Life Practice Test
Annually Renewable Term policy with a cash value account
A Universal Life Insurance policy is best described as a/an a) Variable Life with a cash value account. b) Whole Life policy with two premiums: target and minimum. c) Flexible Premium Variable Life policy. d) Annually Renewable Term policy with a cash value account.
Collateral assignment
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) Collateral assignment b) Insurable interest c) Modification clause d) Ownership provision
Joint Life
A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy? a) Life period with certain b) Joint limited annuity c) Joint life d) Joint and survivor
The friend is licensed in the same line of insurance
A friend helped an insurance producer sell an insurance policy. The producer can share the commission with the friend if a) The Commissioner gives the producer verbal permission to share. b) The producer applies for a shared commission form for that fiscal year. c) The friend is licensed in the same line of insurance. d) The friend is licensed in any type of insurance
Conservation
A legally acceptable attempt by an existing insurer to dissuade a current policyowner from the replacement of existing life insurance is called
Class 1 misdemeanor
A person who knowingly obtains information about an individual from an agent or the insurer under false pretenses has committed a
Rebating
Any inducement offered to the insured in the sale of an insurance policy that is not specified in the policy is an unlawful practice known as a) Rebating. b) Twisting. c) False advertising. d) Coercion.
$15,000
Before the Commissioner will issue a broker's license, the licensee must obtain a bond for at least a) $10,000 b) $15,000 c) $20,000 d) $50,000
6 months
For how long is an insurance company allowed to defer policy loan requests? a) 30 days b) 60 days c) 6 months d) 1 year
By their members - authorized insurers
How are state Insurance Guaranty Associations funded? a) By the Department of Insurance b) By NAIC c) By the Government d) By their members - authorized insurers
15
Insurance companies are required to provide proof of loss forms to the claimant within how many days after receipt of notice of loss? a) 15 b) 30 c) 31 d) 45
Generally not taxed as income
Life insurance death proceeds are.. a) Generally not taxed as income. b) Taxable to the extent that they exceed 7.5% of the beneficiary's adjusted gross income c) Taxed as a capital gain. d) Taxed as ordinary income.
Misrepresentation
On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. The company is guilty of a) Rebating. b) Misrepresentation. c) Concealment. d) Unfair claim practice.
Purchase a smaller amount of the same type of insurance as the original policy
The paid-up addition option uses the dividend a) To purchase a one-year term insurance in the amount of the cash value. b) To reduce the next year's premium c) To accumulate additional savings for retirement. d) To purchase a smaller amount of the same type of insurance as the original policy.
Lower
The premium of a survivorship life policy compared with that of a joint life policy would be a) Lower. b) Higher. c) As high. d) Half the amount.
regulate Variable Life Policies
The state and federal government, The Insurance Department and the SEC
Retirement, Disability and Survivors
What are the three types of Social Security benefits?
They are tax free to terminally ill insured
Which of the following is true regarding taxation of accelerated benefits under a life insurance policy? A) there is a 10% penalty for early distribution of the death benefit B) they are tax free to terminally ill insured C) they are always taxable to chronically ill insured D) They are always taxable
Certificate of authority
Which of the following must an insurer obtain in order to transact insurance within a given state? a) Business entity license b) Insurer's license c) Certificate of authority d) Producer's certificate
Universal Life Option A
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?
Payor benefit Rider
Which of the following riders would NOT cause the Death Benefit to increase? a) Guaranteed Insurability Rider b) Cost of Living Rider c) Accidental Death Rider d) Payor Benefit Rider
Mutual Funds
A variable policy's death benefit and cash value is based on a distinct pool of investments. These are held in separate accounts that act like
Guaranteed surrender value
According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization, the owner is entitled to which of the following?
The interest is not taxable since it remains inside the insurance policy.
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT a) The policyholder has the right to withdraw the accumulations at any time. b) The interest is not taxable since it remains inside the insurance policy. c) The annual dividend is retained by the company. d) The interest is credited at a rate specified by the policy.
