be paid to the annuitant's estate
D) The cash value will be paid to the annuitant's estate (If an annuitant dies during the accumulation period, the beneficiary is paid either the cash value of the policy or the amount of the premium paid, whichever is the larger amount. In this case, a beneficiary is not named, so the cash value will be paid to the annuitant's estate)
In insurance, an offer is usually made when: A) An applicant submits an application to the insurer B) The insurer approves the application and receives the initial premium C) The agent hands the policy to the policyholder D) An agent explains a policy to a potential applicant
A) An applicant submits an application to the insurer (In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy)
Which of the following entities must approve all continuing education courses in this state? A) The NAIC B) The appointing insurer C) The State Board of Education D) The Commissioner
D) The Commissioner (All continuing education programs and courses must be approved by the Commissioner)
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? A) Fixed period B) Life with period certain C) Fixed amount D) Interest only
A) Fixed period (Under the fixed-period installments options - also called period certain - a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period)
Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? A) Implied B) Apparent C) Assumed D) Express
A) Implied (Implied authority is not written in the agent's contract but is required in order for the agent to conduct business. Implied authority exists because not every single detail of an agent's authority can be written in a contract)
Which of the following is NOT true regarding the accumulation period of an annuity? A) It would not occur in a deferred annuity B) It is the period during which the annuity payments earn interst C) It is the period over which the owner makes payments into an annuity D) It is also known as the pay-in period
A) It would not occur in a deferred annuity (The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity))
Underlying assets for variable annuity contracts must be maintained in what type of account? A) Separate account B) General account C) Fiduciary account D) Securities account
A) Separate account (Underlying assets for variable annuity contracts need to be maintained in a separate account. Separate accounts are not part of the insurer's own portfolio and can hold investments that stand to earn a higher return)
An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy? A) She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan B) She will still be covered under the group plan, but will have to pay an individual policy premium C) She can only convert her coverage without proof of insurability if she has the master policy D) She must apply for a new policy, which requires her to provide proof of insurability
A) She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan (If a person has life insurance under a group plan and then leaves the group, he/she may convert group coverage to individual coverage within 31 days of leaving the plan without proof of insurability)
A 403(b) plan, commonly referred to as a TSA, is available to be used by: A) Teachers and not-for-profit organizations B) Government workers C) Postal employees D) Self-employed persons
A) Teachers and not-for-profit organizations (Tax sheltered annuities, commonly referred to as 403(b) plans are designed for teachers and not-for-profit organizations)
Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE? A) Withdrawal are not taxable B) Distributions before age 59 1/2 incur a 10% penalty on policy gains C) Policy loans are taxable distributions D) Accumulations are tax deferred
A) Withdrawals are not taxable (Any distributions from MEC's are taxable, including withdrawals and policy loans. All of the other statements are true)
When the owner of a $250,000 life insurance policy died, the beneficiary decided to leave the proceeds of the policy with the insurance company and selected the Interest Settlement Option. If at the time of withdrawal the interest rate paid was $11,000, the beneficiary would be required to pay income tax on: A) $239,000 B) $11,000 C) None, because the beneficiary has not received the death benefit D) $261,000
B) $11,000 (The death benefit is not income taxable; any interest earned is income taxable)
Which of the following is NOT an example of insurable interest? A) Child in parent B) Debtor in creditor C) Business partners in each other D) Employer in employee
B) Debtor in creditor (The three recognized areas in which insurable interest exists are as follows: a policyowner insuring his or her own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor)
The death benefit in a variable universal life policy: A) Always equals the face amount stated in the policy B) Depends on the performance of a separate account C) Is guaranteed to be higher than when the policy is originally issued D) Is fixed
B) Depends on the performance of a separate account (The death benefit is not fixed, and may increase or decrease over the life of the policy depending on the investment performance of the underlying sub-account. It cannot, however, decrease below the initial face amount of the policy)
All of the following statements are true regarding tax-qualified annuities EXCEPT: A) Withdrawals are taxed B) Employer contributions are not tax deductible C) Annuity earnings are tax deferred D) They must be approved by the IRS
