Life Insurance Study Guide

Carl has a $150,000 whole life policy. He surrenders his policy when the cash value totals $90,000 of which $83,000 Carl has paid in premiums. What portion of Carl's cash surrender is taxable?

$7,000

A temporary insurance agent license can be issued for what maximum period of time?

180 days

In Ohio, how many hours of continuing education are producers required to complete during each compliance period?

24 hours

The earliest age that distributions from a nonqualified individual annuity may be made without incurring the 10% IRS early withdrawal penalty is:

59 1/2

Which of the following is not true of the straight life income option for annuities?

A beneficiary will receive any balance of the annuity upon the annuitant's death.

Which of the following is not a correct statement about equity-indexed annuities?

A securities license is required to sell EIAs.

Insurance is:

A transfer of the uncertainty of loss from the insured to the insurance company

An application for insurance is considered to be:

A written request by the applicant to an insurer requesting the insurer the issuance of a policy of insurance on the basis of the information provided in the application

Insurance uses a pre-existing condition clause to prevent:

Adverse selection

All of the following are true statements regarding the advertising rules and regulations for life insurance, EXCEPT:

Advertisements must specify the details of the investment and expected profits

Which of the following contains elements that are part of every legal contract?

Agreement, Consideration, Competent parties, Legal purpose

All of the following statements are correct, EXCEPT:

All annuities are qualified

Which of the following is a typical characteristic of a whole life insurance policy?

All of the above

Which of the following is a nonforfeiture option?

All of the options listed are nonforfeiture options. The correct answer is: All of the above

Which of the following is a use for whole life insurance?

Cash for emergencies

All of the following are false regarding the tax consequences of Roth IRAs, EXCEPT:

Contributions are made with taxed dollars; however, interest grows tax-free.

All of the following are types of whole life policies, EXCEPT:

Credit

All of the following programs quell the fear that some people have of losing their investment if they were to die after only receiving a few payments from their annuity, EXCEPT:

Deferred annuity

Which of the following fixed annuities has a minimum rate of return and a current rate of return that is connected to the S&P 500?

Equity indexed annuity

Which of the following are common personal uses for life insurance?

Estate planning, cash accumulation and protection of survivors

Collin intentionally surrendered a right on his contract is known as waiver. What prevented him from reclaiming the right?

Estoppel

Which of the following is not a settlement option in a life insurance policy?

Extended term option

What annuity is characterized by flexible premium payment amounts and frequency, and an annuity period that begins 20 years after the annuity purchase date?

FPDA (flexible premium deferred annuity)

What law requires that an applicant be notified that an insurance underwriter may request a report from an investigative agency?

Fair Credit Reporting Act

All of the following are federal income tax free transactions for a life insurance policy, EXCEPT:

Gain on policy surrender

Field underwriting is done by the agent/producer when he/she is face-to-face with the applicant, completing the application. The application contains three main parts:

General information, medical information, producer's report

Underwriting considerations for group coverage employ which of the following considerations?

Groups usually do not have a requirement for medical exams.

The annual renewable term (ART):

Has no requirement for proof of insurability at renewal and a maximum age.

Under what situation will the terms of a policy be honored if fraudulent answers were given to the questions on the application for health insurance?

His policy will be cancelled when fraud is discovered.

Steven currently earns $50,000 annually. He has calculated that he should have approximately $1,500,000 in life insurance to be sure his family is guaranteed the lifestyle he would provide if he dies. This approach is called:

Human Life Value

Which of the following is not a type of whole life policy?

Industrial

An annuity that will not only provide benefits for the life of a husband, but also the wife if she outlives the husband is called:

Joint life and survivorship annuity

What payout option guarantees income that an annuitant cannot outlive?

Life annuity

Which of the following is a personal use of annuities?

Life income, IRA's, and tax deferred growth/cash accumulation

Which of the following is not a common use for annuities?

