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What is the benefit of choosing extended term as a nonforfeiture option? a) It matures at age 100. b) It allows for coverage to continue beyond maturity date. c) It can be converted to a fixed annuity. d) It has the highest amount of insurance protection.
C) Lower - Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.
What is the minimum required number of continuing education credits in ethics every licensing period? a) 3 b) 5 c) 10 d) 12
a) 3 - All insurance producers licensed in the state of Louisiana must complete 24 hours of approved continuing education (CE) instruction or self-study prior to each license renewal. At least 3 hours must be on ethics.
An insured misstates her age at the time the life insurance application is taken. This misstatement may result in a) Adjustment in the amount of death benefit. b) No change whatsoever. c) Automatic lapse. d) Recession of the policy.
a) Adjustment in the amount of death benefit. - If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.
If a company has a Simplified Employee Pension plan, what type of plan is it? a) A qualified plan for a small business b) The same as a 401(k) plan c) The same as an IRA, with the same contribution limits d) An undefined contribution plan for large businesses
a) A qualified plan for a small business - A Simplified Employee Pension (SEP) is a type of qualified plan suited for the small employer or for self-employed. A SEP is an employer-sponsored IRA with an expanded contribution rate up to 25% of compensation or a specified maximum contribution amount.
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
a) Collateral assignment - The business owner could make a collateral assignment of his or her life insurance policy to the bank.
A key person insurance policy can pay for which of the following? a) Costs of training a replacement b) Loss of personal income c) Workers compensation d) Hospital bills of the key employee
a) Costs of training a replacement - A key person insurance policy will pay for costs of running the business and replacing the employee.
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
a) Discriminating in benefits and coverages based on the insured's habits and lifestyle - Discriminating between individuals of the same class with equal life expectancies, or by reason of race, nationality, or ethnic group would be considered unfair discrimination. Insurers are also not allowed to cancel individual coverage due to a change in marital status. Discriminating in benefits based on the insured's habits and lifestyle (such as smoking or dangerous hobbies) is acceptable.
When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? a) Equal to the original policy for as long as the cash values will purchase. b) In lesser amounts for the remaining policy term of age 100. c) Equal to the cash value surrendered from the policy d) The same as the original policy minus the cash value
a) Equal to the original policy for as long as the cash values will purchase. - With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.
Which is TRUE about the cash surrender nonforfeiture option? a) Funds exceeding the premium paid are taxable as ordinary income. b) After the cash surrender, the insured is covered for a grace period of one month. c) The policy remains active for some time after the policyholder opts for cash surrender. d) The policyholder receives the original cash value of the policy.
a) Funds exceeding the premium paid are taxable as ordinary income. - The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.
If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept? a) Reasonable expectations b) Cease and desist c) Nonforfeiture d) Indemnity
a) Reasonable expectations - If, because of advertising or sales literature or statements by an agent, an insured could reasonably expect the coverage, the courts have held that the insurer must provide that coverage.
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) Survivor protection. b) Life planning. c) Survivorship insurance. d) Juvenile protection provision.
a) Survivor protection. - Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection.
All of the following would be different between qualified and nonqualified retirement plans EXCEPT a) Taxation on accumulation b) Taxation of withdrawals c) Taxation of contributions d) IRS approval requirements
a) Taxation on accumulation - Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.
All of the following are true of an annuity owner EXCEPT a) The owner must be the party to receive benefits. b) The owner pays the premiums on the annuity. c) The owner has the right to name the beneficiary. d) The owner is the party who may surrender the annuity.
a) The owner must be the party to receive benefits. - The "owner" is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary.
What is the main justification for the existence of the State Insurance Department? a) To protect the public b) To protect companies from malicious law suits c) To protect producers from the National Association of Insurance Commission d) To protect the State from harmful practices of companies and producers
a) To protect the public - The State Insurance Department exists to protect the public.
