QBANK LIFE INSURANCE QUIZ 2
C) noncatastrophic
Certain perils, like war, are usually excluded from most insurance policies because they have the potential to adversely affect large numbers of insureds at the same time. This explains why one of the characteristics of an insurable risk is that the risk be A) calamitous B) cataclysmic C) noncatastrophic D) trivial
B) the joint life annuity option *The joint life annuity option would be the least suitable because income payments stop at the death of the first annuitant, which leaves the survivor without the income.*
Norma and Luis are considering the purchase of an annuity for retirement. Which payout option would be the lease suitable for them? A) the life with refund option B) the joint life annuity option C) the joint life and survivor annuity option D) the life with period certain option
A) Providing funds to pay off an outstanding loan at a reasonable premium
Of the following, which best describes a need that decreasing term insurance is often used to meet? A) Providing funds to pay off an outstanding loan at a reasonable premium B) Providing long-term coverage at a reasonable premium C) Providing funds to pay off an outstanding loan at a high premium D) Providing funds for final expenses at a reasonable premium
B) avoid adverse selection
One reason a plan may require employees to sign up within 31 days after the probationary period is to A) discriminate based on age B) avoid adverse selection C) charge higher premiums D) require medical exams
B) selecting, classifying, and rating risks
Underwriting is a process of A) determining and establishing premiums B) selecting, classifying, and rating risks C) selecting and marketing policies D) selecting, reporting, and rejecting risks
D) revocable
Which of the following terms indicates the insured's right to change beneficiaries in a life insurance policy? A) per capita B) per stirpes C) irrevocable D) revocable
C) exclusive or captive agents
Agents that work on behalf of 1 specific insurance carrier are known as A) independent agents B) direct agents C) exclusive or captive agents D) general agents
A) a major stockholder-employee in a family corporation *Keogh plans are qualified retirement plans designed for self-employed individuals in unincorporated businesses.*
All of the following individuals should be eligible to establish a Keogh (HR-10) retirement plan EXCEPT A) a major stockholder-employee in a family corporation B) the sole proprietor of a jewelry store C) partners in a furniture store D) a dentist in a private practice whose business is unincorporated
A) a captive agent
An agent that represents only 1 insurance company is A) a captive agent B) a special agent C) a general agent D) a broker
B) the insurer *The insurer appoints licensed agents to act on its behalf.*
Morris is a licensed insurance agent. His principal is A) the state insurance department B) the insurer C) the National association of Insurance Commissioners D) the applicant
D) practiced by organizations that establish reserves to protect themselves against loss *Self-insurance is a legitimate method of insuring loss by establishing one's own reserve of funds.*
Self-insurance is A) illegal in many states B) available through the federal government C) insurance written by an insurer on itself D) practiced by organizations that establish reserves to protect themselves against loss
C) 90 days
For a beneficiary to receive accidental death benefits, the death of the insured generally must occur within how many days following the accident? A) 45 days B) 60 days C) 90 days D) 30 days
C) It is paid under the old group plan.
Shiyuan, while in the process of converting her group life insurance to an individual policy, dies. What happens to the claim her beneficiary submits? A) It is paid pro rata by both plans. B) It is paid under the new individual policy. C) It is paid under the old group plan. D) It is not paid by either policy.