The plan is funded by permanent insurance only
All of the following are true of Key Person insurance EXCEPT a) The plan is funded by permanent insurance only. b) There is no limitation on the number of key employee plans in force at any one time. c) The employer is the owner, payor and beneficiary of the policy. d) The key employee is the insured
No notice is ever required at the initial completion of the application
An agent is completing an application of insurance for a client. The agent is required to provide the client e a "notice of information practices" at all of the following times EXCEPT a) When personal information is collected from another source other than the applicants. b) No notice is ever required at the initial completion of the application. c) At the policy renewal date. d) At the time of policy delivery.
The beneficiary
If the annuitant dies during the accumulation period, who will receive the annuity benefits? a) The annuity owner b) The insurance company c) The annuitant's estate d) The beneficiary
It is level at the beginning and increases after the first few years
In Modified Life policies, what happens to the premium? a) It is higher during the first policy years. b) It varies at the beginning, but levels out by the end of the third year c) It is level at the beginning and increases after the first few years. d) It always remains level.
Insurance Code
In North Carolina, statutes, rules, and regulations that govern insurance companies, insurance transactions, and insurance agents are known as the a) Insurance Code. b) State Constitution. c) State Administrative Rules. d) Code of Conduct.
Policyholders
The Commissioner is empowered to adopt rules and regulations governing the transactions by all of the following individuals and entities EXCEPT a) Brokers. b) Insurers. c) Policyholders. d) Agents.
Annually Renewable Term
The LEAST expensive first-year premium is found in which of the following policies? a) Increasing Term b) Decreasing Term c) Level Term d) Annually Renewable Term
Annually Renewable Term
The death protection component of Universal Life Insurance is always.. a) Whole Life b) Adjustable Life c) Decreasing Term d) Annually Renewable Term
5
The reinstatement provision in life insurance policies in this state allows an owner of a lapsed policy to reestablish it within how many years? a) 2 b) 3 c) 4 d) 5
Joint and survivor
The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called? a) Joint and survivor. b) Fixed period. c) Fixed amount. d) Joint life
Owner's income
Traditional IRA contributions are tax deductible based on which of the following?
Only for the life of the annuitant
Under a pure life annuity, an income is payable by the company a) Only for the life of the annuitant. b) Until the principal and interest are exhausted. c) For a guaranteed period of time, whether or not the annuitant survives to the end of that period. d) For as long as either the annuitant or a named beneficiary is alive
The same face amount as in the whole life policy
Under an extended term nonforfeiture option, the policy cash value is converted to a) A higher face amount than the whole life policy. b) The same face amount as in the whole life policy. c) The face amount equal to the cash value d) A lower face amount than the whole life policy.
6 months
What is the waiting period on a Waiver of Premium rider in life insurance policies? a) 30 days b) 3 months c) 5 months d) 6 months
Death benefits
Which of the following are NOT fundable by annuities?
75%
Which of the following is the required number of participants in a contributory group plan? a) 50% b) 75% c) 100% d) 25%
Target premium
Which of the following would help prevent a universal life policy from lapsing? a) Adjustable premium b) Corridor of insurance c) Target premium d) Face amount
Pretext interview
A private investigator has been hired by an insurance company to obtain a character report on an insurance applicant. The investigator contacts the applicant and requests an interview stating that he is conducting a research for a publication. The applicant permits the interview and unknowingly gives information that will be used in the underwriting decision. Which of the following does this scenario describe? a) Misrepresentation b) Pretext interview c) Investigative consumer report d) Insurance information investigation
Terminally ill insured
A viatical settlement is arranged between a viatical company and a/an a) Beneficiary. b) Lender. c) Terminally ill insured. d) Insurance producer
Family Protection Policy
A young father would like a life insurance policy to provide coverage for all five family members at the lowest cost. Which type of policy would he most likely buy? a) Level Term Policy b) Family Protection Policy c) Universal Life Policy d) Family Income Policy
Insurer
An agent represents the a) Beneficiaries. b) Contingent beneficiaries. c) Insurer. d) Insured
FINRA
An agent selling variable annuities must be registered with.. a) Department of Insurance. b) The Guaranty Association. c) SEC d) FINRA.
