Practice Exam !!

JKL Insurer transfers risk to PQR Insurer. JKL Insurer transfers some other risks to GHI Insurer. When JKL Insurer has a loss on risks transferred to both PQR and GHI Insurers, which insurer(s) pays the claims?

JKL, PQR, and GHI Insurers

What is the difference between risk and loss?

Risk is the potential of loss, whereas loss is the unintentional decrease in value of an asset due to a peril.

Which of the following statements is not false regarding exposure?

Exposure is the condition of being prone to loss because of an uncertain event.

All of the following are elements of insurable risks EXCEPT:

Exposure must not be chosen randomly

Which of the following best describes an insurer that is a charitable organization providing insurance only to its members?

Fraternal benefit society

What type of risk is flood?

Fundamental

Risk pooling is characterized by:

Similar and independent risks grouped together

Actuaries are characterized by all of the following, EXCEPT:

They are underwriters.

Fraternal benefit societies are described by all of the following, EXCEPT

They include stock and mutual companies.

The type of insurance that covers a debt is:

Credit

All of the following are legal hazards EXCEPT:

Improperly stored toxic waste

A premature death is a cause of loss, which is also known as a/an:

Peril

Which of the following terms is defined as the cause of loss and event insured against in an insurance policy?

Peril

All of the following are OASDI benefits EXCEPT

Medicaid

All of the following are examples of morale hazards EXCEPT:

. An insured who intentionally slips and falls on the floor in order to receive disability income benefits

ABC Insurer transfers risk to DEF Insurer. ABC Insurer decides to transfer some other risks to LMO Insurer. When ABC Insurer needs to submit a claim on risks that were reinsured to DEF Insurer, which insurer(s) pays the claims?

ABC and DEF Insurers

Which of the following risks is fundamental?

All of the above

A moral hazard can be described by all of the following statements EXCEPT:

An insured's careless attitude or lack of responsibility

The law of large numbers and spreading the uncertainty of loss over a large number of people is:

Insurance

Transferring uncertainty of loss to the insurance company is the definition of:

Insurance

A reciprocal exchange is characterized by which of the following?

It consists of an unincorporated group of individuals.

Which of the following best describes reinsurance?

It spreads risk from one insurer to another.

What type of hazard is an insured's careless attitude?

Morale

Harry is a 45-year old widower and father of three children. He decides it is time to purchase life insurance to protect the financial livelihood of his children, especially during the child-rearing years. How would you characterize Harry's risk of premature death?

Particular and financial

Which of the following is not a type of hazard?

Perilous hazard

The _________ is a small amount of money the insured pays to keep an insurance policy in force.

Premium

A peril is defined as:

The cause of the loss and the event insured against

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.

Insurance is which method of handling risk?

Transfer

Which method of handling risk is insurance?

Transfer

All of the following statements regarding unauthorized insurers are true, EXCEPT

Excess and surplus lines insurers must apply for a certificate of authority to become admitted.

The __________ section of the contract states what the insurer will not do. This includes the risks that the insurer will not cover.

Exclusions

For what reason would the insurance company raise the death benefit of a universal life policy?

Prevent the cash value from growing too quickly

What are the benefits of a convertible and renewable term life insurance policy?

Proof of insurability is not required to convert or renew coverage.

The authority to bind coverage is given to:

Property and casualty agents

What document must applicants for variable life insurance receive at the time of policy application?

Prospectus

What is the name of the document that describes investments, charges and policy features of a variable life contract, which must be provided to applicants upon policy application?

Prospectus

Beth is required to pay a $400 deductible on her health insurance claim. Which method of handling risk is demonstrated here?

Sharing

Debbie's insurance policy require her to pay a deductible before the insurer begins to pay benefits. This method of handling risk is called:

Sharing

What method of handling risk is used when an insurance policy requires the insured to pay a deductible before the insurance begins to pay benefits?

Sharing

Which of the following best describes a life insurance policy in which the proposed insured is not required to undergo a medical examination?