B) the Commissioner for license fees
A producer owes a fiduciary responsibility to all of the following EXCEPT A) the prospective purchaser of insurance, when the application is rejected B) the Commissioner for license fees C) the insured, on canceled policies D) the insurer, for premiums due
A) conditional *Insurance is a conditional contract because the obligations of the insurance company hinge on the performance of certain acts by the owner and the beneficiary, such as the payment of premiums and furnishing proof of loss.*
Since the obligations of the insurance company hinge on certain acts of the policyowner, the beneficiary, or both, the insurance contract is termed A) conditional B) unilateral C) aleatory D) bilateral
C) a waiver
In legal terms, the voluntary relinquishment of a known right is called A) a withdrawal B) a concealment C) a waiver D) a warranty
D) not represent another insurer selling an identical policy *It is unethical for a captive agent to represent 2 or more insurers selling the same policies.*
A captive agent who has an exclusive contract with an insurer may A) represent the customer in the sale of insurance B) contract with other insurers to sell the same policy and provide the best service to consumers C) represent only those consumers referred by the principal D) not represent another insurer selling an identical policy
B) reinsurance *Reinsurance is the act of one insurer selling part of a policy to another insurer. The original insurer, or primary insurer, is called the ceding company, and the second insurer is called the assuming company.*
A contract in which one insurer cedes all or part of a risk to another is known as A) a participating policy B) reinsurance C) assuming insurance D) retro insurance
B) a non qualified plan funded by the employer *Funds are set aside by an employer for when an employee retires. These types of plans are non qualified because they do not meet participation, nondiscrimination, and other requirements of qualified plans.*
A deferred compensation plan is A) a qualified plan funded by the employer B) a non qualified plan funded by the employer C) a non qualified plan funded by the employee D) a qualified plan funded by the employee
C) assigning dividends to pay off a mortgage
All of the following are dividend options EXCEPT A) reduced premiums B) paid-up additions C) assigning dividends to pay off a mortgage D) accumulate at interest
D) resistance
All of the following are methods of handling risk EXCEPT A) retention B) sharing C) reduction D) resistance
C) marital status *marital status does not direct affect a person's proposed lifespan, so it does not need to be considered*
All of the following can directly affect the amount of premium an individual insure pays EXCEPT A) age B) occupation C) marital status D) sex
A) the applicant's work history
An insurer will use all of the following to determine if a person should be issued a policy EXCEPT A) the applicant's work history B) a medical report from a qualified professional C) the application for insurance D) information stored in the Medical Information Bureau
A) The older person
If both an older and a younger person had annuity funds of the same amount and simultaneously began to receive monthly life payments, which individual would receive the larger payments? A) The older person B) The amount of the payment is based on the purchase date of the annuity C) Both would receive the same amount D) The younger person
D) agents *Direct-selling systems are the exception to the general rule that insurance is sold mainly through agents.*
In the direct-selling marketing system, insurance can be sold to the public through all of the following methods EXCEPT A) vending machines B) telephone solicitations C) direct mail D) agents
A) The amount of the premium due is deducted from the policy proceeds paid to the beneficiary.
Janet, the insured, dies during a grace period for her $50,000 life policy. What happens, considering that her premium has not been paid? A) The amount of the premium due is deducted from the policy proceeds paid to the beneficiary. B) The beneficiary must pay the premium after the death claim is paid. C) The premium is canceled because the insured died during the grace period. D) The premium due, plus a 10% penalty, is charged against the policy.
D) issuing a policy in the amount applied for, with a higher than standard premium
What is the most common approach for rating life insurance applicants who are determined to be substandard risks? A) Issuing a policy of less than the amount applied for, with a lower than standard premium. B) Issuing a policy in the amount applied for, but reducing the amount paid out as a death benefit. C) Issuing a policy in the amount applied for, but crediting its values with lower interest rates. D) Issuing a policy in the amount applied for, with a higher than standard premium.
B) excess and surplus lines
When there is no coverage available through an authorized carrier in the state, this insurance is referred to as A) reinsurance B) excess and surplus lines C) reciprocal insurance D) risk retention
A) equity investments (stocks and bonds)
A variable annuity is based on which of the following? A) equity investments (stocks and bonds) B) the Dow Jones Industrial Average C) variable premiums D) CD rates
D) Apparent authority *Apparent authority is what a third party (such as a member of the public) assumes an agent has, on the basis of the actions or words of the principal.*
An agent for Zephyr Insurance Company, equipped with business cards, sample Zephyr policies, and an Zephyr rate book, informs a prospect that Zephyr has given him unlimited binding authority. The prospect assumes this is true. Which of the following terms correctly defines the agent's authority in this case? A) Binding authority B) Implied authority C) Express authority D) Apparent authority
B) a neighbor
An individual may purchase a life insurance policy on all of the following persons EXCEPT A) a business partner B) a neighbor C) a dependent D) a spouse
D) Joe, a retired army general, dies of a heart attack at age 85.
