Life Insurance Study Questions

All of the following are true regarding the guaranteed insurability rider EXCEPT a) The insured may purchase additional insurance up to the amount specified in the base policy b) It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events c) This rider is available to all insureds with no additional premium d) The insured may purchase additional coverage at the attained age

c) This rider is available to all insureds with no additional premium

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of the insurer. What type of agent authority does this describe? a) Assumed b) Apparent c) Express d) Implied

b) Apparent

Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation? a) Blackout approach b) Lump-sum approach c) Human life value approach d) Needs approach

c) Human life value approach

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

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant a) Upon issuance of the policy b) Within 30 days after the first premium payment was collected c) Prior to filling out an application for insurance d) With the policy

d) With the policy

What documentation grants express authority to an agent? a) Fiduciary contract b) State provisions c) Agent's contract with the principal d) Agent's insurance license

c) Agent's contract with the principal

Which of the following types of insurance policies is most commonly used in credit life insurance? a) Equity indexed life b) Decreasing term c) Increasing term d) Whole life

b) Decreasing term

An individual was involved in a head-on collision while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive in a car ever again. Which method of risk management does this describe? a) Retention b) Avoidance c) Reduction d) Sharing

b) Avoidance

A key person insurance policy can pay for which of the following? a) Hospital bills of the key employee b) Costs of training a replacement c) Loss of personal income d) Workers compensation

b) Costs of training a replacement

Which is true about the premium on the children's rider in a life insurance policy?

It remains the same no matter how many children are added to the policy

If an insured changes his payment plan from monthly to annually, what happens to the total premium? a) Stays the same b) Doubles c) Increases d) Decreases

d) Decreases

In a group life insurance policy, the employer may select all of the following EXCEPT a) The type of insurance b) The amount of insurance c) The premium payor d) The beneficiary

d) The beneficiary

Which of the following best describes fixed-period settlement option?

Both the principal and interest will be liquidated over a select period of time

After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive?

Monthly premium waiver and monthly income

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 early?

Paid-up option

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?

Payor benefit

In an insurance transactions, fiduciary responsibility means a) Handling insurer funds in a trust capacity b) Maintaining a good credit record c) Being liable with respect to payment of claims d) Commingling premiums with agent's personal funds

a) Handling insurer funds in a trust capacity

An insured has a life insurance policy with a face amount of $500. He pays a premium each week to the agent who sold him the policy. What kind of policy does the insured have? a) Industrial life b) Credit life c) Ordinary life d) Franchise life

a) Industrial life

For the purpose of insurance, risk is defined as a) An event that increases the amount of loss b) The uncertainty or chance of loss c) The certainty of loss d) The cause of loss

b) The uncertainty or chance of loss

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern? a) Which individual will pay the premium b) Whether an insurable interest exists between the individuals c) The gender of the applicant d) The type of policy requested

b) Whether an insurable interest exists between the individuals

Which nonforfeiture option has the highest amount of insurance protection? a) Decreasing Term b) Reduced Paid-up Extended Term d) Conversion

c) Extended Term

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen? a) The insurer will increase the interest rate on the loan and charge a penalty b) The insurer will not permit the policyowner to take out any more loans c) The policy will be reduced to an extended term option d) The policy will terminate when the loan amount with interest equals or exceeds the cash value

d) The policy will terminate when the loan amount with interest equals or exceeds the cash value

All of the following are beneficiary designations EXCEPT

Specified

The interest earned on a policy dividend is

Taxable

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as a) Juvenile protection provision b) Survivor protection c) Life planning d) Survivorship insurance

b) Survivor protection

Which of the following best describes annually renewable term insurance? a) It is level term insurance b) It requires proof of insurability at each renewal c) Neither the premium nor the death benefit is affected by the insured's age d) It provides an annually increasing death benefit

a) It is level term insurance

What is true about a spouse term rider? a) Coverage is allowed for an unlimited time? b) The rider is decreasing term insurance c) Coverage is allowed up to age 75 d) The rider is usually level term insurance

d) The rider is usually level term insurance

What type of insurance would be used for a Return of Premium rider?

Increasing term

In a life settlement transaction, how many days does the owner have to terminate the contract after the date it is executed? a) 10 b) 15 c) 21 d) 30

b) 15

What are the two components of a universal policy? a) Mortality cost and interest b) Separate account and policy loans c) Insurance and cash account d) Insurance and investments

c) Insurance and cash account

The mode of premium payment a) Is the method used to compute the cash surrender value of the property b) Does not affect the amount of premium paid c) Is defined as the frequency and the amount of the premium payment d) Is the factor that determines the amount of dividends in a policy

c) Is defined as the frequency and the amount of the premium payment

Which of the following best describes gross annual premium? a) Basic insurance rate plus commissions c) Expense premium c) Net premium plus expenses d) Annual loading

c) Net premium plus expenses

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

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT

The interest is not taxable since it remains inside the insurance policy

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

The policy will terminate when the loan amount with interest equals or exceeds the cash value