Simplified issue

A hazard is best defined as

Something that increases the chance of loss

Which of the following definitions best describes hazard?

Something that increases the chance of loss due to a peril

This type of risk presents a potential for loss or gain

Speculative

All of the following are classifications of pure risk EXCEPT:

Speculative risks

All of the following are buy-sell agreements, EXCEPT:

Split-dollar plan

Reinsurance is defined as:

Spreading risk from one insurer to another

On what level is insurance primarily regulated?

State level

The law of large numbers:

States that as a group increases in size, the easier it is to predict the number of future losses over a certain period of time

Which of the following statements is true?

Brokers always represent the insured

Betty and Jack have a partnership. If their partnership is worth $800,000 how much life insurance is issued on each partner if a cross-purchase plan is used?

$400,000

Judy wants to purchase whole life insurance, but cannot afford straight life insurance premiums. Her agent recommends she purchase economatic whole life. If Judy wants $500,000 of whole life coverage, which of the following is a possible arrangement?

$400,000 whole; $100,000 term

Each member insured under a group life insurance policy receives a(n):

. Certificate of insurance

In a universal life insurance policy, the two most common adjustments made during a month are:

. Cost of death protection deducted and current interest rate credited

The time period during which children are young and financially dependent upon their parents is termed the:

. Family dependency period

LMO Insurer is incorporated in New Hampshire, conducts business in all of the Eastern Seaboard states and in Germany. How is LMO Insurer classified in New York?

. Foreign

Which of the following laws requires that insurers maintain a separate account for variable investments?

. Investment Company Act of 1940

Some losses are guaranteed to happen. For example, people who live in a flood plain are highly likely to undergo a flood. Socially-funded insurance , the National Flood Insurance Program, steps in to provide flood insurance coverage to residents living in the flood plain. Which of the following elements of insurable risks is not met by this example?

. Loss exposures must be chosen randomly.

Which of the following elements of insurable risks specifically discourages adverse selection?

. Loss exposures must be chosen randomly.

The ____________ approach calculates the amount of money a family needs immediately upon the death of the insured to pay for their expenses and basic necessities.

. Needs

In the underwriting of insurance policies, some amount of discrimination is:

. Present in many cases, because of differing levels of risk

The agent may be required to collect a _______ from the policyowner upon policy delivery

. Statement of good health

This life insurance policy provides death protection for the insured's entire life, but premiums are not paid for the insured's entire life.

20-pay life

How many months can a life insurance policy be backdated?

6 months

All of the following are personal uses of life insurance, EXCEPT:

Business financial relationship

Adverse selection occurs when:

A person is unfairly discriminated against, A poorer than average risk seeks insurance, A healthy person purchases health insurance

Adverse selection occurs when:

A poorer than average risk seeks insurance

Jerry is able to bind coverage. This means that he is probably:

A property and casualty agent

Insurance is:

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

All of the following policies and contracts are typically covered by state insurance guaranty associations, EXCEPT:

A universal life insurance policy issued by a fraternal benefit society

A health insurance contract may be any of the following types of contracts, EXCEPT:

A valued contract

ABC insurer is incorporated in Texas. Which of the following is true?

ABC insurer is alien in Great Britain

Mathematicians who analyze statistical risk information for insurance companies are called:

Actuaries

Sandra wants to have flexibility with her life insurance policy to accommodate changes in her situation. She should consider:

Adjustable life

What policy provides flexible premiums, cash values, face amounts, premium-paying period and length of coverage?

Adjustable life

All of the following may not be included in a consumer report, unless the consumer credit report is requested for a life insurance policy with a face amount of $150,000 or more, EXCEPT:

Adverse information dating back more than three years

An example of an unfair claim settlement practice would include:

Advising a claimant of the possibility that, should the claimant reject a settlement offer, an arbitration award might be less than the offer

Which of the following is not a primary component of an insurance contract?

Aleatory contract

LMO Insurer is incorporated in New Hampshire, conducts business in all of the eastern seaboard states and in Germany. How is LMO Insurer classified in Germany?