The insured may choose to convert to term or permanent individual coverage.
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 insured may choose to convert to term or permanent individual coverage. b) The insured would not need to prove insurability for a conversion policy. c) The insured may convert coverage to an individual policy within 31 days. d) The premium for individual coverage will be based upon the insured's attained age.
Guaranteed insurability option
An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? a) Guaranteed insurability option b) Dividend options c) guaranteed renewable option d) Nonforfeiture options
Damages sustained by the individual to whom the information relates
An insurance institution or agent that discloses information in violation of the information privacy and disclosure statutes of North Carolina will be liable for a) Only such damages as can be proven in a court of law. b) Damages sustained by the individual to whom the information relates. c) Any legal action brought by the client within 5 years. d) The legal costs incurred by the client.
Refund the premiums paid
An insured committed suicide one year after his life insurance policy was issued. The insurer will a) Pay nothing. b) Refund the premiums paid. c) Pay the policy's cash value. d) Pay the full death benefit to the beneficiary.
$3,000
An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable? a) $50,000 b) $18,000 c) $15,000 d) $3,000
Pay the death benefit
An insured purchased a life policy in 2010 and died in 2020. The insurance company discovers at that time that the insured had misstated information about her insurance history on the application. What will the insurer do? a) Refuse to pay the death benefit because of the misstatement on the application b) Pay a decreased death benefit c) Sue for the right to not pay the death benefit d) Pay the death benefit
$50,000
An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined and the cash value fell to $10,000. If the insured dies, how much will be paid out? a) $10,000 b) $40,000 c) $50,000 d) $60,000
Illegal
An insurer devises an intimidation strategy in order to corner a large portion of the insurance market. Which of the following best describes this practice? a) Defamation b) Illegal c) A legal advertising strategy d) Unfair Discrimination
The producer must provide the applicant with a Notice Regarding Replacement
How must a replacing producer respond to an applicant wishing to replace existing life insurance? a) The producer must provide the applicant with a Notice Regarding Replacement. b) The producer must collect the existing policies and turn them over to the replacing insurer. c) The producer must request the permission of the existing insurer. d) The producer has no specific duties.
Guaranteed Insurability Rider
If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a a) Nonforfeiture option. b) Guaranteed insurability rider. c) Paid-up additions option. d) Cost of living provision.
The policy will terminate when the cash value is reduced to nothing
If an insured continually uses the automatic premium loan option to pay the policy premium, A) The policy will terminate when the cash value is reduced to nothing. B) The face amount of the policy will be reduced by the automatic premium loan amount. C) The cash value will continue to increase D) The insurer will increase the premium amount.
The type of investment
In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT a) The length of coverage. b) The premium. c) The amount of insurance. d) The type of investment.
Premiums paid by an employer on a $30,000 group term life insurance plan for employees
In which of the following instances would the premium be tax deductible? a) Premiums paid by an employer on the life of a key person b) Premiums paid by an employer on a $30,000 group term life insurance plan for employees c) Premiums paid by an individual on his/her own life insurance d) Premiums paid by a mother on her son's policy
Any form of life insurance
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
Attorney General
The Commissioner reports any violations of insurance laws and regulations to the a) NAIC. b) Attorney General. c) Guaranty Association. d) Governor.
The death benefit can be increased by providing evidence of insurability.
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 by providing evidence of insurability. b) The death benefit cannot be increased. c) The death benefit can be increased only when the policy has developed a cash value. d) The death benefit can be increased only by exchanging the existing policy for a new one.
The insurer suspects criminal activity and fraud
Under which of the following circumstances would a pretext interview be permissible? a) A third party is conducting the interview. b) The insurer needs to obtain confidential information. c) The insurer suspects criminal activity and fraud. d) The applicant for insurance fails to provide pertinent information to underwriters.