How long will a life annuity with an installment refund pay? a) Until the balance of the initial premium is paid out in continued payments to the beneficiary after the annuitant dies. b) For guaranteed 20 years. c) Only until the annuitant dies. d) Until the balance of the initial premium is paid out in a lump sum to the beneficiary after the annuitant dies.
a) Until the balance of the initial premium is paid out in continued payments to the beneficiary after the annuitant dies. - A life annuity with an installment refund will pay for the life of the annuitant or if the annuitant dies before the full initial premium has been paid out, guaranteed payments will continue to the beneficiary until the entire premium amount is paid.
A licensee just renewed his license. How much time will pass before he will have to renew it again? a) 1 year b) 2 years c) 3 years d) 5 years
b) 2 years - Licenses in Louisiana must be renewed every 2 years. Licensees must submit a renewal application, pay the required fees, and complete continuing education requirements.
What is the maximum amount of time that could pass before an insurer's financial stability would be examined? a) 4 years b) 5 years c) 10 years d) 15 years
b) 5 years - Insurers will be examined at least every five years or more often if based on the recommendation of the Louisiana Insurance Guaranty Association.
A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? a) Inflation Rider b) Cost of Living Rider c) Value Adjustment Rider d) Return of Premium Rider
b) Cost of Living Rider - The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.
Which of the following best describes the aleatory nature of an insurance contract? a) Policies are submitted to the insurer on a take-it-or-leave-it basis b) Exchange of unequal values c) Only one of the parties being legally bound by the contract d) Ambiguities are interpreted in favor of the insured
b) Exchange of unequal values - An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.
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) Nonforfeiture options b) Guaranteed insurability option c) Dividend options d) Guaranteed renewable option
b) Guaranteed insurability option - The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.
What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary? a) Capital gains tax on distributions plus 10% penalty. b) Income tax on distributions and no penalty. c) Income tax on distributions plus 10% penalty. d) Capital gains tax on distributions and no penalty.
b) Income tax on distributions and no penalty. - If the beneficiary chooses to leave the money in the tax-deferred account until the calendar year in which the owner would have attained age 72, the distributions would be subject to income taxation at the rate at the time of withdrawal.
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.
b) It provides an annually increasing death benefit. - Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.
If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this? a) Single premium policy b) Jumping juvenile policy c) Limited pay whole life policy d) Modified life insurance policy
b) Jumping juvenile policy - While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21).
An insurer wants to obtain information from investigators regarding an applicant for insurance. What must the insurer do in order to legally acquire this information? a) Sign a waiver that the information will be kept confidential b) Present the insured with a Disclosure Authorization Notice c) Receive written permission from the Department of Insurance d) Receive a signed statement from the insured which authorizes the investigation
b) Present the insured with a Disclosure Authorization Notice - Before an insurer can obtain information from investigators regarding an applicant, it must first present the insured with a Disclosure Authorization Notice. This notice states the insurer's information collection practices and how the information will be used.
A producer in another state wants to become a producer in Louisiana. The other state gives the same privileges to Louisiana producers wanting to be licensed in that state as it does to its own producers. Louisiana, therefore, extends the licensing privileges to the prospective producer of the other state. What is this called? a) Subrogation b) Reciprocity c) Fair exchange d) Controlled business
b) Reciprocity - "Reciprocity" occurs when the state in which the person resides accords the same privilege to residents of Louisiana.
J transferred his life insurance policy to his son two years before his death. Which of the following is true? a) Because the policy has been transferred, it will not be included in J's taxable estate. b) The entire face value of the policy will be included in J's taxable estate. c) The interest portion of the policy will be included in J's taxable estate. d) The unpaid premiums on the policy will be deducted from J's taxable estate.
b) The entire face value of the policy will be included in J's taxable estate. - If a policyowner transfers or gives away a life insurance policy within 3 years prior to his/her death, the entire face amount of the policy will be included in his or her taxable estate.
Which of the following is NOT true regarding Equity Indexed Annuities? a) They earn lower interest rates than fixed annuities. b) The insurance company keeps a percentage of the returns. c) They have guaranteed minimum interest rates. d) They are less risky than variable annuities.
b) The insurance company keeps a percentage of the returns. - Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
The Waiver of Cost of Insurance rider is found in what type of insurance? a) Juvenile Life b) Universal Life c) Whole Life d) Joint and Survivor
b) Universal Life - The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.
