Alabama State Insurance Exam FX
The type of policy that can be changed from one that does not accumulate cash value to the one that does, is a
Convertible Term Policy.
Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?
Indemnity
Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity?
Insurer's guaranteed minimum rate of interest
Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?
Insuring cause
Which of the following policy components contains the company's promise to pay?
Insuring clause
An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an
Interest-sensitive Whole Life.
A Universal Life Insurance policy is best described as a/an
Annually Renewable Term policy with a cash value account.
Which of the following is TRUE about a class designation?
Beneficiaries are not identified by name
An insurance contract must contain all of the following to be considered legally binding EXCEPT
Beneficiary's consent.
Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process?
Buyer's Guide
If the Commissioner has not approved or disapproved any insurance form by the end of the judgment period, the insurer
Can assume the form is approved.
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?
Cash surrender
What does "liquidity" refer to in a life insurance policy?
Cash values can be borrowed at any time.
What instrument is available to the Commissioner to prevent a licensee from performing specific acts or using certain methods of conducting the business of insurance before any hearing is held to determine if a violation of laws or regulations has occurred?
Cease and desist order
A producer who fails to segregate premium monies from his own personal funds is guilty of
Commingling
What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?
Common Disaster Clause
If an insurance producer is to charge to the client a fee that is in addition to the commission for the sale of an insurance policy, the producer must
Consumer Report
Which of the following includes information regarding a person's credit, character, reputation, and habits?
Consumer Report
Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as
Contracts of adhesion.
Which component increases in the increasing term insurance?
Death Benefit
Which of the following is considered to be a morale hazard?
Driving recklessly
When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?
Fixed amount
When an employee terminates coverage under a group insurance policy, coverage continues in force
For 31 days.
An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming?
Foreign
When doing business in this state, an insurance company that is formed under the laws of another state is known as which type of insurer?
Foreign
All of the following are business uses of life insurance EXCEPT
Funding against general company financial loss.
What provision in an insurance policy extends coverage beyond the premium due date?
Grace period
When would a misrepresentation on the insurance application be considered fraud?
If it is intentional and material
What type of insurance would be used for a Return of Premium rider?
Increasing Term
The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?
Interest only option
Which of the following is true regarding the spendthrift clause in life insurance policies?
It can protect the policy proceeds from creditors of the beneficiary.
Which of the following would be considered an advantage of owning term insurance?
It provides the highest amount of coverage for a temporary period of time.
Which of the following statements is TRUE about a policy assignment?
It transfers the ownership rights under the policy to the extent expressed in the assignment form
If a settlement option is not chosen by the beneficiary or policyowner, which option will be used?
Lump Sum
What is the other term for the cash payment settlement option?
Lump Sum
Which of the following is NOT true regarding minors purchasing insurance policies in this state?
Minors at the age of 14 are allowed to buy their own policies.
Using a class designation for beneficiaries means
Naming beneficiaries as a group.
Which of the following documents must be provided to the policyowner or applicant during policy replacement?
Notice Regarding Replacement.
A producer has become disabled. In order to keep his business going, what may his designee do?
Obtain a temporary license
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the
Other-insured rider.
The term "fiduciary capacity" deals with a producer's
Position of financial trust.
The surviving spouse receives Social Security benefits during which period?
Retirement
A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the
Revocable beneficiary
All of the following are beneficiary designations EXCEPT
Specified
Which of the following information will be stated in the consideration clause of a life insurance policy?
The amount of premium payment
Which is NOT true about beneficiary designations?
The beneficiary must have insurable interest in the insured.
In a group life insurance policy, the employer may select all of the following EXCEPT
The beneficiary.
The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?
The death benefit can be increased by providing evidence of insurability.
Who is the owner and who is the beneficiary on a Key Person Life Insurance policy?
The employer is the owner and beneficiary.
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT
The policy is owned by the company.
The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say?
The policyowner can specify the way proceeds are split in the policy
A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why?
The purpose of the group was to purchase life insurance.
What is a major problem with naming a trust as the beneficiary of a life insurance policy?
They are expensive to administer.
Which of the following is TRUE about nonforfeiture values?
They are required by state law to be included in the policy.
Which of the following Life Insurance policies would be considered interest sensitive?
Universal life
Which of the following types of policies will provide permanent protection?
Whole life
An agent accepts the premium payment 35 days after it is due, telling the insured that there will not be a problem keeping the policy in force. This is an example of what type of agent authority?
apparant
An annuitant died after receiving $200 monthly for 10 years ($24,000 total) from a $30,000 installment refund annuity. His wife, as beneficiary, will now receive the same monthly benefit until her payments total
$6,000.
What is the penalty for IRA distributions that are below the required minimum for the year?
50%
To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters?
6 credits
An insured misstates her age at the time the life insurance application is taken. This misstatement may result in
Adjustment in the amount of death benefit.