Alien

The purpose of the Gramm-Leach-Bliley Act is to

Allow financial entities to merge and accommodate greater competition

Defamation occurs when:

An individual or entity makes false, derogatory statements about an insurer's financial condition that are calculated to injure the insurer's business

The Fair Credit Reporting Act states that generally, consumer reports cannot contain the following information, EXCEPT:

An individual's character

A foreign insurer is:

An insurance company conducting business in a state in which it wasn't incorporated

A domestic insurer is:

An insurance company conducting business in the state in which it is incorporated.

There are three types of private insurers. Which of the following is a true statement about the different insurers?

An insurer that conducts business in countries that it was not incorporated in is an alien insurer.

This product protects against the risk of living too long:

Annuities

Timothy is trying to understand the difference between a warranty and a representation. He is concerned that he might inadvertently give a false statement on his insurance application. A representation is:

Any statement made is true to the best of the applicant's recollection, but facts may not be exact

Insurance agent Sam uses the insurance company's logo and letterhead for sales presentations and letters to his clients. This is an example of:

Apparent authority

Both the producer and the ___________ are required to sign the insurance application.

Applicant

Which of the following is the primary source of information used in underwriting an insurance policy?

Application

Aaron decides to work from his home to minimize her chances of getting in a collision. What method of handling risk is Aaron using?

Avoidance

Deliberately steering clear of exposure to risk describes which of the following methods of handling risk?

Avoidance

Why are life and health insurance contracts said to be contracts of adhesion?

Because the insurer writes the contract, to which the insured must adhere

In all of the following scenarios, the statements regarding loss are false EXCEPT:

Betty submits a claim for $300 to her insurance company. The amount of Betty_s loss is $300

Anna applied for a $1 million life insurance policy and paid the first premium. Later she was declared uninsurable. Her agent gave her a receipt that guarantees coverage until the insurer formally rejects the application. Which type of receipt did Anna receive?

Binding

Benefits under a life insurance policy are provided through which of the following methods?

Cash payment, Valued

The practice of using misrepresentation to induce a policyholder to replace a policy issued by the insurer the producer represents is called

Churning

A person who is guilty of a fraudulent act may be subject to the following penalties:

Civil fine up to $50,000 and imprisonment up to 10 years

The term describing the insured's notification to the insurer requesting payment for a covered loss is:

Claim

What term means the insured's demand for payment of benefits?

Claim

Which of the following is best described as the cost-sharing between the insurer and the insured?

Coinsurance

Risk pooling is best described by which of the following?

Combining similar losses from many people so the average loss over the entire group remains relatively constant

All of the following are responsibilities the agent has to the insured, EXCEPT:

Commingle premiums with personal funds

Insurance policies are based on:

Contract law

Janice applies for a life insurance policy. She submits the application with the initial premium for $100,000 whole life. The agent returns the policy with a higher premium and hazardous occupation exclusion. What has the insurer made?

Counter-offer

All of the following are true regarding credit life insurance, EXCEPT:

Credit life insurance is only sold through a group policy.

Which of the following business continuation agreements is most appropriate for Teri and Annette's business partnership?

Cross-purchase plan

A policy known as interest-sensitive whole life is:

Current assumption whole life

DEF insurer is nonadmitted. All of the following are possible explanations for why DEF insurer cannot sell insurance in a state EXCEPT:

DEF sells excess and surplus lines insurance.

Family income policies consist of whole life and:

Decreasing term

Judith is injured in a car accident. She incurs a covered loss of $50,000. She is required to pay $3,000 before the insurer will cover 80% of the covered loss. Which of the following terms best describes the $3,000 Judith must pay?

Deductible

Which of the following terms means the ways insurance products are marketed and sold to the public?

Distribution system

Which of the following life insurance policies is not an example of third party ownership?

Economatic

A furniture company is owned by five partners. What business continuation plan would you suggest to the company?

Entity plan

Four partners share in the ownership of a bowling alley. Which of the following business continuation plans best fits their needs?