In which of the following cases would the insurance company most likely cover the loss under a life insurance policy? A) While taking her final pilot's test, Sandi losses control of her plane and dies in the crash. B) While competing in the local county fair's derby race, Sanjay and Craig are both killed in an explosion as their cars collide. C) Frank's ski mask impairs his vision while he is robbing a bank, causing him to trip; he hits his head on the floor and is killed instantly. D) Joe, a retired army general, dies of a heart attack at age 85.
A) 5 years
Interest earned and distributions made are tax-free if a Roth IRA is maintained for at least how many years? A) 5 years B) 10 years C) 15 years D) 7 years
B) the insured uses the $500 as if it were a single premium to purchase a unit of paid-up whole life insurance based on Tammy's attained age *The paid-up additions dividend option uses the annual policy dividend as if it were a single premium to purchase a paid-up whole life insurance policy.*
Tammy owns a participating whole life insurance policy for which she has elected the paid-up additions option. If the insurer declares a dividend of $500 in the current year, how will this amount be used with this dividend option? A) the insurer adds a paid-up until of whole life insurance with a cash value that's equal to $500 B) the insured uses the $500 as if it were a single premium to purchase a unit of paid-up whole life insurance based on Tammy's attained age C) the insurer adds a paid-up unit of whole life insurance with a $500 face amount to Tammy's base policy D) the insurer adds $500 to the face amount of Tammy's base policy
A) stock insurance company
Which kind of insurance company is owned by individuals who buy shares but are not entitled to receive policy dividends? A) stock insurance company B) fraternal insurance company C) reciprocal insurance company D) mutual insurance company
A) the chosen payment amount *The chosen payment amount is a factor for the fixed amount settlement option, not the fixed period option.*
Which of the following factors is NOT used to calculate each payment with the fixed period option? A) the chosen payment amount B) a guaranteed interest rate C) the amount of the death benefit D) the length of the chosen period
C) The policy's mortality factor
Which of the following has the greatest impact in making one individual's life insurance premium different from that of another individual, assuming both own the same type of policy? A) The policy's expense factor B) The policy's issue date C) The policy's mortality factor D) The policy's interest factor
B) Profit-making organization with capital stock *A fraternal benefit society is any nonprofit, incorporated or unincorporated society, order, or lodge that operates solely for the benefit of its members and their beneficiaries.*
Which of the following is NOT a characteristic of fraternal benefit societies? A) Lodge system B) Profit-making organization with capital stock C) Insurance benefits to members D) Representative form of government
D) Reinstatement *All individual life insurance policies must include a reinstatement provision stating that if the policyowner defaults on premium payments, the value of the policy can be applied to purchase other insurance.*
Which of the following is a required provision in all individual life insurance policies? A) Open enrollment B) Notice of claim C) Conversion D) Reinstatement
C) grace period *The grace period provides additional time—usually 31 days after the premium due date for fixed premium life policies and 61 days for flexible premium policies—in which the policyowner can pay the premium.*
Which of the following provisions of a life insurance contract generally helps to keep policies in force if policyowners neglect to pay their premiums? A) Insuring clause B) Incontestable clause C) Grace period D) Free-look period
B) policy dividends are considered taxable income *Unlike corporate dividends, life insurance policy dividends are considered a return of part of the premiums paid and are not taxable income.*
Which of the following statements about participating and nonparticipating life insurance policies is NOT correct? A) participating policy premiums are normally slightly higher than nonparticipating policy premiums B) policy dividends are considered taxable income C) policy dividend payments cannot be guaranteed D) an extra charge to cover unexpected contingencies is built into the premiums of participating policies
A) It spreads financial risk over a large group so as to minimize the loss to any one individual.
Which of the following statements best summarizes the function of insurance? A) It spreads financial risk over a large group so as to minimize the loss to any one individual. B) It spreads financial risk over a diverse group of people who are exposed to different risks. C) It protects against living too long. D) It is a form of legalized gambling.