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 is a smoker b) An applicant who was born in another country c) An applicant who is legally blind d) An applicant who has been a victim of domestic abuse

a) An applicant who is a smoker

All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT a) Education b) Age c) Gender d) Occupation

a) Education

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 b) It will likely be the average premium issued to standard risks c) The applicant's habits and health do not affect the premiums d) It will likely be lower because the applicant is a preferred risk

a) It will likely be higher because the applicant is a substandard risk

An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it? a) Limited-pay Life b) Variable Life c) Adjustable Life d) Graded Premium Life

a) Limited-pay Life

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible? a) Ownership provision b) Collateral assignment c) Insurable interest d) Modification clause

b) Collateral assignment

Which type of life insurance policy generates immediate cash value? a) Continuous Premium b) Single Premium c) Level Term d) Decreasing Term

b) Single Premium

Insurance producers must ensure that contracts they recommend are in the best interest of the insured. This is called: a) Underwriting b) Suitably c) Client protection d) Approval

b) Suitability

During partial withdrawal from a universal life policy, which portion will be taxed?

Interest

Regarding the free-look provision, the insurance company

Must allow the policyowner to return the policy for a full refund

If an insured continually uses the automatic premium loan option to pay the policy premium, a) The insurer will increase the premium amount b) The policy will terminate when the cash value is reduced to nothing c) The face amount of the policy will be reduced by the automatic premium loan amount d) The cash value will continue to increase

b) The policy will terminate when the cash value is reduced to nothing

How long are the free-look periods provided during a policy replacement? a) 10 days b) 60 days c) 20 days d) 30 days

c) 20 days

Which of the following statements concerning buy-sell agreements is true? a) Benefits received are considered income taxable b) Buy-sell agreements pay in the event of a medical emergency c) Buy-sell agreements are normally funded with a life insurance policy d) Premiums paid are deductible as a business expense

c) Buy-sell agreements are normally funded with a life insurance policy

What does "liquidity" refer to in a life insurance policy? a) The policyowner receives dividend checks each year b) The insured receives payments each month in retirement c) Cash values can be borrowed at any time d) The death benefit replaces the assets the would have accumulated if the insured had not died

c) Cash values can be borrowed at any time

When an employee terminates coverage under a group insurance policy, coverage continues in force a) Until the employee can obtain coverage under another group plan b) Until the employee notifies the group insurance provider that coverage conversion policy is issued c) For 31 days d) For 60 days

c) For 31 days

Annually renewable term policies provide a level death benefit for a premium that a) Remains level b) Fluctuates c) Increases annually d) Decreases annually

c) Increases annually

Which of the following statements is TRUE concerning the Accidental Death Rider? a) This rider is only available to insureds over the age of 65 b) It is only available in group insurance c) It will pay double or triple the face amount d) It is known as a triple indemnity rider

c) It will pay double or triple the face amount

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, them a) IRS has no jurisdiction b) The benefit is received as taxable income c) The benefit is received tax free d) The benefit is subject to the exclusionary rule

c) The benefit is received tax free

Which of the following best defines the "owner" as it pertains to life settlements contracts? a) A fiduciary for the contract b) The insurance provider c) The policyowner of the life insurance policy d) A financial entity that sponsors the transaction

c) The policyowner of the life insurance policy

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated? a) Those who have dependents b) Those who have no history of claims c) Those who have been insured under the plan for at least 5 years d) Those who have worked in the company for at least 3 years

c) Those who have been insured under the plan for at least 5 years

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

Which of the following types of insurance policies would perform the function of cash accumulation? a) Credit life b) Increasing term c) Whole life d) Term life

c) Whole life

Which of the following statement is NOT true concerning insurable interest as it applies to life insurance? a) Business partners have an insurable interest in each other b) A husband or wife has an insurable interest in their spouse c) An individual has an insurable interest in his or her own life d) A debtor has an insurable interest in the life of a lender

d) A debtor has an insurable interest in the life of a lender

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT: a) Explain the policy provisions, riders, and exclusions b) Collect any premium due c) Explain the rating procedures if the policy is rated differently than applied for d) Disclose commissions earned from the sale of the policy

d) Disclose commissions earned from the sale of the policy

Which is TRUE about the cash surrender nonforfeiture option? a) After the cash surrender, the insured is covered for a grace period of one month b) The policy remains active for some time after the policyholder opts for cash surrender c) The policyowner receives the original cash value of the policy d) Funds exceeding the premium paid are taxable as ordinary income

d) Funds exceeding the premium paid are taxable as ordinary income

In forming an insurance contract, when does acceptance usually occur? a) When an insurer delivers the policy b) When an insurer receives an application c) When an insured submits an application d) When an insurer's underwriter approves coverage

d) When an insurer's underwriter approves coverage

Are insurance company underwriters allowed to discriminate? a) No, higher risks pay higher premium No, discrimination is an unfair practice c) Yes, but only for gender d) Yes, but not unfairly