Entity plan

Which policy works the same way as universal life, but has an interest rate that is tied to the stock market index?

Equity indexed universal life

Which policy has a face amount that increases by five times the original policy face when the insured child reaches the age of 21?

Estate builder

The insurer does not include the suicide exclusion on Bob's policy. Bob commits suicide three months later, and the insurer refuses to pay the death benefit. Which of the following terms describes the insurer's inability to reclaim a waived right, and consequently the insurer's duty to pay the death benefit?

Estoppel

If a premium payment has not been given with the application, the policy becomes effective only when the producer delivers the policy and:

Explains its provisions, secures the initial premium, and a signed statement of continued good health

What part of a mortgage reduction policy decreases over time?

Face amount

All of the following policy features may change throughout the policy term of a variable universal life policy with option 2, EXCEPT

Face value

Which of the following is considered an unfair claims practice?

Failing to affirm or deny coverage within a reasonable time after receiving proof of loss

Under which of the following laws does an applicant for a life insurance policy have the right to question the validity of information contained in a consumer report?

Fair Credit Reporting Act

This policy insures the primary breadwinner with whole life and level term:

Family maintenance policy

Which of the following correctly describes the penalty applied to a company for calling a person whose phone number is on the Do Not Call List?

Fine in the amount of $16,000

With regard to an investigative consumer report, consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within ____ day(s) if requested.

Five(5)

All of the following are exemptions under the Privacy Act of 1974 upon which an individual's written consent is not required in order to release personally identifiable information, EXCEPT

For a consumer poll.

____________ is an intentional misrepresentation or concealment of material fact made by one party in order to cheat another party out of something that has economic value.

Fraud

According to the U.S. PATRIOT Act, which of the following is money laundering?

Fraudulent use of public funds, Computer crimes, Illegal exportation of controlled munitions

Gerald has a chronic medical condition. What will his risk classification be? How will his premium be affected?

Gerald's risk classification will be substandard. His premium will be higher.

All of the following are characteristics of variable life policies, EXCEPT:

Guaranteed cash value

Which of the following terms best describes something that increases the chance of a loss occurring from a particular peril?

Hazard

David signs an application for a $50,000 life policy, pays the initial premium, and receives a conditional receipt. If he were killed in an automobile accident one day later:

His beneficiary would receive $50,000, if the application qualified him for the policy for which he applied.

The ___________ approach calculates the amount of money a person is expected to earn over their lifetime to determine the face amount of life insurance needed, thereby placing a dollar value on the life of an individual.

Human life value

The nonguaranteed elements of an insurance policy are:

Illustrations

If Joan's agency contract does not specifically state that she can collect premiums and then forward them to the insurer, this represents:

Implied authority

Sam's agency contract does not specifically state that he can collect premiums and then remit them to the insurer. This is an example of:

Implied authority

All of the following are true regarding claims for life insurance policies, EXCEPT:

In order for death benefits to be paid, the insurer must receive notice of the insured's death, but does not need the death certificate

Benefits under a medical expense policy are provided through which of the following methods?

Indemnity

Agents who own the policies they sell and can work for multiple insurers are known as:

Independent agents

___________ policies have premiums that fluctuate between the current rate and maximum rate, as stated in the policy.

Indeterminate premium

Coverage begins on the application date or date of medical exam for which of the following?

Insurability receipt

Which of the following best describes spreading uncertainty of loss over a group of many individuals, and the law of large numbers?

Insurance

Agents are appointed to work on behalf of:

Insurance companies

Another term which means the same as insurance policy is:

Insurance contract

Which of the following is another term for reciprocal exchange?

Insurance exchange

All of the following are considered minimum information that must be on a life insurance illustration, EXCEPT:

Insured's marital status

Which of the following is another term for insurance company?

Insurer

An adjustable life policy allows the policyowner to make all of the following changes, EXCEPT:

Invest premiums in a separate account

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

Invitation to offer

The death benefit in a variable whole life policy:

Is a guaranteed minimum, but may increase based on favorable investment activity in the separate accou

Which of the following best characterizes express authority?