All of the following applicants for an insurance producer license are exempt from prelicensing education requirements EXCEPT
An applicant for a dealer's license.
A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?
20 year level term
All other factors being equal, which of the following lists from the largest annual premium to the smallest annual premium?
20-year endowment, 20-pay life, 20-year level term, 20-year decreasing term
Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?
Aleatory
All of the following are features and requirements of the Living Needs Rider EXCEPT
Diagnosis must indicate that death is expected within 3 years.
An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act?
Direct response marketing
In group life policies, a certificate of insurance is given to
Each insured person
Which nonforfeiture option has the highest amount of insurance protection?
Extended Term
What does "level" refer to in level term insurance?
Face Amount
A family's income need is greatest during which period?
Family Income Dependency
The death benefit under the Universal Life Option B
Gradually increases each year by the amount that the cash value increases.
An individual purchased a life insurance policy on his life naming his wife as primary beneficiary, and their daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit?
If the primary beneficiary predeceases the insured
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?
It is reduced to the amount of what the cash value would buy as a single premium.
Which of the following statements is TRUE concerning whole life insurance?
Lump-sum death benefits are not taxable.
What was created to keep telemarketers from calling consumers who do not wish contacted?
National Do Not Call Registry
The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the
One-year term option.
What type of beneficiary designation allows the benefit to pass from a deceased primary beneficiary to the beneficiary's heirs, instead of splitting the benefit among surviving primary beneficiaries?
Per stirpes
In Alabama, an insurance company certificate of authority is issued for what period of time?
Perpetual
What is the income period after the children are no longer dependent upon the surviving spouse for support, but before the surviving spouse qualifies for Social Security survivor benefits?
Preretirement Period
A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?
Proof of insurability is not required.
The Life Insurance Solicitation Regulation was promulgated to do the following:
Provide adequate information to consumers regarding relative cost of insurance products.
An agent offers his client free tickets to a sporting event in exchange for the purchase of an insurance policy. The agent is guilty of
Rebating
An insured committed suicide one year after his life insurance policy was issued. The insurer will
Refund the premium payments
In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT
Risk Classifacation
Events in which a person has both the chance of winning or losing are classified as
Speculative risk.
When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments?
Spendthrift Provision
Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles?
Standard risk is representative of the majority of people.
Which of the following is TRUE regarding variable annuities?
The annuitant assumes the risks on investment.
All of the following are true of key person insurance EXCEPT
The plan is funded by permanent insurance only.
A deferred annuity is surrendered prior to annuitization. Which of the following best describes the nonforfeiture value of the annuity?
The surrender value should be equal to 100% of the premium paid, minus any prior withdrawals and surrender charges.
In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT
The type of investment.
What is the purpose of life insurance solicitation regulations?
To help consumers compare life insurance products in regard to their relative cost
The Waiver of Cost of Insurance rider is found in what type of insurance?
Universal life
What is the name of the insured who enters into a viatical settlement?
Viator
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT
signed waiver of premium
in order to qualify for conversion from a group life policy to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?
5
What is a material misrepresentation?
A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company
An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?
Conditional
J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid?
February 28th, or 10 days after the time the policy is delivered
Which is TRUE about the cash surrender nonforfeiture option?
Funds exceeding the premium paid are taxable as ordinary income
An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true?
He will have to pay a penalty if he is younger than 59½.
In Modified Life policies, what happens to the premium?
It is level at the beginning and increases after the first few years.
All of the following are true regarding insurance policy loans EXCEPT
Policy loans can be made on policies that do not accumulate cash value.
All of the following entities regulate variable life policies EXCEPT
The Guaranty Association.
Under a defined benefit retirement plan, who determines what benefits a retired employee will receive?
Employer
Which of the following is NOT a type of information that needs to be gathered in order to determine the value of someone's life when using the needs approach?
Estimated longevity
If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?
Fixed period
If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may
Require evidence of insurability.
Methods used to pay the death benefits to a beneficiary upon the insured's death are called
Settlement Options
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a
Settlement option.
Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option?
Size of each installment
Which of the following is called a "second-to-die" policy?
Survivorship life
If a producer changes his residential address who must he/she notify?
This change will need to be reported to the Commissioner.
Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?
reduction
If an application for an annuity is gathered any way other than face-to-face, within how many days after the insurer receives the completed application must the applicant be given a Buyer's Guide?
5 business days
If the owner of a whole life policy who is also the insured dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary?
A full death benefit
Misrepresenting an insurance policy as a share of stock is an example of which of the following?
False advertising
When an individual purchases insurance, what risk management technique is he or she practicing?
Transfer
How long will the beneficiary receive payments under the single life settlement option?
Until the beneficiary's death
How long does a temporary producer's license last?
60 days
According to the Entire Contract provision, a policy must contain
A copy of the original application for insurance.
When transacting business in this state an insurer formed under the laws of another country is known as a/an
Alien Insurer