B) Employer contributions are not tax deductible (Tax-qualified annuities must be approved by the IRS and allow for tax deductible employer contributions. All withdrawals are taxed and earnings grow tax deferred)
The authority granted to an agent through the agent's contract is referred to as: A) Absolute authority B) Express authority C) Apparent authority D) Implied authority
B) Express authority (Express powers are written into the contract between the insurer and the agent)
The mode of premium payment: A) Does not affect the amount of premium paid B) Is defined as the frequency and the amount of the premium payment C) Is the factor that determines the amount of dividends in a policy D) Is the method used to compute the cash surrender value of the policy
B) Is defined as the frequency and the amount of the premium payment (The mode refers to the frequency the policyowner pays the premium: monthly, quarterly, semiannually, or annually. The amount of premium will change accordingly)
The insurer may suspect that a moral hazard exists if the policyholder: A) Always drives over the speed limit B) Is not honest about his health on an application for insurance C) Is prone to depression D) Is indifferent to activities that may be dangerous
B) Is not honest about his health on an application for insurance (Moral hazards refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer)
Which statement is NOT true regarding a Straight Life policy? A) It has the lowest annual premium of the three types of Whole Life policies B) Its premium steadily decreases over time, in response to its growing cash value C) The face value of the policy is paid to the insured at age 100 D) It usually develops cash value by the end of the third policy year
B) Its premium steadily decreases over time, in response to its growing cash value (Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit)
Which of the following individuals must have insurable interest in the insured? A) Producer B) Policyowner C) Beneficiary D) Underwriter
B) Policyowner (The policyowner must have an insurable interest in the insured (his/her own life if the policyowner and the insured is the same person), or in the life of a family member or a business partner)
An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called: A) Graded premium whole life B) Single premium whole life C) Modified Endowment Contract (MEC) D) Level term life
B) Single premium whole life (Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception)
All of the following employees may use a 403(b) plan for their retirement EXCEPT: A) The vice president of a charitable organization B) The CEO of a private corporation C) A school bus driver D) A part-time classroom aide
B) The CEO of a private corporation (Not all public employees are eligible for 403(b) plans, or tax-sheltered annuities, only employees of public education (local, state or federal), as well as employees of charitable organizations)
An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? A) The premium for individual coverage will be based upon the insured's attained age B) The insured may choose to convert to term or permanent individual coverage C) The insured would not need to prove insurability for a conversion policy D) The insured may convert coverage to an individual policy within 31 days
B) The insured may choose to convert to term or permanent individual coverage (When group coverage is converted to an individual policy, the INSURER will determine the type of coverage, usually permanent insurance)
All of the following are true of an annuity owner EXCEPT: A) The owner is the party who may surrender the annuity B) The owner must be the party to receive benefits C) The owner pays the premiums on the annuity D) The owner has the right to name the beneficiary
B) The owner must be the party to receive benefits (The "owner" is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary)
The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as: A) The next month's premium is sufficient to cover both the current premium amount and the skipped amount B) The policy contains sufficient cash value to cover the cost of insurance C) The previous premium payments were high enough to create an excess of premium D) The policyowner cannot skip premiums without the policy lapsing
B) The policy contains sufficient cash value to cover the cost of insurance (In Universal Life Insurance, the policyowner may skip a premium payment without lapsing the policy as long as the policy contains sufficient cash value at the time to cover the cost of insurance for that premium period)
Which of the following is NOT a goal of risk retention? A) To fund losses that cannot be insured B) To minimize the insured's level of liability in the event of loss C) To reduce expenses and to improve cash flow D) To increase control of claim reserving and claims settlements
B) To minimize the insured's level of liability in the event of loss (Retention usually results from 3 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)
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium? A) Straight Whole Life B) Universal Life C) Variable Life D) Decreasing Term
B) Universal Life (The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium)
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? A)$20,000 B) $25,000 C) $50,000 D) The face amount will be determined by the insurer
C) $50,000 (The face of the term policy would be the same as the face amount provided under the whole life policy)
An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover? A) $10,000, 60 days B) $10,000, 30 days C) $8,000, 60 days D) $8,000, 30 days
