Exam Simulator One
XYZ Corp gives money to an employee to purchase a life insurance policy and allows the employee to select the beneficiary. What kind of plan is this?
Split-dollar
Any person who unknowingly violates Virginia insurance law may be punished for each violation by a penalty not to exceed
$1,000 with $10,000 cap
First-time homebuyers are able to withdraw up to how much from their qualified IRAs without incurring the 10% early withdrawal penalty?
$10,000
A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today?
$200,000
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?
100%
An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction?
20% is withheld for income taxes
Greg had recently been terminated from his job that covered him for group life insurance. How long does he have to convert his coverage to an individual policy?
31 days
How many quarters must an employee have worked in a covered occupation to be considered fully insured for Social Security disability income?
40
One becomes eligible for Social Security disability benefits after having been disabled for
5 months
How long do most states allow an insurance company to delay the payment of a cash surrender under the delayed payment provision?
6 months
The time limit an individual has to "rollover" funds from an IRA or qualified plan is
60 days
Which of these is not an advantage of term life insurance?
A cash benefit will be provided if the insured is alive at the end of the policy period
Which of the following would not be appropriate for an immediate annuity?
A parent saving for a child's college
Which of these is an accurate statement regarding the fixed period settlement option on a life insurance policy?
A portion of the payments paid to the beneficiary comes from interest calculated on the proceeds of the policy
Life insurance replacement can be best described as
A transaction in which a new life insurance policy is purchased and an existing life insurance policy is surrendered
Which benefit is normally payable to a life insurance policyowner when the insured's life expectancy has been severely limited?
Accelerated (living) benefit
Which statement regarding a single premium life insurance policy is not correct?
Additional premiums may be required under certain conditions
A __________ is a person appointed by an insurer that represents the company and present policies on its behalf
Agent
Tim is retired and has recently separated from his wife. He receives benefits from a qualified retirement plan through his former employer. The plan's trustee has decided to split these benefit payments between Tim and his estranged wife. This decision is likely in violation of which IRS rule?
Alienation of benefits
Which of the following is not a valid contract exchange?
An annuity exchanged for a life insurance policy
Which of the following situations would allow funds to be deposited into a rollover IRA?
An employee quits her job and receives $50,000 from her qualified plan
When a large sum of money is used to structure monthly payments, which product is typically used?
An immediate annuity
What qualifies as acceptance of an insurance contract offer?
An issued policy
Misrepresenting pertinent policy provisions relating to coverage after a loss is
An unfair claims settlement practice
Carlos the agent has sold an insurance policy and will be sharing the commission with another individual. Which of the following individuals may Carlos share the commission with?
Another licensed but unappointed agent
An applicant submits a life insurance application where an investigative consumer report is used in the underwriting process. Which of these statements is true?
Applicant has a right to receive a copy of the report
If replacement was involved in the sale of a life insurance policy, an agent must provide a replacement notice no later than the
Application date
Kevin has an existing life insurance policy and assigns it to another insurer for a new contract. How would this transaction be treated for tax purposes?
As a Section 1035 exchange
Which statement regarding the cash value of a whole life insurance policy is correct?
Available to the policyowner when policy has been surrendered
What is the tax treatment of benefit payments for a non-qualified annuity?
Benefit payments are always fully taxable
Tom the agent negotiates an agreement that unreasonably restrains the business of insurance. He has likely committed a violation of insurance law that falls under
Boycott, coercion and intimidation
Which of these is true regarding the exchange of consideration among parties involved in an insurance contract?
Can be unequal
Which statement regarding the waiver of premium rider is accurate?
Cash payment is not directly provided to the policyowner
An employee welfare plan exempt from ERISA regulations would be
Church plans
What must be given to a life insurance applicant when the agent receives an application and the initial premium?
Conditional receipt
An annuity's accumulation period may
Continue after the purchase payments stop
The policy provision that permits an employee to change from group life coverage to an individual life policy is called the
Conversion provision
The premiums for a group life credit policy must be paid for by the
Creditor
Mike applied for life insurance and was issued a conditional receipt. He is later found to be insurable and is issued a policy. When does his coverage become effective?