Pay legal fees

What is a life insurance settlement option that uses an annuity to pay policy proceeds to the beneficiary for a set number of years?

Period Certain

Which of the following is an annuity payout option?

Period certain, life annuities and cash refund annuity

Which of the following is an effective and legal way to deliver a policy?

Personal delivery by the agent or producer is usually preferred, but mailing the policy is legal, as is turning the policy over to someone authorized to act on the policyowner's behalf. The correct answer is: All of the above

Which of the follow statements concerning the payment from a non-qualified annuity is correct?

Since this is a non-qualified plan only a portion of the payment will be taxable.

Which of the following is an example of a government insurance program?

Social security

A hazard is best defined as:

Something that increases the chance of loss

Universal life policies allow the policyowner to:

Take out a policy loan and withdraw cash

Annuities are taxed on an exclusion ratio in which the portion of annual payment that is principal is tax-free and the portion that is interest is:

Taxed as income

When an insurance policy is taken out, if the owner of the policy is someone other than the actual insured, the owner must be able to prove:

That he/she has an insurable interest

All of the following statements are true regarding the IRS early withdrawal penalty for nonqualified annuities, EXCEPT:

The IRS early withdrawal penalty is 20%.

Which of the following is usually the owner of the annuity?

The annuitant

An adjustable life policyowner may do any of the following, EXCEPT:

The premium will vanish after 7 years

Which of the following is a difference between a limited-pay whole life policy and a straight life policy?

The premiums are higher

Which of the following is true about the automatic premium loan rider?

The rider gives the company the right to borrow against the policy's cash value.

Who issues a temporary insurance agent license?

The superintendent

All of the following are true about market value adjusted annuities, EXCEPT:

This is not a fixed contract.

Waiver of premium differs from the waiver of the cost of insurance in which of the following ways:

Waiver of premiums waives the full premium due. Waiver of the cost of insurance will only continue a death benefit feature of the policy.

Which of the following statements regarding policy loans from personal life insurance policies is not true?

When a personal life insurance policy endows, the amount of any unpaid loan plus interest is not deducted from the policy proceeds

When does the market value come in to play in a market value adjusted (MVA) annuity?

When the annuity is surrendered early

When does the clock start running on the free look provision of a life policy?

When the policy is delivered to the insured

Which of the following is NOT a right of the owner of a life insurance policy?

a. Changing the irrevocable beneficiary b. Implementing a verbally agreed change c. Borrowing funds before cash value exists Correct Answer: d. All of the above

An answer an applicant provides on an application is considered a:

representation

Which dividend option may offset some or all of the benefit reduction caused by loans from a participating whole life plan?

One year term option

Which of the following is not part of the consideration element of an insurance contract?

The applicant's promise

Which of the following is a true statement about the waiver of premium rider?

The disability must be permanent and total.

Group policies must include an option to convert from the group policy to an individual policy if:

The individual loses coverage due to loss of employment and The individual loses coverage because the master policy was cancelled

All of the following correctly describe the law of large numbers, EXCEPT:

The law of large numbers provides the best data when groups consist of dissimilar risks.

Which of the following is true about the waiver of premium rider on an insurance policy?

a. The premiums are waived during the period of the disability b. There is usually a waiting period for the benefit to kick in. c. There is an additional premium charged for this coverage. Correct Answer: d. All of the above

What plan would likely meet the needs of 2 partners who want to create a buy/sell agreement and an inexpensive and simple funding plan?

A joint life plan, which will provide the survivor money to buy out the deceased partner's heirs.

An insurance company whose main responsibility is to make money for its policyholders is called a:

A mutual insurance company

Which of the following statements is not true about a retirement income annuity?

It is an ordinary immediate annuity.

Which of the following best describes the annuity period?

It is the period when the cash value is converted to income payments.

Which of the following is not a case in which life insurance proceeds would be included in the deceased's estate?

The deceased's wife was the beneficiary.