C) $8,000, 60 days (Generally, IRA rollovers must be completed within 60 days from the time the money is taken out of the first plan. If the distribution from the first plan is paid directly to the participant, 20% of the distribution must be withheld by the payor)
A producer licensed in PA must notify the Insurance Department of any changes of address in his or her residence or business address within how many days? A) 15 B) 20 C) 30 D) 10
C) 30 (Every producer licensed in PA must notify the Insurance Department in writing, within 30 days, of any change of address in his or her residence or business address. The producer must also notify all the entities for which the producer holds an appointment)
The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective? A) As of the first of the month after the policy issue B) As of the policy issue date C) As of the application date D) As of the policy delivery date
C) As of the application date (If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application)
Which of the following provisions in annuity contracts allow the owner to surrender the annuity if interest rates drop to a specified level? A) Nonforfeiture B) Annuitization C) Bail-out D) Surrender
C) Bail-out (Some annuity contracts contain a bail-out provision. This provision allows the owner to surrender the annuity without charge if interest rates drop a specified amount within a certain timeframe)
If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to: A) Lower its insurability standards B) Refuse to issue to policy C) Charge a higher premium D) Require a yearly medical examination
C) Charge a higher premium (The premium rate will be adjusted to reflect the insurer's increased risk)
What term best describes the condition of a person who is unable to perform at least 2 activities of daily living or requires substantial supervision to protect the individual from threats to their own health and safety? A) Permanent total disability B) Temporarily ill C) Chronically ill D) Terminally ill
C) Chronically ill (Chronically ill is a condition in which a person is unable to perform at least 2 activities of daily living or that requires substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment)
What required provision protects against unintentional lapse of the policy? A) Payment of premiums B) Reinstatement C) Grace period D) Assignment
C) Grace period (The grace period is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30-31 days). The purpose of the grace period provision is to protect the policyholder against an unintentional lapse of the policy)
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? A) Installment refund B) Cash refund C) Installments for a fixed period D) Installments for a fixed amount
C) Installments for a fixed period (Under the "installments for a fixed period" option, the annuitant selects the time period for the benefits, and the insurer determines how much each payment will be. This option pays for a specific period of time only, and there are no life contingencies)
Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity? A) Investment performance of the insured B) Statewide predetermined annual interest rate C) Insurer's guaranteed minimum rate of interest D) Investment performance of the company
C) Insurer's guaranteed minimum rate of interest (With fixed annuities, the company is required to pay at least a guaranteed minimum rate of interest to the owners. If the company investments perform well, the company will pay a higher interest rate, but since the interest rate can never fall below the guaranteed minimum, that's what ultimately determines what the company will pay)
All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT: A) The payments are not guaranteed for life B) The insurer determines the amount for each payment C) It is a life contingency option D) It will pay the benefit only for a designated period of time
C) It is a life contingency option (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)
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) The applicant's habits and health do not affect the premiums B) It will likely be lower because the applicant is a preferred risk C) It will likely be higher because the applicant is a substandard risk D) It will likely be the average premium issued to standard risks
C) It will likely be higher because the applicant is a substandard risk (Applicants are considered substandard risks because of physical condition, personal or family history of disease, occupation, or dangerous habits. Substandard risks are usually issued a higher premium than standard risks)
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? A) Life annuity with period certain B) Increasing term C) Limited pay whole life D) Interest-sensitive whole life
C) Limited pay whole life (Premium payments will cease at her age 65, but coverage will continue to her death or age 100)
All of the following would be considered an insurance transaction EXCEPT: A) Advising a policyholder regarding a claim B) Negotiating coverage C) Obtaining an insurance license D) Soliciting a policy
C) Obtaining an insurance license (An insurance transaction means the carrying on of business in insurance, which could include the solicitation of a policy, advising, negotiation, or inducement related to coverage or claims. Obtaining an insurance license is a prerequisite to transacting insurance)
Annuities can be used to fund which of the following? A) Group life insurance B) Estate creation C) Retirement plans D) Variable life insurance
