Chapter Exam
What type of policy would offer a 40-year-old the quickest accumulation of cash value?
20-pay life
A potential client, age 40, would like to purchase a whole life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of the statements made by the producer would be correct?
20-pay life accumulates cash value faster than straight life
What is the name of the law that requires insurers to disclose information gathering practices and where the information as obtained?
Fair Credit Reporting Act
What type of life policy covers 2 lives and pays the face amount after the first one dies?
Joint Life policy
K's whole life insurance policy lapse two months ago due to nonpayment. She would now like to reinstate the policy all of these statements are correct about the policies reinstatement EXCEPT:
K Will forfeit the right to use the automatic loan provision upon reinstatement
K, age 45, and his wife, age 43, have three children. They purchase a Family Policy that covers K's wife to age 65. All of these situations will pay a death benefit EXCEPT
K's wife dies at age 66
Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the following contractual elements?
Legal Purpose (Insurable interest)
K is looking to purchase Renewable Term insurance. Which of these types of Term insurance may be renewable?
Level
Which is true concerning a Variable Universal Life policy?
Policyowner controls where the investment will go and selects the amount of the premium payment
A(n) ______ ______ Life policy combines investment choices with a form of term coverage.
Variable Universal
When is the face amount of a whole life policy paid?
When the insured dies or at the policy's maturity date, whichever happens first
The investment gains from a universal life policy usually go toward:
cash value
Under an interest sensitive whole life policy
cash values are determined by interest rates
A variable insurance policy:
does not guarantee a return on its investment accounts
A universal life policy is sometimes referred t as an unbundled Life policy because the owner can see the interest earned, cost of insurance, and the...
expense charges
All of these are characteristics of an Adjustable Life policy EXCEPT
face amount can be adjusted using policy dividends
When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have
insurable interest in the proposed insured
A Limited-Pay Life policy has
premium payments limited to a specified number of years
Statements made on an insurance application that are believed to be true to the best of the applicants knowledge are called:
repesentation
A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a:
risk retention group
Under a Renewable Term policy,
the renewal premium is calculated on the basis of the insured's attained age
S Buys a $50,000 whole life policy with a $50,000 accidental death and dismemberment rider. S dies one year later of natural causes. How much will the insured pay the beneficiary?
$50,000
What year was the McCarran-Ferguson Act enacted?
1945
Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated:
1970- Fair Credit Reporting Act
N is a 40-year old applicant who would like to retire at age 70. He is looking to buy a life insurance policy with level premiums, permanent protection, and be paid-up at retirement. Which of these should N purchase?
30 Pay Life
Y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10-year Term coverage for his wife on the same policy. Which of these policies did Y purchase?
A Whole Life Policy with an Other Insured Rider
Which of these is an element of a variable Life policy?
A fixed, level premium
Which statement is TRUE regarding a variable whole life policy?
A minimum guaranteed Death benefit is provided
A policyowner may generate taxable income from which of the following Dividend Options?
Accumulation at interest
Q purchases a $500,000 life insurance policy and pays $900 in premiums over the first six months. Q dies suddenly and the beneficiary is paid $500,000. This exchange of unequal values reflects which of the following insurance contract features?
Aleatory
What action can a policy owner take if an application for a bank loan requires collateral?
Assign policy ownership to the bank
S Has a whole life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium statement can be made?
Automatic policy loan
Which action will ensure take if an interest payment on a policy loan is not made on time?
Automatically add the amount of interest due to the loan balance
P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?
Beneficiary will be paid the Death Benefit
All of the following are considered to by typical characteristics describing the nature of an insurance contract, EXCEPT:
Bilateral
A company that owns a life insurance policy on one of its key employees may do all of the following EXCEPT
Change the policy's interest rate
S is covered by a whole life policy. Which insurance product can cover his children?
Child term rider
N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?
Claim will be denied
How do you life insurance companies handle cases where the insured commit suicide within the contract's stated contestable period?
Claims are denied under the suicide clause of the policy
Which of the following consists of an offer, acceptance, and consideration?
Contract
Which of these require an offer, acceptance, and consideration?