Level fixed
Variable Whole Life insurance is based on what type of premium? a) Graded b) Level fixed c) Increasing d) Flexible
Insurer insolvency
What does the Guaranty Association guard against? a) Insurance fraud b) Double indemnity c) Rebating d) Insurer insolvency
The owner will receive the surrender value of the annuity
What happens if a deferred annuity is surrendered before the annuitization period? a) Deferred annuities cannot be surrendered prior to the annuitization period. b) The owner will receive the surrender value of the annuity. c) The owner will only receive a refund of premium. d) The insurer can only apply the surrender value toward another annuity.
$1,000
What is the maximum face amount on an industrial life policy? a) $1,000 b) $10,000 c) $1 million d) Unlimited
It is reduced to the amount of what the cash value would buy as a single premium
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? a) It is reduced to the amount of what the cash value would buy as a single premium. b) It is increased when extra premiums are paid. c) It decreases over the term of the policy d) It remains the same as the original policy, regardless of any differences in value.
Purchase a single premium policy for a reduced face amount
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to A) Purchase a single premium policy for a reduced face amount. B) Purchase a term rider to attach to the policy. C) Pay back all premiums owed plus interest D) Receive payments for a fixed amount.
False financial statement
When an insurance agency published an advertising brochure, it emphasized the company's financial stability and sound business practices. In reality, its financial health is terrible, and the company will soon have to file for bankruptcy. Which of the following terms best describes the advertisement? a) Rebating b) False financial statement c) Defamation d) Twisting
Notify the commissioner before using the assumed name
When an insurance producer conducts business under any name other than the producer's legal name, they must a) Notify the Commissioner before using the assumed name. b) Notify the Commissioner within 10 days of using the assumed name. c) Notify the Commissioner within 30 days of using the assumed name. d) Notify the appointing insurance company within 30 days of using the assumed name.
Furnish a blank form to be used for that purpose
When an insurer requires a written proof of loss after notice of such loss has been given by the insured or beneficiary, the company must a) Document the request for further investigation. b) Submit the loss claim to underwriting for premium review and resolution c) Request a police report from the Department of Motor Vehicles. d) Furnish a blank form to be used for that purpose.
Submit a request for change to the home office of the insurer
When changing a beneficiary through an endorsement method, what is the policyowner required to do? a) Apply for a replacement policy b) Make the change and inform the insurer c) Submit a request for change to the home office of the insurer d) Request a policy endorsement from the agent
When the application is signed and a check is given to the agent
When is the earliest a policy may go into effect? a) After the underwriter reviews the policy b) When the application is signed and a check is given to the agent c) When the first premium is paid and the policy has been delivered d) When the insurer approves the application
Equal to the original policy for as long as the cash value will purchase
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.
The rider is usually level term insurance
Which is true about a spouse term rider? A) the rider is decreasing term insurance B) coverage is allowed up to age 75 C) the rider is usually level term insurance D) coverage is allowed for an unlimited time
Reduced paid-up
Which nonforfeiture option provides coverage for the longest period of time? a) Paid-up option b) Accumulated at interest c) Reduced paid-up d) Extended term
It is level term insurance
Which of the following best describes annually renewable term insurance? a) Neither the premium nor the death benefit is affected by the insured's age. b) It provides an annually increasing death benefit. c) It is level term insurance. d) It requires proof of insurability at each renewal.
The performance of the policy portfolio
Which of the following determines the cash value of a variable life policy? a) The performance of the policy portfolio b) The company's general account c) The policy's guarantees. d) The premium mode
Insurance Guaranty Association
Which of the following entities protects policyowners, insureds, and beneficiaries under insurance contracts when insurers fail to perform contractual obligations due to financial impairment? a) Insurance Solvency Association b) Consumer protection agency c) Insurance Guaranty Association d) Insurance Consumer Protectorate
Cash value growth
Which of the following features of the Indexed Whole Life policy is NOT fixed? a) Death benefit b) Policy period c) Cash value growth d) Premium
The employees receive individual policies
Which of the following is INCORRECT concerning a noncontributory group plan? a) The employees receive individual policies. b) They help to reduce adverse selection against the insurer. c) They require 100% employee participation. d) The employer pays 100% of the premiums.