d) Yes, but not unfairly

Which of the following is usually true of a participating life insurance policy? a) Pays dividends to policy owners b) May be converted to a term life policy c) Pays dividends to stockholders d) Assesses premiums against stockholders

a) Pays dividends to policy owners

Which of the following policies is characterized by a provision where the premiums are lower in the early years of the policy and increase over time to a point where they become level for the remainder of the policy? a) Indeterminate premium whole life b) Enhanced whole life c) Minimum deposit whole life d) Graded premium whole life

d) Graded premium whole life

The mode of premium payment: a) Is the factor that determines the amount of dividends in a policy b) Is the method used to compute the cash surrender value of the policy c) Does not affect the amount of premium paid d) Is defined as the frequency and the amount of the premium payment

d) Is defined as the frequency and the amount of the premium payment

Which of the following is NOT true regarding a Certificate of Authority? a) It may be necessary for transacting business in specific states b) It is equivalent to an insurance license c) It is issued by the state depart of insurance d) It is issued to group insurance participants

d) It is issued to group insurance participants

Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors? a) Mortality rate b) Risk exposure c) Morbidity d) Life expectancy

d) Life expectancy

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act? a) Independent agency marketing b) Illegal c) Insurance telemarketing d) Direct response marketing

d) Direct response marketing

What policy component decreases in decreasing term insurance? a) Cash value b) Dividend c) Premium d) Face amount

d) Face amount

Courts will interpret any ambiguity in an insurance contract a) In favor of the insurer b) Through arbitration c) Based on the prudent person rule d) In favor of the insured

d) In favor of the insured

Which of 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

d) Law of large numbers

Which of the following statements is TRUE concerning irrevocable beneficiaries? a) They may be changed at any time b) They can never be changed c) They may be changed only on the anniversary date of the policy d) They can be changed only with the written consent of the beneficiary

d) They can be changed only with the written consent of the beneficiary

What is the purpose of the Insurance Guaranty Association? a) To protect insurance companies against insurance fraud b) To provide double indemnity for the insured's loss c) To prevent unfair trade practices d) To protect policyowners against insurer insolvency

d) To protect policyowners against insurer insolvency

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 insurance only b) Permanent insurance only c) Universal life insurance only d) Any form of life insurance

d) Any form of life insurance

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT a) Draw a line through the first answer, record the correct answer, and have the applicant initial the change b) Note on the application the reason for the change c) Destroy the application and complete a new one d) Erase the incorrect answer and record the correct answer

d) Erase the incorrect answer and record the correct answer

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 agents 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

Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors a) Risk exposure b) Morbidity c) Life expectancy d) Mortality rate

c) Life expectancy

To sell variable life insurance policies, an agent must receive all of the following EXCEPT a) FINRA registration b) A securities license c) A life insurance license d) SEC registration

d) SEC registration

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? a) Standard risk pays a higher premium than a substandard risk b) Standard risk requires extra rating c) Standard risk is also known as high exposure risk d) Standard risk is representative of the majority of people

d) Standard risk is representative of the majority of people

What is a foreign insurer? a) An insurer with a home office in another country b) An insurer with licensed agents doing business in other countries c) An insurer with licensed agents who are citizens in more than one country d) An insurer with a home office in another state

d) An insurer with a home office in another state

When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments?

Spendthrift provision

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up

In an Adjustable Life policy all of the following can be charged by the policy owner EXCEPT a) The premium b) The amount of insurance c) The type of investment d) The length of coverage

c) The type of investment

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy

Which authority is NOT stated in agent's contract but is required for the agent to conduct business? a) Implied b) Apparent c) Assumed d) Express

a) Implied

A situation in which a person can only lose or have no change represents a) Pure risk b) Speculative risk c) Adverse selection d) Hazard

a) Pure risk

Which of the following types of risk will result in the highest premium? a) Substandard risk b) Standard risk c) Preferred risk d) All risks pay equal premiums

a) Substandard risk

During replacement of life insurance, a replacing insurer must do which of the following? a) Send a copy of the Notice Regarding Replacement to the Department of Insurance b) Obtain a list of all life insurance policies that will be replaced c) Guarantee a replacement for each existing policy d) Designate a new producer for a replaced policy

b) Obtain a list of all life insurance policies that will be replaced

Which of the following is TRUE regarding the insurance amount in a credit life policy? a) The amount of coverage can be greater than the amount owed b) The creditor can only insure the debtor for the amount owed c) The creditor may insure the debtor for an unlimited amount of coverage d) Allowable amount of coverage is determined by the State Insurance Commissioner

b) The creditor can only insure the debtor for the amount owed

The most the Insurance Guaranty Association will pay for net cash surrender values is a) 500,000 b) 1,000,000 c) 100,000 d) 250,000

c) 100,000

The rider in a company allows the company to forgo collecting the premium if the insured is disabled is called a) Waiver of cost of insurance b) Payor benefit c) Waiver of premium d) Guaranteed insurability

c) Waiver of premium

Children's riders attached to whole life policies are usually issued as what type of insurance?

Term