It is explicitly granted to the agent in the agency contract

Some universal policies permit a cash withdrawal. All of the following are true statements about universal life, EXCEPT:

It is treated as a loan.

Which of the following is not true regarding the cash value in an ordinary whole life policy?

It may be used as a policy loan without affecting the death benefit.

Which of the following correctly describes the law of large numbers?

It states that as a group's size increases, it is easier to predict the number of future losses over a specific time period.

Judy purchases a life insurance policy for her brother, James. The insurance agent, Jacob, uses Judy's premiums to pay his credit card bill. Who has committed fraud?

Jacob

Wesley fills out an application for a life insurance policy and submits it to the agent on January 5th. He does not include the first premium payment. Wesley undergoes the required medical examination on January 7th. The insurance company approves Wesley's application on January 15th. Wesley's agent delivers the policy to Wesley on January 17th. At this time, Wesley writes out a check for the initial premium. On what date is Wesley's policy effective?

January 17th

A limited payment life insurance policy is best suited for:

Josh, a 25-year old successful entrepreneur with extra funds, who doesn't want to pay life insurance premiums when he retires.

Sam submits an application with initial premium for a life insurance policy on July 6th. The agent issues Sam a conditional receipt at this time. Sam takes the required medical exam on July 10th. The insurer approves the policy on August 1st, and the agent delivers the policy to Sam on August 10th. Which day did Sam's coverage begin?

July 10th

Mary's Cosmetics purchases a life insurance policy on Samantha, the leading makeup salesperson in the nation. Which business continuation plan did Mary's Cosmetics buy?

Key person insurance

The Insurance Department passed a law mandating that every group health insurance policy cover maternity on the same basis as other sickness. What type of hazard is described here?

Legal

Which of the following policies has a level face amount with level premiums?

Level premium term

Which term policy has level premiums and a level face amount?

Level premium term

Which of the following does not constitute policy replacement?

Life insurance coverage in which a loan is not repaid to the insurer

The total amount an insurer will pay for an insured risk is the definition of:

Limit of liability

Gina and Jerry are purchasing life insurance. They decided on policies that would be paid up in 20 years. What type of policies did they purchase?

Limited payment policies

Life insurance policies with cash value provide the insured with immediate availability of funds, referred to as:

Liquidity

All of the following are providers of government insurance EXCEPT:

Lloyd's

A market where individuals and groups of people gather to exchange insurance is a:

Lloyd's association

Which of the following is best described as an insurance marketplace where people gather to exchange insurance?

Lloyd's association

Another term for insurers' expense is:

Loading

Which of the following accurately characterizes an insurable risk?

Loss is definite.

An insurable risk is characterized by all of the following EXCEPT

Loss must be catastrophic

All of the following are not elements of insurable risks EXCEPT:

Loss must not be catastrophic.

Which of the following best explains why death protection may be covered by an insurance policy, even though all people eventually die?

Loss must occur by chance or accident.

All of the following correctly describe risk pooling, EXCEPT:

Loss sharing spreads risk by sharing the possibility of loss over a small number of people.

Margaret makes a change to her health insurance application after completing it. Who must initial her change and sign the contract?

Margaret and the agent

Marge and Ben purchase a comprehensive major medical policy to cover their family. Who is required to sign the application?

Marge and Ben

Insurance departments in each state began forming after the passing of what law/court ruling?

McCarran Ferguson Act.

Part II of the life insurance application includes:

Medical Information

Leo, a producer, sat down with a prospective client to discuss a long-term care policy. He used a computer program to outline and emphasize his remarks. The visual presentation contained the principal benefits of the policy he was trying to sell. Although he mentioned that it also had, the usual, conditions, he did not include those in his visual presentation or specify what they were. The producer was engaging in:

Misrepresentation

Which policy is a combination of whole life and convertible term, and has lower premiums in early policy years and higher premiums in later years?