Date of issuance of the conditional receipt
What action may the Bureau of Insurance take it finds that a license applicant is not competent or untrustworthy?
Decline to issue the license
In what way is a life insurance policy affected by an accelerated benefit payment?
Decreases the death benefit
What kind of life policy typically offers mortgage protection?
Decreasing term
Which of the following is generally a form of group Credit Life Insurance?
Decreasing term insurance
An individual, age 45, would like to help pay for his daughters college expenses in 10 years. Which annuity would be appropriate for this individual?
Deferred annuity
And employee requested that the balance of a 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately And employee requested that the balance of a 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately had the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee?
Distribution is subject to federal income tax withholding
An employer has a group life coverage for his employees. How would an employee in poor health be treated in the situation?
Eligible for the same type of coverage as the other employees
Which of these is not considered a type of limited payment whole life insurance?
Endowment at age 70
The application is part of the annuity contract according to the
Entire contract clause
How often must the Commission examine each domestic insurance company?
Every five years
Which life insurance policy option allows the policy owner to have coverage equal to the net death benefit of the lapsed policy?
Extended term nonforfeiture option
When an applicant applies for a large amount of life insurance coverage, which of the following would likely not be an underwriting requirement?
Eye examination
A policyowner fell behind on the premium payments of a whole life policy and is now in the grace period. How much will the beneficiary receive if the insured dies during this grace period and the policy also contains an outstanding policy loan?
Face amount minus the loan balance and past-due premium
Which of the following is considered an unfair claims settlement practice?
Failure to investigate or pay legitimate claims
Which benefit supplement added to a life insurance policy insures an entire family?
Family term rider
Which of these may not be deducted from premium payments or the cash value of a variable life insurance policy?
Federal premium taxes
Rick owns a variable universal life policy and chooses a variable death benefit option. What will typically happen to the death benefit as a result of this selection?
Fluctuate with changes in the cash account
Death proceeds from a life insurance policy are typically included in a deceased insured's gross estate
For federal income tax reasons
An annuity contract may be returned for a full refund during the
Free-look period
How long does one premium payment cover in a single premium whole life policy?
Full life of the policy
Insurable interest in one's own life is legally considered as
Generally unlimited
John has a criminal record in which he was convicted of a felony that involved dishonesty. Under Federal law, how would John be able to engage in insurance transactions?
Given written consent by the state insurance regulatory agency
What is the name of the rider that provides an additional purchase option in a life insurance policy?
Guaranteed insurability rider
Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2?
Income tax and penalty tax
Which life insurance clause prohibits an insurance company from questioning the validity of the contract after a stated period of time has passed?
Incontestable clause
What happens when an initial offer is answered with a counter offer?
Initial offer is void
All of these are considered features of whole life insurance except
Initial premium is lower than for an equivalent amount of term insurance
Which statement is incorrect about the interest only settlement option in a life insurance policy?
Interest on proceeds must be paid by the beneficiary
How much is normally paid to a policy owner in a life (viatical) Settlement?
Less than the death benefit
An agent must hold which of the following licenses to sell variable life insurance policies?
Life, variable, and securities license
Which of these do not indicate the presence of insurable interest in a life insurance contract?
Lifelong friendship
Which of these is not relevant when determining the amount of personal life insurance needed?
Local unemployment rate
According to the Federal Fraud and False Statements Act, which of these is considered to be an intentional violation?
Making false entries in a company's books
In Virginia, false advertising is an example of
Misrepresentation
Which of the following is true about a qualified retirement plan that is "top-heavy"?
More than 60% of plan assets are in key employee accounts
An agent advertising a life insurance policy must disclose the
Name of the actual insurer
Wyatt is shopping for life insurance and is mainly concerned with the policy's death benefit. Which index should he be looking at when making comparisons?
Net payment cost index
Insurable interest involves what assumption?
One person benefits from another person's continued life
Who typically make the purchase payments in an individual annuity?
Owner
In Virginia, which of the following records are not required to be maintained by an agent?
Premium quotes for policies not accepted
When must a producer provide disclosure about information practices to an applicant?