Contract
Insurance policies are offered on a "take it or leave it" basis, which make them:
Contracts of Adhesion
What kind of life insurance starts out as temporary coverage but can later modify to permanent coverage without evidence of insurability?
Convertible term
Which statement regards to misstatement of age provisions is considered to be true?
Coverage will be adjusted to reflect the insurers true age if a miss statement of age is discovered.
Dividends payable to policyowner are:
Declared by the insurance company
How are surrender charges deducted in a life policy with a rear-end loaded provision?
Deducted when the policy is discontinued
P owns a $25,000 Life Policy that pays the face amount to him if he lives to age 70, or to his beneficiary if he dies before age 70. What kind of policy does P own?
Endowment at age 70
Which of these statements describe a modified endowment contract (MEC)?
Exceeds the maximum amount of premiums that can be paid into a policy and still have it recognized as a life insurance contract.
Term insurance has which of the following characteristics?
Expires at the end of the policy period
What kind of insurance policy supplies and income stream over a set period of time that starts when the insured dies?
Family maintenance plan
P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20 year. What type of policy should P purchase?
Family maintenance policy
What kind of life insurance policy pays a specific monthly income to a beneficiary for 30 years and then pay is a lump sum benefit at the end of that 30 years?
Family maintenance policy
Taking receipt of premiums and holding them for the insurance company is an example of
Fiduciary Responsibility
The purpose of the ______ period clause to avoid an unintentional lapse of a life insurance policy.
Grace
In regards to representation or warranties, which of these statements are true?
If material to the risk, false representations will void a policy
When must insurable interest exist for a life insurance contract to be valid?
Inception of the contract
Who makes the legally enforceable promises in a unilateral contract?
Insurance company
If a contact of adhesion contains complicated language, to whom would the interpretation be in favor of?
Insured
Who has the option to renew a renewable term policy?
Insured
All of these settlement options involve the systematic liquidation of the death processes in the event of the insured's death, EXCEPT:
Interest only
Which of these arrangements allows one to bypass insurable interest laws?
Investor- Originated Life Insurance
A life insurance arrangement that circumvents insurable interest statutes is called:
Investor-Originated Life Insurance
A life insurance arrangement which circumvents insurable interest statutes is called:
Investor-Originated Life Insurance
Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE?
It is taxed as ordinary income
An architecture firm would stand to lose a lot of money in the event of the death of its project manager. Which type of policy should the firm purchase on its project manager?
Key person insurance
Life insurance that covers an insured's whole life with level premiums paid over a limited time is called:
Limited Pay life
All of these statements concerning settlement options are true, EXCEPT:
Only the beneficiary may select
P is the insured on a participating life policy which statement is true if P's premiums are waived due to a disability?
P will still receive declared dividends
All of the following statements are true regarding a policy's grace period, EXCEPT
Past due premiums are waived
Which of the following information is NOT required to be included in a whole life policy?
Policy's guaranteed dividend table
Which of these characteristics is consistent with a straight life policy?
Premiums are payable for as long as there is insurance coverage in force
Which statement is correct regarding the premium payment schedule for whole life policies?
Premiums are payable throughout the insured's lifetime/ coverage lasts until death of the insured
What benefit does the Payor clause on a Juvenile Life policy provide?
Premiums are waived if payor becomes disabled
Which of the following actions is NOT possible with a Universal life policy?
Premiums may be applied as a credit against income tax
Which of the following types of permanent life insurance policies offers the highest initial cash value?
Single Premium
Which of the following BEST describes a warranty?
Statement guaranteed to be true
K is shopping for a permanent life insurance policy that will offer her the MOST protection per dollar of annual premium. Which of these policies best fits her needs?
Straight Life
T would like to be assured $10,000 is available in 10 years to replace a roof on his house. What kind of $10,000 policy should T purchase?
Ten-Year Endowment
Q is looking to buy a life insurance policy that will provide the greatest amount of protection for a temporary time period. Which of these policies should to purchase?
Term life
What kind of life insurance product covers children under their parent's policy?
Term rider
Which of these life insurance riders allows the applicant to have excess coverage?
