Guaranteed Exam
Because of the imposed blackout period, the surviving spouse will not receive social security benefits until a) He or she becomes fully insured. b) The age of 59 1/2. c) He or she qualifies for retirement benefits. d) The age of 65.
Blackout period begins when the youngest child reaches the age of 16, and ends when the surviving spouse qualifies for retirement benefits, as early as age 60.
How long is the grace period for an individual life insurance policy? a) 2 weeks b) 7 to 10 business days c) 3 months d) 1 month
An individual life insurance policy will not lapse for up to 31 days after the premium due date.
A life insurance policy can be backdated to affect a lower premium for up to a maximum of how many months? a) 18 b) 3 c) 6 d) 12
c) 6 The maximum a policy may be backdated is 6 months.
Under what circumstances will the contingent beneficiary receive the death benefit? a) If designated by the insured b) If designated by the primary beneficiary c) If the primary beneficiary dies before the insured d) If the tertiary beneficiary dies before the insured
c) If the primary beneficiary dies before the insured The only way the contingent beneficiary will receive the death benefit is if the primary beneficiary dies before the insured.
Key person insurance can provide protection for all of the following economic losses to a business EXCEPT a) Provide deferred compensation retirement benefit if the insured key person survives to retirement. b) Fund the expense of finding a suitable replacement following the death of an employee. c) Fund the cost of training a current employee to perform the duties of a deceased employee. d) Pay the death benefit to the estate of the insured.
d) Pay the death benefit to the estate of the insured. The business, not the family or estate of the insured, is the policyowner, premium payor, and the beneficiary.
To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of loss. What is this concept called? a) Insurable interest b) Indemnity c) Exposure d) Pure loss
a) Insurable interest To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of loss. This is called insurable interest.
An annuity owner receives the same guaranteed payment every month. What type of annuity is it? a) Guaranteed b) Single c) Fixed d) Immediate
c) Fixed Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make these guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio.
An IRA owner who is 57 years old wants to make a withdrawal from her traditional IRA. What penalty will be imposed? a) No penalty b) 6% c) 10% d) 20%
c) 10% Early distributions from an IRA (prior to age 59 ½) are subject to a 10% penalty unless exempt.
What does the Guaranty Association guard against? a) Rebating b) Insurer insolvency c) Insurance fraud d) Double indemnity
All admitted insurers must be a member of the Insurance Guaranty Association as a condition of their license. The Insurance Guaranty Association is in existence to protect policyowners and beneficiaries against losses caused by the insolvency of an insurance company.
What is the exclusion ratio used to determine? a) The premium amounts to be included in taxes. b) The interest base and the payout base. c) The benefit amounts to be paid to the annuitant. d) The annuity benefit to be excluded from taxes.
d) The annuity benefit to be excluded from taxes. The exclusion ratio is used to determine the annuity amounts to be excluded from taxes.
Which of the following is NOT true regarding insurance consultants? a) They are required to pass a written examination. b) The Superintendent must recognize the candidate as trustworthy and competent before issuing a consultant's license. c) They may own shares in the insurers they represent. d) They offer insurance advice to the public for a fee.
Insurance consultants offer advice to the public about the benefits, advantages and disadvantages of insurance policies for a fee. The Superintendent may issue an insurance consultant's license to any person or firm that has submitted a written application, paid the fees, and passed a written examination. A consultant, however, must not be an executive or an employee of or own any shares in the insurer that he or she represents.
Robert wants to insure his 4-year-old son, Tyson. Robert currently has a policy on his own life for $400,000. He is getting ready to lower that amount to $100,000 next year. What is the maximum amount that he can purchase on Tyson? a) $100,000 b) $400,000 c) $25,000 d) $10,000
Robert can purchase the greater of 25% (since Tyson is under 4½) of the policy on his own life, or $50,000. Even if he drops the amount of coverage on his own life at a later date, as long as he does not purchase more than 25% while he still has the coverage, Tyson's policy will remain the same.
Which of the following statements describes one of the reasons individuals purchase life insurance? a) It provides income an insured cannot outlive. b) It creates an immediate estate. c) It helps liquidate an estate through death proceeds. d) It always accumulates cash value.
b) It creates an immediate estate. Life insurance death proceeds can create an estate when the insured dies.