C) The premium for modified whole life increases each year after the first few years of policy issue. *Premiums for modified whole life policies do not increase annually after the first few years. They level off after the premium period.*
Which of the following statements pertaining to modified whole life and graded premium whole life policies is NOT correct? A) The premium for graded premium whole life increases each year during the first few years after policy issue. B) Modified whole life contracts build cash values and have premium-paying periods to age 100. C) The premium for modified whole life increases each year after the first few years of policy issue. D) Graded premium whole life policies build cash values and have premium-paying periods to age 100.
C) Special questionnaires are used to obtain additional information when an extra hazard or risk may be involved.
Which of the following statements pertaining to sources of insurability information is CORRECT? A) When conducting an inspection report, an investigator cannot interview an individual who actually knows the applicant. B) The insurance agent completes the medical report on a life insurance applicant. C) Special questionnaires are used to obtain additional information when an extra hazard or risk may be involved. D) An insurer cannot use an unfavorable credit report to reject an applicant for insurance.
C) An insured with a $75,000 life insurance policy issued December 15 commits suicide two years later, on December 24th The beneficiary of the policy will receive a return of the premiums paid for the policy.
Which of the following statements pertaining to the suicide clause in a life insurance policy is NOT correct? A) The suicide clause stipulates a period of time during which benefits will not be paid if the insured commits suicide. B) An insured committed suicide on February 1. The insured had a $50,000 life insurance policy, which was issued on January 28 two years previously. The $50,000 death benefit was paid to the beneficiary of the policy. C) An insured with a $75,000 life insurance policy issued December 15 commits suicide two years later, on December 24th The beneficiary of the policy will receive a return of the premiums paid for the policy. D) The suicide clause is designed to protect the insuring company.
B) The employee agrees to forgo part of his current income until a specified future date, typically retirement, and may use life insurance as the funding vehicle for the plan.
Which of the following statements regarding a deferred compensation plan is CORRECT? A) The employer purchases a whole life insurance policy on key employees and receives the death benefits if the employee dies before retirement. B) The employee agrees to forgo part of his current income until a specified future date, typically retirement, and may use life insurance as the funding vehicle for the plan. C) The employee uses part of his current income to purchase a whole life insurance policy, the cash value of which can be accessed only while he is employed by his current employer. D) The employer purchases a whole life insurance policy, the cash value of which the employee can access only while working for the employer.
A) They generally permit contract owners to withdraw a specified percentage annually, tax-free and without a surrender charge.
Which of the following statements regarding deferred annuities is NOT correct? A) They generally permit contract owners to withdraw a specified percentage annually, tax-free and without a surrender charge. B) The owner is not required to annuitize the contract. C) They typically have a surrender charge that is assessed with contract surrender during the first 2 to 12 years or more. Typically up to 10% of the contract value can be withdrawn free of surrender charge in any 1 year. D) They may be funded with a single premium payment or with periodic premium payments.
A) the employer becomes the policyowner of the insurance policy *The employee is the owner of the policy, and the bonus is included in the employee's gross income.*
Which of the following statements regarding executive bonus plans is NOT correct? A) the employer becomes the policyowner of the insurance policy B) the bonus is included in the employee's gross income C) the employer may alternatively use the bonus to pay the premiums on a life insurance policy covering the employee's life D) an executive bonus plan is a non qualified employee benefit arrangement in which an employer pays a bonus to a particular employee
B) under a non qualified deferred compensation plan, an employee can rely on guaranteed future benefits *Because most nonqualified deferred compensation plans are unfunded, an employee cannot rely on guaranteed future benefits. Typically, the employer finances its obligations on a pay-as-you-go basis.*
Which of the following statements regarding non-qualified deferred compensation plans is NOT correct? A) The employer receives no tax deduction for the amount of the compensation deferred until the compensation is actually distributed. B) Under a non-qualified deferred compensation plan, an employee can rely on guaranteed future benefits. C) Most deferred compensation plans are unfunded. D) A deferred compensation plan is an unsecured promise made by an employer to pay an employee part of the employee's compensation in the future.
D) Going on a shopping spree
Which of the following would most likely NOT be a reason to purchase a life insurance policy for the purpose of accumulating cash? A) Going back to college B) Purchasing a new water heater C) Planning for retirement D) Going on a shopping spree