Modified whole

Molly hates her job. Her 70-hour weeks at the law firm have just gotten to be too much, especially since she really does want to take that trip to the Virgin Islands that she's been putting off for years because of work demands. She remembers that she has a disability policy that will pay her 70% of her paycheck while she is disabled and cannot work. She starts thinking, if she deliberately hurts herself, causing a self-inflicted disability, she will get everything she wants: time off from work, a paycheck, albeit somewhat smaller, she can take a trip to the Virgin Islands, and even start the search for a new job. What type of hazard is demonstrated here?

Moral

Which of the following is not used to calculate the premium for life insurance contracts?

Morbidity

To determine the premium rate for health insurance policies, all of the following are used, EXCEPT:

Mortality

Net single premium is:

Mortality - Interest

Which of the following best describes the tool underwriters use to determine the rate at which a group of people die?

Mortality table

Mrs. Conroe's policy lapsed. Her agent, Mrs. Acker, accepted her past due premiums and re-instated Mrs. Conroe's policy. This is an example of apparent authority because agents cannot usually reinstate policies. However, in this case, it was allowed. Why?

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

Physical hazards that increase the potential for loss include

None of the above

What type of risk is a blind date?

Nonfinancial

Pure risk is to speculative risk as financial risk is to:

Nonfinancial risk

Which of the following best describes the MIB?

Nonprofit trade organization that supplies insurability information to member companies

For replacement transactions, an insurance producer's duties include all of the following, EXCEPT:

Notify existing insurers of policies to be replaced

What are the basic elements of a legal contract?

Offer, acceptance, consideration, competent parties and legal purpose

Insurance is intended to:

Offset financial damage caused by loss

Life insurance policy illustrations must contain all of the following, EXCEPT:

Only the guaranteed policy elements

Which of the following cases/laws best describes the ruling that insurance transactions crossing state lines are not considered interstate commerce?

Paul v. Virginia

Which of the following ruled that insurance transactions are not interstate commerce and thus fall under state regulation is known as:

Paul v. Virginia

Matthew is a janitor for the local high school. He washes the hallway floors every night during the winter to make sure the slush, snow and salt from outside don't pose a hazard to students. One night, Matthew unintentionally forgets to wash the hallway that connects the science wing to the main lobby. The next morning, three students walk in through the school's lobby, slip on a puddle of water, fall and are injured. What type of hazard is shown in this example?

Physical

Term insurance is categorized by all of the following, EXCEPT:

Policy cash value grows tax-deferred

A life insurance policy summary includes all of the following, EXCEPT:

Policy illustrations

A person with this risk classification will have a discounted premium from the rates provided in the C.S.O. tables.

Preferred

The consideration Walter pays for his insurance coverage is called the:

Premium

Martin pays his policy premiums on a monthly basis. Which of the following terms best describes the frequency that Martin pays his premiums?

Premium payment mode

Neil is a generally healthy individual but worries about being hospitalized for a severe accident or injury, especially the costs associated with such a catastrophic medical loss. Of the following, what is the best way for Neil to manage his risk?

Purchase an insurance policy

Insurable risks include:

Pure

Which of the following risks are insurable?

Pure

Genevieve works three jobs: she is a full-time bank teller, part-time brick-layer and part-time dog walker. After recently going through a divorce, having her home completely destroyed by a tornado, and with five school-age children and her disabled adult brother to support, she needs every penny of her earnings to keep her proverbial boat afloat. Genevieve is very concerned about the risk of getting sick or injured and being unable to work, which could severely jeopardize her income and ability to support her family. Which of the following best describes Genevieve's risk?

Pure and financial

Which legal interpretation is represented by the following: roadside assistance is provided in an automobile policy, so it is reasonable for the insured to expect that the insurer will cover the cost of changing a flat tire?

Reasonable expectations

In discussing a potentially lucrative group policy with a business owner who had purchased a business and just moved into the community, an established producer jokingly remarked, "Well, would it sweeten the pot if I could assure you membership in the country club?"The producer added, "I'm on the membership committee and while we're not accepting new application right now, I'm sure something could be worked out." These remarks constituted:

Rebating

Another term that means to void an insurance policy is:

Recission

Flu shots and annual physical exams are examples of what method of handling risk?