Which of the following could reduce the amount of the death benefit? a) Choosing a paid-up addition dividend options b) Failure to repay a policy loan c) Adding a family term rider d) Making premium payments within the grace period
b) Failure to repay a policy loan The amount available to the policyowner for a loan is the cash value minus any outstanding and unpaid policy loans, plus interest. If there are outstanding loans at the time of the insured's death, the amount will be considered a debt to the policy and the death benefit will be reduced by the amount of indebtedness.
Which of the following would NOT trigger the payment of Accelerated Death Benefits? a) Requiring an organ transplant for the insured to survive b) Being permanently institutionalized c) Being permanently disabled d) Terminal illness
c) Being permanently disabled Accelerated death benefits or living riders allow the early payment of some portion of the death benefit if the insured has conditions such as terminal illness, permanent institutionalization, or a life-threatening medical condition that requires a dramatic medical intervention. Accelerated death benefit, however, does not cover disability.
What is the most common name for a single policy that is designed to insure two or more lives with a standard premium, and that pays the death benefit upon the first death? a) Second-to-Die b) Last Survivor c) Survivorship Life d) Joint Life
d) Joint Life Joint Life is a single policy that is designed to insure two or more lives. The death benefit is paid upon the first death only. Survivorship Life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age, and pays out at the second death.
If a life insurance company uses HIV testing as a part of its underwriting, when must an applicant be notified of the procedure? a) Prior notice is not required b) Prior to performance of the test c) Prior to ordering a physical examination d) Prior to solicitation of the policy
b) Prior to performance of the test Prior to testing, the insurer must disclose in writing its intent to test the applicant for the Human Immunodeficiency Virus infection or for a specific health condition derived from HIV. The insurer must obtain the applicant's written informed consent to administer the test.
What happens to the face amount of a whole life policy if the insured reaches the age of 100? a) It is paid to the insured's estate and the policy is terminated. b) It is paid to the beneficiary in full. c) The cash value and the face amount are paid to the insured. d) The face amount is paid to the insured.
Whole life insurance provides protection for the entire lifetime of the insured. If the insured lives to the age of 100, the company pays the face amount of the policy to the policyowner (usually the insured).
When an insured terminates membership in the insured group, the insured can convert to a) Whole life with proof of insurability. b) Term without proof of insurability. c) Term with proof of insurability. d) Whole life without proof of insurability.
d) Whole life without proof of insurability. When a member terminates membership in a group, he or she can convert to whole life without proof of insurability.
An insured and his spouse recently had a child. Which of the following riders would allow the couple to insure the child for a limited period of time at a specified amount? a) Spouse term rider b) Children's term rider c) Payor rider d) Guaranteed insurability rider
b) Children's term rider The children's term rider allows children to be added to coverage for a limited period of time for a specified amount.
Which of the following is a correct statement about annuities? a) Fixed annuities have the annuitant assume the risks of investment. b) Fixed annuities do not provide protection against inflation. c) Variable annuities provide minimum guaranteed rate of interest. d) Variable annuities place the funds into the company's general account.
Fixed products provide protection against the risks associated with investing, since the insurance company bears the investments risks. They, however, do not provide protection against inflation, since the income (annuity) payments do not vary from one payment to the next.
Which dividend option will increase the death benefit? a) Paid-up additions b) Accumulation c) Extended term d) Reduced paid up
a) Paid-up additions Paid-up additions option uses the dividend to purchase small amounts of the same type of insurance as the original policy. The additional insurance is paid up by the dividend.
When a whole life policy is surrendered for its nonforfeiture value, what is the automatic option? a) Paid up additions b) Cash surrender value c) Reduced paid up d) Extended term
The automatic nonforfeiture option is extended term.
A life producer applying for a life settlement broker license may be exempt from the prelicensing education and examination requirement if the producer has held an active life license for at least how many years? a) 1 year b) 2 years c) 3 years d) 5 years
a) 1 year If a life producer has maintained an active license for one year, the prelicensing class and exam, as well as fingerprinting, may be waived when applying for a life settlement broker license.