Term rider
The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is:
The cost
Whole life insurance is sometimes referred to as "straight life". What does the word "straight" indicate when using this phrase?
The duration of premium payments
What does the face amount plus cash value policy pay upon the insurance's death?
The face amount plus the policy's cash value
D was actively serving in the Marines when he was killed in an automobile accident while on leave. He's $100,000 whole life policy contains a war exclusion cause how much will D's beneficiary receive?
The full face amount
A policy of adhesion can oly be modified by whom?
The insurance company
The advantage of reinstating an old life policy is
The premiums are based on a younger age
How does a typical Variable Life Policy investment account grow?
Through mutual funds, stocks, bonds
What type of reinsurance contract involves two companies automatically sharing their risk exposure?
Treaty
Which of the following life insurance policies combine term insurance with an investment element?
Universal Life
At which point must a life applicant be informed of their rights that fall under the Fair Credit Reporting Act?
Upon completion of the application
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?
Variable Universal Life
Which of these is considered a statement that is assured to be true in every respect?
Warranty
At what point does a whole life insurance policy endow?
When the cash value equals the death benefit
A return of premium life insurance policy is:
Whole life and Increasing term
If a 10-Year Term Life policy contains a Renewability provision, the policy will renew
Without evidence of insurability
A nonprofit incorporated society that does not have capital stock and operates for the sole benefit of its members is known as:
a fraternal benefit society
Variable Whole Life Insurance can be described as
both an insurance and securities product
Whose life is covered on a life insurance policy that contains a payor benefit clause?
child
Insurance contracts are known as ____ beacuse certain future conditions or acts must occur before any claims can be paid
conditional
In a life insurance policy, which features states that the policy will not cover certain risks?
exclusion
Dividends paid from a life insurance policy are
issued by the insurer
Credit life insurance is:
issued in an amount not to exceed the amount of the loan
What kind of premium does a whole life policy have?
level
Which of these is NOT considered to be an element of an insurance contract?
negotiating
When a policy pays dividends to its policyholders, it is said to be
participating
The consideration clause of an insurance contract includes:
the schedule and amount of premium payments
Term Life Policies that have the ability to be converted to permanent coverage may do so during a specific time period. This conversion period
varies according to contract
A policy that becomes a Modified Endowment Contract (MEC)
will lose many of its tax advantages
Which of the following types of term life policies most likely contains a renewability feature?
10 year convertible term
Which of the following types of policies pay a benefit if the insured goes blind?
AD&D
An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the:
Fair Credit Reporting Act
All of these insurance products require an agent to have proper FINRA securities registration in order to sell them EXCEPT for
Modified Whole life
K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this?
Modified whole life
Which statement is true in regards to a policy loan?
Past-due interest on a policy loan is added to the total debt
M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take?
Pay face amount minus the past due premium
The stated amount or percent of liquid assess that an insurer must have on hand that will satisfy future obligations to its policyholders is called:
Reserves
S, age 40, is looking to buy a Life Insurance policy that will allow for increases or decreases in coverage as his needs change. The policy best suited for S would be
Universal Life
What type of life insurance incorporates flexible premiums and an adjustable death benefit?
Universal Life
When is the face amount paid under a Joint Life and Survivor policy?
Upon death of the last insured
S owns a life insurance policy with cash values that fluctuate according to the underlying investment performance of common stocks. Which of these policies does S own?
Variable Whole Life
Which of these types of life insurance allows the policy on her to have level premiums and to also choose from A selection of investment options?
Variable life
Which of these types of life insurance allows the policy on her to have level premiums and to also choose from a selection of investment options?
Variable life
Variable Life products require a producer to
hold a Life Insurance license and a Securities license
Which of the following actions require a policyowner to provide proof of insurability in an adjustable life policy?
increase face amount
Who elects the governing body of a mutual insurance company?
policyowners
The part of a life insurance policy guaranteed to be true is called a(n)
warranty
A life insurance policy that provides a policyowner with cash value along with a level face amount is called:
whole life
An insured's inability to preform two or more activities of daily living may trigger which type of life policy rider?
Long-term care
What is the suicide provisions designed to do?