Reduction

All of the following are methods of handling risk except:

Reinsurance

Which of the following is NOT a method of handling risk?

Reinsurance

All of the following acts are considered unfair trade practices, EXCEPT:

Replacement

Jude completes an application for a health insurance policy. His statements on the application were made to the best of his knowledge and are:

Representations

All of the following, if performed frequently enough to indicate a general business practice, are unfair claims settlement practices, EXCEPT:

Requiring submission of preliminary claim report and formal proof of loss before paying a claim.

A person who does not take steps to transfer, avoid or reduce exposure to risk is engaging in which method of handling risk?

Retention

Samantha is concerned about driving to work on major highways. She does not purchase insurance, nor avoid the major highways. What method of handling risk is Samantha using?

Retention

_________ is the possibility of a loss occurring.

Risk

Of the following, which is a nonfinancial risk?

Risk of your child performing poorly at a school band concert

Which of the following terms means risk is spread by sharing the possibility of loss over a large number of people?

Risk pooling

Which of the following correctly identifies the most important principle(s) of insurance?

Risk pooling, the law of large numbers and insurable interest

Which of the following is a group of companies that collectively assumes and spreads its own risk?

Risk retention group

Which business continuation plan permits a deceased shareholder's heirs to maintain some ownership while the corporation redeems a portion of the deceased shareholder's shares?

Section 303 plan

Rates for insurance policies are based on:

Sex and age

All of the following are not methods of handling risk EXCEPT:

Sharing

What business continuation agreement would you recommend to a corporation with 3 shareholders so that when a shareholder dies, all other shareholders agree to purchase a portion of the deceased shareholder's stock at an agreed price?

Stock purchase plan

Insurance contracts sometimes contain ambiguities. Which of the following has not been taken to court for further interpretation?

Subrogation

All of the following statements are true regarding subrogation, EXCEPT:

Subrogation applies primarily to life and health insurance, and seldom to property and casualty insurance.

Which of the following is not a way that an endowment policy can mature?

Surrender of cash value

Which policy pays a death benefit only upon the death of the last person insured?

Survivorship life policy

Employer-paid premiums used to fund group life insurance for the benefit of employees are:

Tax-deductible as a business expense

What are the two major types of life insurance?

Term and whole

All of the following characterize term life insurance, EXCEPT:

Term life insurance provides living benefits (cash accrual).

All of the following cases/laws involve disputes of whether the insurance industry should be regulated on a state or federal level EXCEPT:

The Privacy Act of 1974

What consequences does an insurer's or producer's use of unfair marketing or unfair claims habits have for the company or agent?

The State Commissioner of Insurance can issue a cease and desist order.

Who completes field underwriting?

The agent

All of the following correctly demonstrate policy delivery, EXCEPT:

The application is approved by the underwriter

Which of the following characteristics does not describe convertible term life insurance policies?

The attained age is the insured's age upon purchase of the term life insurance policy.

All of the following are characteristics of whole life insurance, EXCEPT:

The cash value in a permanent life insurance policy is not a nonforfeiture benefit.

All of the following are involved in the collection of an applicant's medical history, EXCEPT:

The consumer report

Which of the following best describes option 1 under a universal life policy?

The death benefit is the policy face amount or policy cash value, but not both.

Angela took out a $2,000 policy loan from her whole life insurance policy. The policy face amount is $200,000. If Angela does not repay the loan, how will the death benefit be affected?

The death benefit will be decreased by $2,000 plus interest

All of the following are true regarding executive bonus plans, EXCEPT:

The employee is the insured and the company is the owner of the policy.

John purchases a life insurance policy for his wife Jean. Which of the following best describes who is legally bound to the policy's promise of benefits?

The insurer

Maria buys a life insurance policy for her husband, Fred. Of the following, which correctly describes the party legally bound to fulfill the policy's promise of paying benefits?

The insurer

Who is responsible for the dissemination and content of insurance advertisements?