All advertisements, regardless of their source of creation, are the responsibility of the a) Department of Insurance. b) Insurer. c) Insured. d) Advertising agency.
b) Insurer. Insurers monitor all advertising, whether by the company or their agents. Agents are representatives of the insurer.
Which of the following best describes pure life annuity? a) It is also known as refund life annuity. b) It guarantees to pay out all the proceeds. c) It provides the highest monthly benefits. d) It continues payments to the beneficiary when the annuitant dies.
b) It guarantees to pay out all the proceeds The pure life annuity, also known as Life Only or Straight Life, pays the most since it only guarantees to pay for the rest of one's life without a minimum guarantee.
All of the following information needs to be included on an application for life insurance EXCEPT a) Health insurance policies in force. b) Life insurance with other insurers. c) The agent's statement, if applicable. d) Medical information about the applicant.
a) Health insurance policies in force. The information about the applicant's health insurance policies is not material to a life insurance contract.
Under which of the following conditions would life insurance proceeds be taxable by the federal government? a) If collaterally assigned to a lender b) If taken as a lump sum c) If paid to the policyowner d) If there is a transfer for value
a) If collaterally assigned to a lender If life insurance proceeds are collected in a lump-sum payment, they are generally not subject to federal taxation. If the benefit payment results in a transfer for value (if the policy is sold to another person), it may not be exempt from taxation. Transfer for value rules do not apply when a policy is collaterally assigned to a lender.
An insured falls down a flight of stairs and sustains a neck injury that renders him severely disabled. The insured owns a Whole Life policy. Is it possible for the policy to include a Waiver of Cost of Insurance rider, and if so, what insurance costs would be waived? a) No; it is not possible for this waiver to be included in a whole life policy b) Yes; the cost of premiums used to accumulate cash value c) No; it is not possible to waive the cost of insurance d) Yes; the cost of insurance and premiums used to accumulate cash value
a) No; it is not possible for this waiver to be included in a whole life policy The Waiver of Cost of Insurance rider is found in Universal Life policies. In this example, the insured has a Whole Life policy, making him ineligible.
All of the following are true of a nonqualified deferred compensation plan EXCEPT a) It does not require IRS approval. b) It can be discretionary. c) Contributions are tax deductible. d) It is a contractual agreement whereby the employee agrees to defer receipt of a portion of his compensation until retirement, disability, or death.
c) Contributions are tax deductible. Nonqualified deferred compensation plans may be discretionary and therefore do not require IRS approval. These plans are contractual agreements between employees and employers for the deferral of constructive receipt of a portion of their earnings are not tax deductible.
All of the following are true of credit life EXCEPT a) The death benefit cannot exceed the amount of the loan. b) The premium payment is included in the loan payment. c) The creditor is the policyowner. d) The insured names the beneficiary.
With Credit Life the lending institution is the owner and names the beneficiary.
All of the following are true about key-person insurance EXCEPT a) The employee must give written consent by signing the application. b) The business is the beneficiary. c) The death benefit is taxable to the business. d) The business is the applicant and owner.
Key person life insurance premium is not deductible by the business and the death benefit is not taxable to the business.
Which of the following is TRUE of level term insurance? a) The policy offers nonforfeiture values. b) It is temporary protection. c) The premium will increase or decrease based on current interest rates. d) The policy endows at age 100.
Level term insurance is temporary protection. It is likely renewable at certain interval (5 year, 10 year etc.) The policy has a maximum renewal age (possibly 80).
An IRA contribution can be made from which of the following? a) Stocks and bonds b) Cash c) Life insurance d) Collectibles
b) Cash IRA contributions must be made in cash in order to be tax deductible. The money invested in the account can be used to buy stocks, bonds, mutual funds or annuities. The money used for IRA contributions cannot be used to purchase life insurance policies or collectibles such as art, antiques or stamps.
Agents may be found guilty of defamation if they make false statements that are intended to a) Misinform prospective clients about policy coverage. b) Misrepresent the benefits payable under policies. c) Maliciously criticize another insurance company. d) Deceive a policyholder.