Prior to or at the time of signing the application
Under federal law, which of the following actions may result in a producer becoming imprisoned?
Producer embezzling funds from an insurer
A retirement plan that sets aside part of the company's net income for distributions to qualified employees is called a
Profit sharing plan
Which of the following would not be a reason for purchasing life insurance on a child's life?
Provide benefits for the child if the parents die
According to the State Corporation Commission, the purpose of licensing perspective agents in the state of Virginia is
Qualifying the agent to represent an authorized insurer for soliciting and negotiating their insurance products
Ambiguities in insurance contracts are typically interpreted in favor of the insured. This rule is referred to as
Reasonable expectations
Which of the following actions may result in an agent's license being suspended?
Rebating a portion of the commission to the insured
A life insurance policyowner sells her policy to a third-party in a viatical settlement. Under this transaction, the policyowner
Receives an amount less than the policy's death benefit
Which of the following is not a dividend option for a life insurance policy?
Receiving the entire policy cash value
Which of these is not an unfair claims settlement practice?
Refusing to pay persons bringing false or fraudulent claims
When a lapsed policy's premium has been paid current, it has the potential of being
Reinstated
A life insurance policy's waiver of premium rider has the ability to
Relieve the insured of premium payments following an initial waiting period after the insured becomes totally disabled
Which of the following would prevent a person from obtaining a Virginia resident agent license?
Residing in a state outside of Virginia
What kind of arrangement gives the policyowner the right to change the beneficiary?
Revocable designation
Security laws passed by Congress are enforced by which Federal agency?
Security and Exchange Commission (SEC)
Which of these situations would not potentially involve a prison sentence under federal law?
Selling insurance with a nonresident license
Which is a role of the replacing insurer during a life insurance replacement transaction?
Send notice of the proposed replacement transaction to the existing insurer
Chuck and Shaquille are both licensed agents in the same line of insurance. Chuck provides Shaquille with a referral that results in a sale. Commissions on the sale will likely be
Shared by both agents
Sylvia purchased an annuity for $100,000 from the proceeds of an inheritance. No further payments are permitted and the income stream begins in 15 years. This contract is a(n)
Single Premium Deferred Annuity
A life insurance agent has the authority to
Solicit, receive, and forward applications to the insurer
Licensed agents in Virginia are authorized to
Solicit, receive, and forward applications to the insurer
What happens to the cash value of a market value adjusted annuity if it's surrendered prior to the end of the stated guarantee period?
Subject to market value adjustment
Which of these is a true statement regarding survivor benefits under a qualified retirement plan?
Survivor benefits can only be waived with the written consent of a married employee's spouse
How are monthly life annuity benefit payments treated under a tax sheltered annuity (TSA)?
Taxed as ordinary income in the year received
An agent may be personally liable if he or she engages in acts
That are not part of the agency or agent contract
Which statement regarding the joint and survivor life insurance settlement option is not true?
The amount of each installment is larger than the single life income option
Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes?
The gain is treated as taxable income and a penalty tax is imposed on the gain
What would be considered an advantage of purchasing term life insurance?
The initial premium is lower compared to an equivalent amount of whole life coverage
Which statement regarding a fixed period settlement option is correct?
The installment payment amount is determined by the total number of installments
Rick recently died and left behind an individual IRA account in his name. His widow was forwarded the balance of the IRA. The transfer of Rick's IRA account balance to his surviving spouse qualifies for
The marital deduction
Which statement concerning a deferred annuity contract is correct?
The owner can be the beneficiary, annuitant, or neither
Who is normally considered to be the owner of a 403 (B) tax-sheltered annuity?
The participating employee
What happens when a policyowner borrows against the cash value of his life insurance policy?
The policy proceeds would be reduced by the outstanding loan balance
How does a continuous premium whole life policy differ from a limited payment whole life policy?
The time period in which premiums will be paid
How is a collateral assignment used in a life insurance contract?
Transfers specific ownership rights to a creditor
When does interest income for a flexible premium deferred annuity get reported for federal income taxes?