Safeguard the insured from an applicant who is contemplating suicide
A policy of adhesion can only be modified by whom?
The insurance company
What does the ownership clause and a life insurance policy state?
Who the policyowner is and what rights the policyowner is entitled to
Whole life insurance policies are contractually guaranteed to provide each of the following, EXCEPT:
partial withdrawal features beyond a surrender charge period
Typically a life insurance death benefit is paid by a lump-sum payment. A(n) __________ option is a method of distributing a Life Insurance policy's death benefit OTHER than by a lump sum payment.
settlement
Life and health insurance policies are:
unilateral contracts
A term life insurance policy matures
upon the insured's death during the term of the policy
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
$20,000 death benefit
P purchases a $50,000 whole life insurance policy in 2005 what are the questions on the application asked if he engages in scuba diving to which P answered no. the policies issued with no scuba diving exclusions. In 2010, P takes a scuba diving and dies in a scuba Dash deleted accident in 2011 what will the insurance pay to P's beneficiary,
$50,000 minus any outstanding policy loans
G purchased a family income policy at age 40. The policy has a 20-year rider period. If G were to die at age 50, how long would G's family receive an income?
10 Years
A 15-year mortgage is best protected by what kind of life policy?
15-year decreasing term
A potential client, age 40, would like to purchase a whole life policy that will accumulate cash value at a faster rate in the early years of the policy. What should the statements made by the producer would be correct
20-pay Life accumulates cash value faster than straight life
Which statement about a whole life policy is true?
Cash value may be borrowed against
A policy loan is made possible by which of these life insurance policy features?
Cash value provision
Which of the following features of a group term life policy enables an individual to leave the group and continue his or her insurance without providing evidence of insurability?
Conversion privilege
When a policy owner exchange is a term policy for a whole life policy without providing proof of good health which of these applies?
Conversion provision
A(n) _________ term life policy is normally used when covering an insured's mortgage balance.
Decreasing
Credit life insurance is typically issued with which of the following types of coverage?
Decreasing term
What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time?
Decreasing term
Which of these types of policies may NOT have the automatic premium on provision attached to it?
Decreasing term
F needs life insurance that provides coverage for only a limited amount of time with a death benefit that changes regularly according to a schedule. What kind of policy is needed?
Decreasing term policy
What provision in a life Insurance policy states that the application is considered part of the contract?
Entire Contract provision
Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself?
Entire Contract provision
S is close to retiring and would like to purchase a policy that will yield greater gains than bonds, but will still protect the principal with a minimum level of risk. Which product would S advise to purchase?
Equity index insurance
E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E's life insurance policy be directed to?
F
All of these statements about the waiver of premium provisions are correct,EXCEPT:
Insured must be eligible for Social Security disability for claim to be accepted
Which of these needs is satisfied by Adjustable Life insurance?
Insured's need for flexible premiums
D need life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium what kind of policy is needed?
Level term
Which of these is NOT an example of a nonforfeiture option ?
Life Income
Which of these would be considered a limited-pay life policy?
Life Paid-Up at Age 70
Which type of policy is considered to be over funded, as stated by IRS guidelines?
Modified Endowment Contract
When a life insurance policy exceeds certain IRS table values, the result would create which of the following?
Modified Endowment Contract (MEC)
J is issued a life insurance policy with a death benefit of $100,000. She pays $600 per year in premium for the first 5 years. The premium then increases to $900 per year in the sixth year, and remains level thereafter. The policy death benefit also remains at $100,000. Which type of life insurance policy is this?
Modified Premium Life
Which of these life products is NOT considered interest-sensitive?
Modified Whole Life
B recently died and was insured with a life insurance policy for over five years. During the claims process, the insurer discovered that B had understated his age by 5 years at the time of application. In this situation, the insurer will
Pay the amount that the premium would have purchased at the correct age
A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waved under which provision?
Payor provision
Who benefits in Investor-Oriented Life Insurance (IOLI) when the insured dies?
Policyowner
What is the consideration given by an insurer in the consideration clause of a life policy?
Promise to pay a death benefit to a named beneficiary.