Maliciously critical statements about another person or company are considered defamation and are illegal.
An annuity has accumulated the cash value of $70,000, of which $30,000 is from premium payments. The annuitant dies during the accumulation phase. The beneficiary will receive a) $30,000. b) $70,000. c) $100,000 (combination of the cash value and premiums paid). d) A survivor benefit determined by the insurance company.
b) $70,000. If the annuitant's death occurs during the accumulation period, the beneficiary will receive the amount of premiums paid into the plan or the cash value, whichever is greater. In this case, the beneficiary will receive $70,000.
A whole life policy is surrendered for a reduced-paid up policy. The cash value in the new policy will a) Reduce to the pre-surrender value. b) Continue to increase. c) Remain the same. d) Decrease over time.
b) Continue to increase. The new policy continues to build its own cash value and will remain in force until the insured's death or maturity.
Which of the following is a permissible reason for an insurance company to contest payment of a claim based on statements in the application? a) The application contains a correction. b) The application contains material misstatements. c) The insured died too soon after applying for the policy. d) The insurer has already paid out the expected amount of benefits for the year.
b) The application contains material misstatements. An insurance company may contest payment of a claim on the basis of a material misstatement of facts or concealment of a material fact no later than 2 years after the policy became effective.
Annuities Certain limit the amount paid by the annuity to a certain fixed a) Period with a certain fixed amount. b) Period or fixed amount. c) Period only. d) Amount only.
b) Period or fixed amount. Annuities Certain limit the amount paid by the annuity to a certain fixed period or until a certain fixed amount is liquidated.
Which statement best describes agreement as it relates to insurance contracts? a) All parties must be capable of entering into a contract. b) Each party must offer something of value. c) One party accepts the exact terms of the other party's offer. d) The intent of the contract must be legally acceptable to both parties.
c) One party accepts the exact terms of the other party's offer. In insurance contracts, there must be a definite offer by one party, and this offer must be accepted in its exact terms by the other party. Agreement includes both an offer and its acceptance.
Which of the following individuals would be a likely candidate to purchase a deferred annuity? a) Someone who wants to grow retirement funds tax deferred b) Someone who needs to start receiving benefit payments within 6 months of the annuity purchase c) Someone who wants to leave the death benefit to the beneficiaries d) Someone who cannot afford life insurance
Deferred annuities are often used to accumulate retirement funds that grow tax deferred. Income payments, however, begin sometime after one year from the date of the annuity purchase.
Who does the spendthrift clause in a life insurance policy protect? a) The creditors b) The beneficiary c) The insured d) The policyowner
b) The beneficiary The spendthrift clause states that the death benefit paid to the named beneficiary is protected from the creditors of the insured or the beneficiary.
Who is required to inform applicants about information gathering practices? a) No one. The applicant must ask. b) The producer c) The state government d) The insurer
b) The producer Producers are required to inform prospects about the products they are selling, as well as their information collecting practices.
Which of the following types of insurance is investment based, has a level fixed premium, and a nonguaranteed cash value? a) Credit life b) Variable whole life c) Interest-based life d) Universal life
b) Variable whole life Variable Life insurance is a level fixed premium investment-based product. It is a combination of decreasing term insurance and an investment fund.
Before an adjuster license may be issued, an applicant must file a surety bond with the Superintendent in the amount of a) $500 b) $1,000 c) $5,000 d) $10,000
All adjusters must file a surety bond of $1,000 with the Superintendent before a license may be issued or renewed.
An insured purchases a non-participating whole life policy. This policy includes all of the following EXCEPT a) Dividends b) A premium calculated closely to the cost of the insurance. c) Permanent protection. d) Cash and loan values.
a) Dividends Only participating policies pay dividends.
Which of the following are characteristics of term life insurance? a) Adjustable premiums and automatic increases in face amount at any given age b) Coverage to age 100, cash value, and high premiums c) Nonforfeiture provisions and living benefits d) Temporary protection, renewability, no cash value
d) Temporary protection, renewability, no cash value Term insurance provides a substantial amount of temporary coverage at a low cost. The lower price is possible due to no cash value.