An applicant for insurance may pay an initial premium with the application and receive a document called:

Conditional Receipt

"Take it or leave it" is the basis for insurance policies. Because of this, they are referred to as:

Contracts of Adhesion

All of the following statements are true about an annuity certain, EXCEPT:

If the annuitant dies, the payments cease.

Which of the following statements best describes how cash value in a life insurance policy is taxed?

If the policy cash value is surrendered, the interest earned on the cash value is taxable as ordinary income.

The clause that prevents an insurer from denying a claim, except for nonpayment of premiums, after the policy has been in force for over 2 years is called the:

Incontestability clause

What requires that an individual have a valid concern for the continuation of the life or well being of the person insured?

Insurable Interest

A settlement option that would leave the proceeds of the insurance policy with the insurer and the insurer would pay interest to the beneficiary on an installment basis is known as a:

Interest only option

What life insurance policy provides a blend of the benefits of traditional whole life and universal life?

Interest-sensitive whole life

All of the following are required in a legal contract, EXCEPT:

Invitation to offer

If, after a hearing, the Superintendent finds that an individual has engaged in an unfair practice, the Superintendent can take all the following actions, EXCEPT:

Jail the individual

All of the following are true about personal contracts, EXCEPT:

Life insurance contracts cannot be assigned

What rider can decrease the death benefit when utilized?

Long-term care rider

All of the following are elements of insurable risks, EXCEPT:

Loss must be catastrophic

Field underwriting is primarily useful to:

Make observations that could impact insurability

All of the following are major factors in the determination of premiums for life insurance, EXCEPT:

Marital status

Which of the following premium methods will most likely cause the insured to pay the most premium over the life of their policy?

Monthly premium

Which of the following is not a factor in determining the amount of a life insurance policy dividend?

Morbidity

Mrs. Conroe's policy lapsed. Her agent, Mrs. Acker, accepted her past due premiums and re-instated her policy. Since agents cannot usually reinstate policies, why it was allowed in this case?

Mrs. Acker was allowed to accept late premiums in the past to reinstate policies.

What guarantee states that if the policyholder discontinues payment of premiums, the policyholder can have access to the cash value of the policy?

Nonforfeiture provision

Mark names his wife and children as beneficiaries on his life policy. They would not be considered:

Other Insured

Philip named his wife Mary as the primary beneficiary of his life insurance policy. His children are contingent beneficiaries. Under the Uniform Simultaneous Death Act, who will receive the death benefit if Mary and Philip are in a car accident and there is no evidence of who died first?

Philip's children from his prior marriage

Which of the following is true regarding taxes on nonqualified annuities?

Premiums are not tax-deductible, but interest is tax-deferred.

All of the following are characteristics of a long-term care rider, EXCEPT:

Prior hospitalization is not required

All of the following are true statements concerning accelerated living benefit riders , EXCEPT:

The benefit paid is taxable as normal income

When the only logical beneficiary is a minor, all of the following options are available, EXCEPT:

The benefits can go directly to the estate of the insured.

Which of the following is not an assignment whereby someone would transfer legal rights as the policyowner of a life contract?

Total, complete, unconditional assignment

All of the following exchanges would qualify under Section 1035 of the Internal Revenue code, EXCEPT:

Vacant land for another piece of vacant land

Which of the following pertains to Modified Endowment Contracts (MECs)?

a. Once a MEC, always a MEC. b. Funds withdrawn are subject to LIFO (Last in first out) tax treatment. c. Any policy exchanged for an MEC is automatically classified as an MEC. Correct Answer: d. All of the above

An example of coverage that can be purchased by a husband for his wife along with other dependent family members is:

A family term rider

An annuity contract provides for all of the following, EXCEPT:

A health plan

An underwriter will consider which of the following conditions in making their decision to approve an application for insurance?

A condition that occurs prior to making an application for insurance

Using an insurance license to sell mainly to relatives is referred to as:

A controlled business