Upon receiving distributions from the contract
An agent's insurance records must be provided to the state corporation commission
Upon request of the state Corporation commission
An insurance policy that can also be classified as a securities product is called
Variable Life
An agent gives a conditional receipt to a client for an insurance policy after collecting the initial premium. When will the policy become effective?
When the conditions of the receipt are met
At what point are death proceeds paid in a joint life insurance policy?
When the first insured dies
A producer working for an insurance company may be personally liable for
acts performed which are prohibited in the agency contract
The surrender charge on many deferred annuity contracts are waived when the
annuitant dies or becomes disabled
To be eligible for Social Security disability benefits, an employee must be unable to perform
any occupation
When there is a named beneficiary on a life insurance policy, the death benefits
are paid directly to the beneficiary without interference from the insured's creditors
In a qualified retirement plan, the yearly contributions to an employee's account
are restricted to maximum levels set by the IRS
Who normally pays the premiums for a group Credit Life Insurance?
borrower
Voluntarily terminating an insurance policy is also known as
cancellation
Taking a sum of money and decreasing it in size is called
capital liquidation
What is payable to the policyowner if a whole life policy is surrendered prior to its maturity date?
cash value
The payment of the first premium, the promise to pay a covered loss, and the agreement to abide by policy conditions are all examples of
consideration
Interest is credited to a fixed annuity no lower than the
contract guaranteed rate
Al surrenders his life insurance policy for its cash value. The total of the premiums paid into the policy minus total dividends received in cash or used to offset premiums is referred to as the
cost basis
What happens to the purchasing power of benefit payments from a fixed life annuity when the cost-of-living goes up?
decreases
An agreement is reached when an insurance contract is formed. Which of the following is not considered to be an element of an agreement?
equity
Death benefits from a life insurance policy are normally considered to be
exempt from federal income tax
When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest earned minus
expenses and withdrawals
A life insurance policy that contains an accelerated (living) benefit rider will provide funds if the
insured is expected to be confined to a nursing home for life
The _____ is required to notify the state corporation commission in the event of appointment termination
insurer
After an insurance application has been originated, the producer normally
is the major personal contact to the insured
The owner of a single premium deferred annuity is entitled to do all of these except
make additional payments into the annuity
An insurance contract may be voided if a misrepresentation found on the application is determined to be
material
Field underwriting by a producer
may result in the disclosure of hazardous activities of the applicant
The contractual rights which allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are called
nonforfeiture options
When a deferred annuity is surrendered, who must sign the authorization to do so?
owner
A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called
period certain
When a producer submits an application that discloses personal information regarding the applicant, who supplies the privacy notice?
producer
The automatic premium loan provision can be accurately described as a
provision that provides a policy loan to pay any premiums by the end of the grace period
Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will
remain a constant dollar amount for the duration of the annuity period
What is Old Age and Survivors Health Insurance (OASDHI) also known as?
social security
An insurer will typically assess a back-end load on a deferred annuity that is cancelled during the early contract years. What is this back-end load referred to as?
surrender charge
Under a deferred annuity, which contract feature initially charges a 5-10% fee that eventually reduces to $0 after a stated amount of time?
surrender charge
The interest credited to the cash values of personally-owned non-qualified annuities is considered
tax deferred
A material change in a modified endowment contract (MEC) results in
the seven pay test, adjusted for cash value, applies again
The reason for backdating a policy is
to obtain a premium rate based on an earlier age
All of these are considered to be a benefit under Social Security except for
unemployment
Giving up a known right on a voluntary basis is called
waiver
Which life insurance policy would be eligible to include an automatic premium loan provision?
whole life
An insured has a $25,000 whole life insurance policy with $6000 cash value available. Under the extended term nonforfeiture option, what is the amount of insurance available to the insured?
$25,000
The free look period provided in a life insurance policy is usually _____ days
10
An insurance application requires an applicant to make a full, accurate disclosure of the risk factor involved. Using this criteria, an insurance policy is considered what type of contract?
Contract of utmost good faith
Which life insurance settlement option pays a stated monthly benefit until both principal and interest are exhausted?