The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called:
Reinstatement
T has a term policy that allows him to continue the coverage after expiration of his initial policy period. What type of term coverage is this?
Renewable
S Buys a $10,000 whole life policy in 2003 and pays an annual premium of $100. S dies five years later in 2008 and the insure pays the beneficiary $10,500. What kind of rider did us include on the policy?
Return of premium rider
What type of life insurance or credit policies issued as?
Term
What type of life insurance gives the greatest amount of coverage for a limited period of time?
Term Life
What advantage does the renewable feature give to a term policy?
The insured may extend the coverage period
All of the following statements about equity indexed life insurance are correct, EXCEPT:
The premiums can be lowered or raised based on investment performance
In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this?
Unilateral
K purchased a Life insurance policy in 1986 which paid 10% interest in the early years of the policy. Twenty years after the purchase, she received a notice from the insurer stating that the policy will soon terminate unless a much-higher premium is paid because of falling interest rates. This type of policy is known as a(n) _________ life policy.
Universal
The cash value is a(n) __________ life policy may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factor
Universal
The free-look Provision begins
Upon receipt of the policy by the policyowner
A(n) _____ Life policy offers the owner investment in products such as money-market fund, long-term bonds and equities.
Variable
In order to sell a (n)____ Life policy, a producer is required to register with financial Industry Regulatory Authority (FINRA).
Variable
A life policy with a death benefit and cash value that can fluctuate according to the performance of its underlying investment portfolio is referred to as:
Variable Life
Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit?
Variable Life
Which of the following policies is characterized by a flexible premium and death benefit and allows the policy owner control of the investment aspect of the plan?
Variable Universal Life
Which policy requires an agent to register with the National Association of Security Dealers (NASD) before selling?
Variable life
A life policy that contains a month mortality charge as well as self-directed investment choices is called a(n)
Variable universal life policy
When a misrepresentation of a life insurance policy application is discovered, which action May and insurance company take?
What is the policy only if it's discovered during the constable. And proven to be material
At what point does an informal agreement become a binding contract?
When consideration is provided by one of the parties to the contract
When must insurable interest be present in order for a life insurance policy to be valid?
When the application is made
When is the face amount of a Whole Life policy paid?
When the insured dies or at the policy's maturity date, whichever happens first
What type of insurance offers permanent life coverage with premiums that are payable for life?
Whole life
B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of
additional Whole Life coverage at specified times
A contract where one party has performed completely, but the other party has not can best be described as a/an:
adhesion
How long does the coverage normally remain on a limited-pay life policy?
age 100
Under a graded premium policy, the premiums
are lower during the policy's early years
The automatic premium loan provision is designed to:
avoid a policy lapse
Which Provision allows the policyowner To change a term life policy to a permanent one without providing proof of good health?
conversion
A universal life policy is sometimes referred to as an unbundled life policy because the owner can see the interest earned, except charges, and the
cost of insurance
The combination of Whole life and _____ term insurance is referred to as a family income policy.
decreasing
Additional coverage can be added to a whole life policy by adding a(n):
decreasing term rider
A life insurance policy would be considered a wagering contract WITHOUT:
insurable interest
Insurance policies are considered aleatory contracts because
performance is conditioned upon a future occurrence
Which of these is NOT a type of agent authority?
principal
The amount of coverage on a group credit life policy is limited to:
the insured's total loan value
Under a Graded Premium Whole Life policy,
the premium increases each year during the early years of the contract and remains the same after that time
Which of the following is considered an element of a variable life policy?
underlying equity investment
What kind of life policy either pays the face value upon the death of the insured or when the insured reaches age 100?
whole life
A whole life insurance policyowner does NOT have the right to
change the grace period
Stranger-Owned Life Insurance (STOLI) is when a person purchases life insurance only to sell to a(n):
third-party with no insurable interest
J is 35-years old and looking to purchase a whole life insurance policy. Which of the following types of policies will provide the most rapid growth of cash value?
20-pay life
Which of these describe a participating insurance policy?
policyowners are entitled to receive dividends
What type of life policy covers two people and pays upon the death of the last insured?
survivorship