C) Retirement plans (Since annuities are a popular means to provide retirement income, they are often used to fund qualified retirement plans)
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a: A) Nonforfeiture option B) Rollover C) Settlement option D) Nontaxable exchange
C) Settlement option (A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender)
Which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting? A) Reciprocal B) Fraternal C) Stock D) Mutual
C) Stock (Only stock insurance companies are owned and controlled by stockholders)
Which of the following is TRUE regarding variable annuities? A) The company guarantees a minimum interest rate B) A person selling variable annuities is required to have only a life agent's license C) The annuitant assumes the risks on investment D) The funds are invested in the company's general account
C) The annuitant assumes the risks on investment (The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds." Therefore, the annuitant assumes the risk of the investment)
Which of the following is NOT the consideration in a policy? A) The premium amount paid at the time of application B) The promise to pay covered losses C) The application given to a prospective insured D) Something of value exchanged between parties
C) The application given to a prospective insured (Consideration is something of value that is transferred between the two parties to form a legal contract)
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean? A) The beneficiary will receive the lump sum, plus interest B) The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments C) The beneficiary will only receive payments of the interest earned on the death benefit D) The beneficiary must pay interest to the insurer
C) The beneficiary will only receive payments of the interest earned on the death benefit (With the Interest Only settlement option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals - monthly, quarterly, semiannually, or annually)
Which of the following is true regarding a waiver of a surrender charge on an annuity contract? A) The surrender charge will be applied to all premature surrenders B) The surrender charge waiver only applies to immediate annuity C) The charge may be waived if the annuitant is confined to a long-term care facility for at least 30 days D) The charge can only be waived if the annuitant needs the funds for medical expenses
C) The charge may be waived if the annuitant is confined to a long-term care facility for at least 30 days (Annuity contracts provide for a waiver of surrender charges if the annuitant is confined to a long-term care facility for at least 30 days)
The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? A) The death benefit can be increased only when the policy has developed a cash value B) The death benefit can be increased only by exchanging the existing policy for a new one C) The death benefit can be increased by providing evidence of insurability D) The death benefit cannot be increased
C) The death benefit can be increased by providing evidence of insurability (The policyowner (insured) would need to prove insurability for the amount of the increase)
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT: A) The interest is credited at a rate specified by the policy B) The policyholder has the right to withdraw the accumulations at any time C) The interest is not taxable since it remains inside the insurance policy D) The annual dividend is retained by the company
C) The interest is not taxable since it remains inside the insurance policy (The interest credited under this option is TAXABLE, whether or not the policyowner receives it)
What happens if a deferred annuity is surrendered before the annuitization period? A) The insurer can only apply the surrender value toward another annuity B) Deferred annuities cannot be surrendered prior to the annuitization period C) The owner will receive the surrender value of the annuity D) The owner will only receive a refund of a premium
C) The owner will receive the surrender value of the annuity (If a deferred annuity is surrendered prior to annuitization, the surrender value of the annuity is guaranteed according to the nonforfeiture provision)
Which of the following is the best reason to purchase life insurance rather than annuities? A) To create regular income payments B) To liquidate a sum of money over a lifetime C) To create an estate D) To liquidate a sum of money over a period of years
C) To create an estate (With insurance, the death benefit creates an immediate estate should the insured die)
An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have? A) Securities B) Stock C) Variable D) Term
C) Variable (Variable life policies vary in value, as the name suggests, because the value is based on the stocks that support the policy. If a policyholder wants a more stable, reliable value, he/she should invest in a fixed policy)
What documentation grants express authority to an agent? A) Agent's insurance license B) Fiduciary contract C) State provisions D) Agent's contract with the principal
D) Agent's contract with the principal (The principal grants authority to an agent through the agent's contract)
Insurance is a contract by which one seeks to protect another from: A) Exposure B) Uncertainty C) Hazards D) Loss
D) Loss (Insurance will protect a person, business or entity from loss)