The insurer

Which of the followings statements correctly identifies the law of agency?

The insurer is principal and the acts of the agent are deemed acts of the insurer.

What is the consequence for an applicant who makes an unintentional misrepresentation on a life insurance policy?

The insurer will pay the death benefit as long as the misrepresentation is not material to the risk.

All of the following are true regarding purchase of personal life insurance for charity, EXCEPT:

The person purchasing life insurance for charity must have insurable interest in the lives of the charity's members.

What happens when the cash value of a life insurance policy equals the face value?

The policy endows.

What happens when a universal life policyholder pays the target premium?

The policy will resemble whole life insurance.

Which of the following is not a characteristic of decreasing term life insurance?

The premium decreases to zero by the end of the policy period.

All of the following are advantages of whole life insurance, EXCEPT:

The premium-paying period may extend beyond the income-earning years.

A variable life policy differs from a universal life policy in that:

The premiums are fixed, The cash value varies,The death benefit varies.

When an insurer requests an investigative consumer report on an applicant, which of the following is true?

The report includes information regarding the applicant's general reputation and personal characteristics.

After looking at his options, Randy decided on a single premium whole life policy. What is the main advantage of this type of policy

The total premium is lower.

Which of the following best describes loss?

The unintentional decrease in value of an asset

In life and health insurance, a person's greatest asset is:

Their earning power

Why are whole life policies more expensive than some other insurance options?

They must cover cash values, net insurance and mortality costs, as well as expenses.

While insurance is primarily regulated in a state-by-state basis, what is the purpose of federal insurance laws?

To oversee the operation of the insurance industry as a whole

What is the purpose of the Fair Credit Reporting Act?

To regulate the way credit information is collected and used

Insurance agent Margaret receives life insurance applications from Tim and Tom, who are identical twins, and are each applying for the exact same type of policy with the same face amount. The insurance company issues the policies as applied for, but charges Tom a 15% higher premium. Which of the following best explains the higher premium charged to Tom?

Tom's risk classification

An excess and surplus lines insurer is categorized as a(n):

Unauthorized insurance company

This employee of the insurer assigns risk categories to applicants:

Underwriter

Which of the following best describes the process used to select and classify risks?

Underwriting

Which court ruling in 1944 was a response to the court case in 1869 which ruled that insurance transactions crossing state lines are not interstate commerce?

United States v. South-Eastern Underwriters Association

Which of the following cases/laws overruled the court decision of Paul v. Virginia stating that insurance transactions crossing state lines are interstate commerce and subject to federal regulation?

United States v. South-Eastern Underwriters Association

What policy can be described as annual renewable term with a cash value account?

Universal life

Ben applies for a life insurance policy on himself. How much insurable interest does Ben have in his own life?

Unlimited

When must insurable interest be shown for a life insurance policy?

Upon policy application

With respect to life and health insurance guaranty associations, what are agents prohibited from doing?

Using the existence of the life and health guaranty association as an inducement to selling an insurance contract

Which of the following policies has premiums that are fixed and level?

Variable life

The third party that purchases a life insurance policy death benefit from a terminally ill insured is termed:

Viatical settlement provider

All of the following are true regarding viatical settlements, EXCEPT:

Viatical settlements are a type of life insurance contract

Which of the following terms is best defined as voluntarily surrendering a known right?

Waiver

An agent is guilty of committing fraud. What must the person obtain in order to transact insurance?

Waiver of consent from the state insurance department

Which type of life insurance provides living benefits?

Whole

What is business life insurance used for?

a. An employee benefit b. A funding tool c. Business interruption insurance

Level premium life insurance policies usually have ______ premiums in order to account for the greater risk of death with advancing age.

higher

In life insurance the risk of death increases with age, so premiums must be ______ in ______ years to account for this risk.

higher; later

Policy cash value in a variable life policy is connected to the insurer's:

separate account

The 'variable' component in the variable universal life name refers to ___________ and the universal component refers to _____________.

the ability to invest in separate accounts whose values vary; the flexibility in making premium payments