Fixed amount installment option
An agent's license may only be suspended or revoked if the agent
Has been afforded a right to a hearing
Which of these statements is not true regarding a cash value loan against a life insurance policy?
Interest payments made by policyowner are deductible
Which of these would not be a valid reason to add the waiver of a premium rider to a life insurance policy?
It allows a policy loan to cover premium payments if the policyowner becomes totally disabled
Paul is an agent who is licensed in Virginia but a resident of Maryland. P is considered to be a _____ agent
Non-resident
Which of these would likely be considered an unfair claims settlement practice?
Offering settlements that are less than the fair value to offset insurer expenses
Which of these is not an unfair claims settlement practice?
Offering to settle a claim by arbitration
The State Corporation Commission is empowered to perform each of the following acts EXCEPT
Prosecute agents who violate state insurance laws
A life insurance producer's underwriting duties may include
Seeking additional information requested by the insurance company
Which type of life insurance policy allows a policyowner the choice of investments along with flexible premium payments?
Variable Universal Life
If an agent replaces a client's existing life insurance policy with a new one, which of these actions is advisable?
Wait until the new policy is issued and delivered before surrendering existing policy
An insurance company's failure to enforce a contract's provision is called
Waiver
The IRS has a "minimum coverage" rule regarding qualified retirement plans. This rule states that each qualified plan is required to
benefit a broad cross-section of employees
Any employee insured under a group life insurance plan is normally
covered with term life insurance
Viatical settlement proceeds may be subject to the claims of
creditors
Which of these life insurance policies does not contain a cash value provision?
decreasing term life
In a speech to a local association, an agent incorrectly stated that XYZ insurance company is in financial difficulty and not paying claims. The agent may be guilty of
defamation
Which annuity allows contributions to an IRA?
deferred
If a life insurance applicant is shown future premiums are to be paid out of non-guaranteed values, the illustration used in the sales presentation must
disclose that premium payments may need to be resumed depending on actual results
Group life plans sold in Virginia typically contain a conversion option. If the insured elects this option, the new policy
does NOT require evidence of insurability
When using the needs approach for life insurance planning, lump sums may be created for all of the following reasons EXCEPT
employee benefits
The powers directly given to a producer in an agency contract are called
express authority
Which settlement option makes minimum guaranteed dollar payments over a stated number of years?
fixed period
A Life Annuity with period certain is characterized as
guaranteeing benefit payments for a stated minimum number of years
A life insurance applicant is tested for Human immunodeficiency virus (HIV). The applicant must be informed that the testing
helps determine the insurability of the applicant
With life insurance, the needs approach is used primarily in determining
how much life insurance a client should apply for
During the early years of a whole life insurance policy, the cash value will normally be
less than the total premiums paid
When an agent is determining the suitability of an annuity for a client, which of these is not usually taken into consideration?
level of education
A "premature" distribution from a modified endowment contract (MEC) incurs a penalty tax of
10%
Premature IRA distributions are subject to a penalty tax of
10%
Which of these statements about traditional individual retirement accounts is accurate?
10% penalty is applied to withdrawals prior to age 59 1/2
What is the maximum number of employees (earning at least $5000) that an employer can have in order to start a SIMPLE retirement plan?
100
A life insurance policy loan in Virginia cannot exceed an interest rate of
8%
A life insurance policyowner would like a dividend option that results in a limited current outlay of funds. Which dividend option would be chosen?
Reduction of premium payment
When an insurer discovers (during the claim process) that the insured's age was accidentally misstated on the life insurance application, the insurer will likely
Pay an amount the premiums would have purchased at the insured's actual age
What happens to a life insurance policy when the policy loan balance exceeds the cash value?
Policy will no longer be in force
Which of these is not used as selection criteria in the underwriting process of a life insurance application?
national origin
When funds are transferred directly from one IRA to another IRA, what percentage of the tax is withheld?
none
Which of the following is not a reason for a business to buy key person life insurance?
An increased pension liability if the key employee dies
A life insurance policy's contingent beneficiary is the
Person who receives the death benefits in the primary beneficiary dies before the insured
Which of the following is a true statement regarding universal life insurance?
Policy indicates how much of each premium is used toward company expenses