The termination of marital property rights may be reversed for all of the following reasons EXCEPT: A) The beneficiary can prove the couple were living together as husband and wife or planning to remarry B) The spouse was named as beneficiary by class C) The divorce or annulment decree or judgement is not recognized as valid D) The spouse named as beneficiary has obtained or consented to a final decree or judgement of an annulment, divorce or separation
D) The spouse named as beneficiary has obtained or consented to a final decree or judgement of an annulment, divorce or separation (The termination of marital property rights may not be reversed if the spouse named as beneficiary has obtained or consented to a final decree or judgment of annulment, divorce or separation)
Which of the following is NOT true regarding Equity Indexed Annuities? A) The insurance company keeps a percentage of the returns B) They have guaranteed minimum interest rates C) They are less risky than variable annuities D) They earn lower interest rates than fixed annuities
D) They earn lower interest rates than fixed annuities (Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn HIGHER interest rates than fixed annuities)
An individual applied for a life insurance policy on Jan. 10. The policy was issued on Jan. 31; however, because the insured's agent was on vacation at that time, the policy was not delivered until Feb. 8. After reading through the policy provisions, the insured decided to return the policy to the insurer. When would the insured need to return the policy for a refund of premium? A) By Feb. 18, or within 10 days of policy delivery B) By Feb. 10, or within 10 days of policy issue C) Within 30 days of the application D) Anytime, because the agent did not deliver the policy promptly
A) By Feb. 18, or within 10 days of policy DELIVERY (The 10 free-look period begins when the policy is DELIVERED)
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) Cost of Living Rider B) Value Adjustment Rider C) Return of Premium Rider D) Inflation Rider
A) 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)
All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy? A) Lower B) Higher C) As high D) Half the amount
A) Lower (Survivorship Life is pretty much the same as Joint Life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life)
An individual has been contributing to a retirement account after taxes are taken out of his paycheck. His financial adviser told him that he will be allowed to make contributions after age 70 1/2. The account owner does not have to pay taxes on the growth of his account. What type of retirement account is it? A) Roth IRA B) 403(b) plan C) Simplified Employee Pension Plan D) Traditional IRA
A) Roth IRA (Roth IRAs have several distinguishing features. Unlike traditional IRAs, the account owner can continue beyond age 70 1/2, and distributions do not have to begin at age 70 1/2. The contributions are not tax-deductible)
A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the: A) Secondary beneficiary B) Contingent beneficiary C) Irrevocable beneficiary D) Revocable beneficiary
D) Revocable beneficiary (The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent)
Traditional IRA contributions are: A) Deducted based on the income level B) Never tax deductible C) Partially tax deductible depending on the income level D) Tax deductible
D) Tax deductible (The following taxation rules apply to contributions made to traditional IRA plans: tax-deductible contributions for the year of the contribution (based on the person's income); contributions must be made in "cash" in order to be tax deductible; excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA; and tax-deferred earnings are not taxed until withdrawn)
What is the civil penalty for the first violation of the PA Insurance Fraud Prevention Act? A) $1,000 B) $5,000 C) $10,000 D) $15,000
B) $5,000 (The civil penalty for violation of the PA Insurance Fraud Prevention Act is up to $5,000 for the first violation, $10,000 for the second violation, and $15,000 for each subsequent violation)
Which of the following is an example of an unfair claims settlement practice? A) Failure to promptly settle a claim when liability has been clearly established B) Denying coverage after a reasonable investigation has been conducted C) Making claims payments which clearly indicate under which coverage payment has been made D) Using arbitration when the insured and insurer cannot reach agreement
A) Failure to promptly settle a claim when liability has been clearly established (After a claim has been adjusted and is found to be covered under the policy, the insurer must pay the claim upon receipt of a signed proof of loss)
Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? A) Extended term B) Reinstatement C) Reduced paid-up option D) Automatic premium loan
D) Automatic premium loan (Automatic premium loan provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium)
Licensees must make a report of any action taken against them in another jurisdiction or by another governmental agency in PA within how many days of the final disposition of the matter? A) 10 B) 30 C) 60 D) 90
B) 30 (Licensees must make a report, of any action taken against them in another jurisdiction or by another governmental agency in PA within 30 days of the final disposition of the matter)
How are the variable annuities regulated? A) By the Department of Insurance B) By state and federal agencies C) By the National Association of Securities Dealers D) By the Commissioner of Insurance
B) By state and federal agencies (Variable annuities are considered securities and are regulated by various state and federal agencies, including the SEC, the FINRA (formerly NASD) and the state Department of Insurance)