An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy? a) $0 b) $200 c) $9,800 d) $10,000
c) $9,800 - In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.
Another name for a substandard risk classification is a) Declined. b) Elevated. c) Rated. d) Controlled.
c) Rated - Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.
Which of the following is TRUE regarding variable annuities? a) The company guarantees a minimum interest rate. b) A person selling variable annuities is required to have only a life agent's license. c) The annuitant assumes the risks on investment. d) The funds are invested in the company's general account.
c) The annuitant assumes the risks on investment. - The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds". Therefore, the annuitant assumes the risk of the investment.
An insured is dissatisfied with her insurance policy and wants to negotiate certain provisions of the contract. What entity would her producer represent? a) The government b) The insured c) The insurer d) The Commissioner of Insurance
c) The insurer - Under agency law, producers legally represent the insurance company with which they are contracted.
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT a) The employer pays a bonus to a selected employee to fund the policy. b) It is considered a nonqualified employee benefit. c) The policy is owned by the company. d) Any type of insurance policy may be used.
c) The policy is owned by the company. - The policy is owned by the employee.
What is the purpose of the buyer's guide? a) To list all policy riders b) To provide information about the issued policy c) To allow the consumer to compare the costs of different policies d) To provide the name and address of the agent/producer issuing the policy
c) To allow the consumer to compare the costs of different policies - The buyer's guide provides generic information about life insurance policies and allows the consumer to compare the costs of different policies. The policy summary provides specific information about the issued policy, as well as the insurer's information.
How long will the beneficiary receive payments under the single life settlement option? a) For a specified period of time b) Until the insured's age 100 c) Until the beneficiary's death d) Until the insured's death
c) Until the beneficiary's death - The Single Life Option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop.
When would a 20-pay whole life policy endow? a) After 20 payments b) In 20 years c) When the insured reaches age 100 d) At the insured's age 65
c) When the insured reaches age 100 - A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.
Existing and replacing life insurers are required to keep copies of all summaries, notices, and statements used in sales transactions until the conclusion of their next examination by the Insurance Department, or for a period of at least a) 1 year b) 2 years c) 3 years d) 5 years
d) 5 years - Louisiana insurance laws require insurers to keep such records for a minimum of 5 years.
An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his a) Experience Rating. b) Group rate. c) Insurer's scheduled rate. d) Attained age.
d) Attained age. - If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability. The insurer will determine what type(s) of policy an employee may convert to, but it must be issued at a standard rate, based on the individual's attained age.
Which of the following statements about the reinstatement provision is true? a) It permits reinstatement within 10 years after a policy has lapsed. b) It provides for reinstatement of a policy regardless of the insured's health. c) It guarantees the reinstatement of a policy that has been surrendered for cash. d) It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.
d) It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. - Upon policy reinstatement, the policyowner will be required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest.
All of the following are characteristics of group life insurance EXCEPT a) Amount of coverage is determined according to nondiscriminatory rules. b) Individuals covered under the policy receive a certificate of insurance. c) Certificate holders may convert coverage to an individual policy without evidence of insurability. d) Premiums are determined by the age, sex and occupation of each individual certificate holder
d) Premiums are determined by the age, sex and occupation of each individual certificate holder - Premiums are determined by the age, sex and occupation of the entire group.
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.
d) SEPs are suitable for large companies. - An SEP is a benefit plan that is designed to be provided by a small employer for the benefit of the employees.
An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible? a) It is impossible to transfer a policy. b) The insured would have to surrender his policy to the insurer, and his friend could then ask to buy it. c) The insured can transfer the policy to his friend and then notify the insurer of the change. d) The insured will need a written consent of the insurer.
d) The insured will need a written consent of the insurer. - A personal insurance contract is written between an insurance company and an individual, and the company has a right to decide with whom it will and will not do business. An insured can transfer an insurance contract to another person, but he or she must first obtain the written consent of the insurer.