IL Life Insurance - Questions to Study

A whole life policy is surrendered for a reduced-paid up policy. The cash value in the new policy will __

continue to increase

When the owner of a participating whole life policy uses the dividend to provide more life insurance coverage, what dividend option is being used?

The paid-up addition dividend option is used to purchase more paid-up insurance each year, thereby increasing the death benefit.

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing term. A decreasing term policy's face amount decreases as the amount of debt is reduced.

Are dividends received on participating life insurance policies taxable?

Dividends on participating life insurance policies are not income taxable because they are a return of unused premiums.

All of the following are general requirements of a qualified plan EXCEPT a) The plan must provide an offset for social security benefits. b) The plan must be communicated to all employees. c) The plan must be for the exclusive benefits of the employees and their beneficiaries. d) The plan must be permanent, written and legally binding.

A. Plans must meet the general requirements established by IRS.

Which of the following is TRUE regarding the premium in term policies? a) The premium in term policies is not based on the insured's age. b) Decreasing term policy will have a decreasing premium. c) The premium is level. d) Only level term policy has a level premium.

C. Regardless of the type of term insurance purchased, the premium is level throughout the term of the policy. Only the amount of the death benefit may change.

J is receiving fixed amount benefit payments from his late wife's insurance policy. He was told that if he dies before all of the benefits are paid, the remaining amount will go to the contingent beneficiary. Which settlement option did J choose?

Fixed Amount. This option pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted. The recipient selects a specified fixed dollar amount to be paid until it is gone. If the beneficiary dies before the proceeds are exhausted, installments will continue to be paid to a contingent beneficiary until all proceeds have been paid out.

To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters?

To be considered currently (or partially) insured, an individual must have earned 6 credits during the last 13-quarter period.

If a producer's license is violated for criminal activity, what is the maximum amount that can be charged for each offense?

$10,000 for each cause for denial, suspension, or revocation, totaling no more than $100,000

A Universal Life Insurance policy is best described as a/an

Annually Renewable Term policy with a cash value account. A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

What policies do replacement rules NOT apply to?

Replacing a nonconvertible term policy that expires in 5 years or less and cannot be renewed does not require following replacement rules. Replacing group life, group annuity, or credit life also do not require following replacement rules. Replacing whole life, endowment, or a 20-year level term does require following replacement rules.

If an individually willfully violates provisions of the Fair Credit Reporting Act, what is the maximum civil penalty?

$2500.

According to Illinois state regulations for advertising of insurance products, insurers must maintain a file containing what information?

-copies of advertisements -when the advertisements were used -the form number of the policy advertised -NOT the names of all agents who used the advertisements

All of the following are true about the bond requirements in the state of Illinois EXCEPT a) Insurance producers with insurance companies that take responsibility for their actions are still required to post a bond. b) Maintaining a bond or appointing insurance company is a requirement to holding a producer's license. c) The maximum the bond would have to be is $50,000. d) The amount of the bond must be $2,500 or 5% of the premiums collected in the previous year.

A. Persons selling insurance in Illinois must either post a bond or have an appointing insurance company that will take responsibility for the funds received on its behalf by such producer. The amount of the bond must be the greater of $2,500 or 5% of the premiums collected in the previous year (not to exceed $50,000). Maintaining a bond or an appointing insurance company is a requirement for holding a valid producer's license in Illinois.

And insurance producer fails to meet the director's continuing education requirement. What will most likely occur?

An insurance producer license automatically terminates (no suspends)) when an insurance producer fails to successfully meet the continuing education requirement.

The death protection component of Universal Life Insurance is always

Annually Renewable Term. A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE? a) The money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary. b) The beneficiary will receive the greater of the money paid into the annuity or the cash value. c) The owner's estate will receive the money paid into the annuity. d) The insurance company will retain the cash value and pay back the premiums to the owner's estate.

B. If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value, whichever is greater.

Which of the following riders would NOT cause the Death Benefit to increase? a) Cost of Living Rider b) Accidental Death Rider c) Payor Benefit Rider d) Guaranteed Insurability Rider

C. Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

Duties of the replacing insurer include all of the following EXCEPT a) Make sure that the producer signs the Notice. b) Maintain records related to replacement for 3 years. c) Send to the existing insurer, within three days of receiving the replacement application, the Notice Regarding Proposed Replacement of Life Insurance or Annuity. d) Keep records related to replacement for at least 5 years.

D. In Illinois, records related to replacement transactions must be kept on file for a minimum of 3 years, not 5.

A life insurance policy qualifies a Modified Endowment Contract (MEC) if the amount of premium paid exceeds the amount that would have provided paid-up insurance in how many years?

If the policy's premium paid in its first 7 years exceed what would have been paid into a life policy with level annual premiums that would be paid-up in 7 years, the policy fails the 7-pay test and becomes a Modified Endowment Contract.

Which dividend option will increase the death benefit?

Paid-up additions option uses the dividend to purchase small accounts of the same type of insurance as the original policy. The additional insurance is paid up by the dividend.

A company refused to issue an insurance policy to an individual based on his status as a member of the U.S. Army. This would be considered ____.

unfair discrimination. Life insurance companies doing business in Illinois must not discriminate among the insured of the same class and life expectancy in the inssuance of policies. Discrimination based solely on an applicant's military status is prohibited.

A distribution from an employer-sponsored retirement plan or from an IRA is eligible for a tax-free rollover if it is reinvested in an IRA within ___ days.

To be eligible for a tax-free rollover, the distribution must be reinvested in an IRA within 60 days following the distribution and the plan participant must not take actual physical receipt of the distribution. Unless the entire amount is rolled over, the part retained will be taxed as ordinary income.

What is the waiting period on a Waiver of Premium rider in life insurance policies?

Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

The Replacement Regulation does NOT apply to situations in which the total existing coverage to be replaced represents less than how much of the face amount?

$5,000. The Replacement Regulation does not apply to situations in which the total existing coverage to be replaced represents less than $500 in cash value, and less than $5,000 in the face amount.

The Guaranteed Insurability Rider allows the owner to purchase additional amounts of life insurance without proof of insurability at what qualifying events?

-Marriage -Approximately every 3 years between the ages of 25 and 40 -Birth of a child -NOT for the purchase of a home

In the event a producer is found to have committed rebating, what penalties would apply?

-The producer will be penalized for committing a Class B misdemeanor -The producer is prohibited from receiving commissions on the policy -The producer must return any earned commissions on the policy.

Replacement is a sale that may result in existing insurance coverage being borrowed against in the form of a loan for more than what minimum percentage of its value?

25%. Replacement is a sale that results in existing insurance coverage being borrowed against for more than 25% of its value, in the form of a loan.

When replacement is involved, the replacing insurer must send a notice to the existing insurance company that identifies the insured and policies within how many days?

3 business days.

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? a) Nonforfeiture options b) Guaranteed insurability option c) Dividend options d) Guaranteed renewable option

B. The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.

An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n)

Inspection report. An inspection report may be ordered about an applicant from an independent investigating firm or credit agency. It is a general report of the applicant's finances, character, work, hobbies, and habits.

What does the applicatoin of contract of adhesion mean?

Since the insured does not participate in preparing the contract, any ambiguities would be resolved in favor of the insured. The insurer prepares the policy and submits it to the insured on a take-it-or-leave-it basis. Because the insured does not have input in drafting the policy but simply adheres to the terms of the policy, the policy is classified as a contract of adhesion. Any uncertain terms in the policy will be interpreted in favor of the insured.

Within what time period from the receipt must the insurer refund any premiums due to the insured?

15 days

A producer explains a couple of life insurance policies to a prospective insured but does not help to evaluate the costs of similar plans. Which rule is being violated?

The Life Solicitation Rule - this requires insurers to deliver at least certain minimum information designed to help buyers select the most appropriate life insurance plan for their needs, understand the basic features of the policy they are considering, and evaluate the relative costs of similar plans.

An employee dies having 6 quarters of coverage during the previous 13-quarter period. What status of coverage does the employee have under Social Security?

Currently insured. Before becoming fully insured, workers may achieve the status of currently insured (or partially insured), and by that qualify for certain benefits. An individual is considered partially insured if he or she has earned 6 credits (or quarters of coverage) during the 13-quarter period ending with the quarter in which the insured dies or becomes disabled.

All of the following information needs to be included on an application for life insurance EXCEPT: a. Medical information about the applicant b. Health insurance policies in force. c. Life insurance with other insurers. d. The agent's statement, if applicable.

B. The information about the applicant's health insurance policies is not material to a life insurance contract.

According to the Illinois Insurance Code, disclosure rule for life or health insurance solicitation applies to what/whom?

All policies and insurance issuers. And policy solicitation which involves an insurance producer, limited insurance representative, or temporary insurance producer must identify the name of the producer, representative, or firm on the policy.

The Director may refuse to issue a license if a licensee's aggregate amount of premiums on controlled business exceeded the aggregate amount of premiums on all other insurance business during

2 calendar years immediately preceding the extension date of the license. An insurance license is not intended to be used to earn commissions on personal insurance needs, or those of family members, or business associates only. An insurance producer license may be refused if the Director has reasonable cause to believe that the aggregate amount of premiums on controlled business exceeded the aggregate amount of premiums on all other insurance business during either 2 calendar years immediately preceding the extension date of the license, or the 12-month period immediately following the issuance or extension of the license.

During policy solicitation, an insurer exaggerates the financial condition of one of its competitors, and makes it sounds worse than it is. This is an example of an unfair trade practice called ___.

Defamation. It is against the slaw for any person to make, publish, or circulate any oral or written statement or literature that is false, maliciously critical or, or substantially misrepresents the financial condition of any insurer, and which is intended to injure any person engaged in the insurance business.

Under an extended term nonforfeiture option, the policy cash value is converted to ___

The same face amount as in the whole life policy. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.

Ron's application to become an insurance producer has been denied. What is the soonest possible time that he can apply again?

3 years. A person whose license is revoked or whose application is denied is ineligible to apply for any license as an insurance producer for 3 years after the revocation or denial, nor may such person be employed, contracted, or engaged in any insurance related capacity during the time the revocation, suspension, or denial is in effect.

Which of the following is NOT true regarding a Premium Fund Trust Account? a) It may be a depository for service fees and late charges. b) It is established to maintain all the premiums. c) It could be used as a claim payment account. d) It is a fiduciary account.

C. PFTA cannot be used as a general operation or a claim payment account. It is a fiduciary account into which all collected premiums or other monies, such as service fees, later charges and inspection fees must be deposited.

What type of insurance would be used for a Return of Premium rider?

Increasing Term. The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

Annually Renewable Term insurance (ART)

a form of level term insurance in which the death benefit remains level and the policy must be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the insured's attained age

In order to reinstate a life insurance policy the insured must ___

-pay all back premiums plus interest -repay any outstanding loans and interest -(no need to pay next year's premium in advance)

An agent uses an insurer's illustration. He obtains proper approval and does not change the illustration in any way. The illustration involves projected amounts, and the agent stipulates that the amount would not be guaranteed. Which of the following is true? a) It is illegal to include a non-guaranteed amount in an illustration. b) The agent needs to change the illustration to include guaranteed amounts only. c) The illustration is fine the way it is. d) The agent must stipulate that the illustration is not part of the contract.

D. An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list non-guaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.