At the end of 20 years, the policy's cash value will equal $100,000
Which of the following is INCORRECT regarding a $100,000 20-year level term policy A) The policy premiums will remain level for 20 years. B) If the insured dies before the policy is expired, the beneficiary will recieve $100,000 C) The policy will expire at the end of the 20-year period. D) At the end of 20 years, the policy's cash value will equal $100,000.
5% minimum interest paid on cash value
Which of the following is NOT a mandatory provision in a life insurance contract? a) 5% minimum interest paid on cash value b) Misstatement of age or sex c) 31-day grace period d) 2-year incontestability period
Have attained fully insured status
Which of the following is an eligibility requirement for all Social Security Disability Income benefits? a) Have permanent kidney failure b) Be at least age 50 c) Have attained fully insured status d) Be disabled for at least 1 year
It insures the life of a debtor
Which of the following is correct regarding credit life insurance? a) It insures the life of a creditor b) It has a maximum term of 20 years. c) It insures the life of a debtor. d) It is purchased on an installment basis.
Life income
Which of the following settlement options in life insurance is known as straight life? a) Fixed amount b) Life income c) Single life d) Life with period certain
SEPs are suitable for large companies
Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT? a) SEPs allow the employer to make annual tax deductible contributions up to 25% of an employee's earned income. b) SEPs have a higher tax deductible contribution limit than an IRA. c) Employer contributions are not included in the employee's gross income d) SEPs are suitable for large companies.
Buy-sell agreements are normally funded with a life insurance policy
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.
A debtor has an insurable interest in the life of a lender
Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? a) A married person has an insurable interest in their spouse. b) An individual has an insurable interest in their own life. c) A debtor has an insurable interest in the life of a lender. d) Business partners have an insurable interest in each other.
Viatical Settlement Provider
Which of the following terms is used to describe a person, other than a viator, that enters into or effectuates a viatical settlement contract? a) Viatical settlement purchaser b) Viatical settlement broker c) Viatical settlement effectuator d) Viatical settlement provider
Universal Life
Which of the following types of policies allows the policy owner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount?
Creating an estate
Which of the following will NOT be an appropriate use of a deferred annuity? a) Accumulating funds in an IRA b) Funding a child's college education c) Creating an estate d) Accumulating retirement funds
Discriminating in benefits and coverages based on the insured's habits and lifestyles
Which of the following will NOT be considered unfair discrimination by insurers? a) Discriminating in benefits and coverages based on the insured's habits and lifestyle b) Charging applicants with similar health histories different premiums based on their ethnicity c) Cancelling individual coverage based on the insured's marital status d) Assigning different risk classifications to applicants based on gender identity
Replacement rule
Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance?
Family Income Policy
Which special policy combines decreasing term insurance with whole life insurance to provide the insured's family with a monthly income upon the death of the insured, while maintaining permanent coverage until the end of the income payments?
The insurer
Who pays the annual agent appointment fee? a) The insurer b) The Commissioner c) The policyowner who hires the agent d) The agent
It has a guaranteed minimum interest rate
Why is an equity indexed annuity considered to be a fixed annuity? a) It is not tied to an index like the S&P 500. b) It has a guaranteed minimum interest rate. c) It has modest investment potential. d) It has a fixed rate of return.
To help the insured understand all aspects of the contract
Why should the producer personally deliver the policy when the first premium has already been paid? a) To make sure the policy is not stolen or lost b) To help the insured understand all aspects of the contract c) To ensure the producer gets paid commission d) To find out how the family has been doing since the initial presentation
Straight Life
Your client is planning to retire. She has accumulated $100,000 in a retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for as long as she lives. As her agent, you should recommend a) Life income with period certain b) Installment refund. c) Joint and survivor. d) Straight life.
