Insurance Exam Questions

When a whole life policy endows, what happens to the policy's cash value?

The face amount of the policy is paid to the policyowner

For the most part, the highest authority for insurance regulation is:

The individual states

The face amount of insurance is also referred to as the:

The limit of liability

An insurance contract is an aleatory contract. This means:

The values exchanged by the parties are of unequal value

Which insurance company department accepts the insurance risk?

Underwriting

When it comes to life insurance, insurable interest on one's own life is:

Unlimited

Uses separate account to invest a portion of premiums; may help protect against inflation; and an insurance license and FINRA registration required in order to sell

Variable

If an insurer accepts an overdue premium payment and continues the policy uninterrupted, this is an example of:

Waiver

You can purchase a life insurance policy on all of the following persons, EXCEPT:

Your neighbor

An insurer that is authorized to do business in this state MUST be ________________.

admitted insurer

The Attending Physician's Statement (APS) is completed by:

an applicant's physician to provide information about the applicant's medical history

A company that is licensed to sell insurance in a particular state is: A. A domiciled company B. An authorized company C. A nonadmitted company D. A foreign company

b. An authorized company

If an insurer accepts an overdue premium payment and continues the policy uninterrupted, this is an example of:

waiver

Characteristics of Permanent Insurance

-Designed to provide coverage for a lifetime -Policy matures or endows when cash value equals the face amount -Issued with a level face amount -Premium builds a reserve known as cash value -Policy loans available -Premiums may be payable for life, a limited period, or as a lump sum

Characteristics of Term Insurance

-Pure insurance -Death benefits may be level, decreasing, or increasing -coverage may be renewable -Temporary protection -Coverage may be convertible -Written for a specified time period or to a specified age

What occurs during Completing the Application?

1. Formal request for the insurer to issue a policy 2. Required signatures 3. Conditional receipt may be issued

What occurs during the Underwriting Process?

1. MIB report may be requested 2. Classification of risk and rating 3. Insurability is determined

What occurs during Policy Delivery?

1. Producer explains rating, premiums, coverages, and policy benefits 2. Constructive delivery 3. Statement of Good Health

To engage or participate in the insurance business, a prohibited person must first apply for a(n):

1033 waiver for consent to work

A producer has each of the following responsibilities to the insurer, except:

A duty to recommend only high premium policies

Which of the following best describes a viatical settlement? A. A terminally ill insured/owner sells his or her policy to a third party for much needed cash B. Gifting a policy to a non-profit organization in exchange for certain benefits C. An insured with 5 years or more life expectancy sells a policy he or she no longer needs for more than its cash value D. A policy that is donated to a charitable organization in exchange for certain benefits

A. A terminally ill insured/owner sells his or her policy to a third party for much needed cash

Insurance ____________ are captive or independent organizations that recruit, contract with, train, and support insurance producers. A. Agencies B. Personal producing general agents C. Producers D. Companies

A. Agencies

The Fair Credit Reporting Act guarantees which of the following? A. Applicants' right to information held about them by any reporting agency B. An applicant with a strong credit score cannot be denied coverage C. Premium payments are reported in a credit score D. Information on a credit report is always accurate and unquestionable

A. Applicants' right to information held about them by any reporting agency

Information from a third party collected by the insurance company in the application for insurance and during underwriting of the policy may be subject to the jurisdiction of the: A. Fair Credit Reporting Act B. Deceptive Trade Practices Act C. Fair Claims Reporting Act D. Unfair Claims Practices Act

A. Fair Credit Reporting Act

In a replacement sale all of the following are producer responsibilities, except: A. Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction B. Provide copies of the notice regarding replacement and any sales proposals to the applicant and replacing insurer C. Complete a notice regarding replacement with applicant and producer signatures D. Obtain information regarding the in force policies including name and policy numbers

A. Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction

The transfer of some or all of the financial risk of loss from one insurer to another insurer or insurers is best described as: A. Reinsurance B. Non participating insurance C. Replacement D. Participating insurance

A. Reinsurance

Which of the following is not true about life insurance applications? A. The application is confidential communication between the agent and the insurer B. Applications for life insurance are typically divided into two parts: General Information and Health History C. The application may contain all the information underwriting needs to approve the insured D. The application more fully identifies the insured

A. The application is confidential communication between the agent and the insurer

A producer must include their name and address on which of the following? A. A policy summary B. Any policy amendment or rider C. An insurance policy's cover page D. A buyer's guide

A. a policy summary

The process of calculating life insurance net premium requires consideration of all of the following, except: A. The morbidity rates to be used B. The insured's gender C. The insured's age D. The rate of interest assumed

A. the morbidity rates to be used

Which of the following authorities does the public assume an agent has, based on the agent's conduct?

Apparent

Insurable interest for life insurance is necessary only at the time of:

Application

Which of the following is NOT required to sign a completed application? A. Insured or guardian B. Beneficiary C. Producer D. Applicant

B. Beneficiary

A person who negotiates insurance contracts with insurers on behalf of an applicant is known as a(n): A. Agent / Producer B. Broker C. Consultant D. Advisor

B. Broker

A general description of the basic types of life insurance used to assist prospective purchasers can be found in the: A. Cost comparison index B. Buyer's Guide C. Illustration D. Policy summary

B. Buyer's Guide

An applicant for life insurance realizes several days after completing the application that she may have answered a medical question incorrectly. She should do which of the following? A. Nothing. Answers in the application must only be true to the best of her knowledge at the time she submits the application B. Contact either her agent or the insurance company and make sure they have the correct information C. Wait to find out if she is approved for the insurance first, and then she can let the company know she may have made a mistake D. Hope that nothing happens in the first year after the policy is issued, because after that it won't matter if the answer was or wasn't correct

B. Contact either her agent or the insurance company to make sure they have the correct information

A United States insurance company is considered to be domiciled: A. In any state where it is a member of the guaranty association B. In the state whose laws the company is incorporated under C. In any state in which it is an admitted carrier D. In any state in which it has an office

B. In the state whose laws the company is incorporated under

Part 1 of the application consists of all of the following information, except: A. Occupation B. Medical status of immediate family members, their ages and causes of death C. Gender D. Place of residence

B. Medical Status of immediate family members, their ages and causes of death

When determining an appropriate amount of life insurance, a producer takes into consideration the existing mortgage and other debt, future education expenses for the client's children, and continuing income for the surviving spouse. This approach is known as: A. The DIME method of insurance planning B. Needs analysis C. The NAIC Model D. Human life value

B. Needs Analysis

Which of the following types of coverage is best used to protect the beneficiary, and to provide a living benefit for the policyowner? A. Nonparticipating B. Permanent C. Term D. Group

B. Permanent

J is named in a policy as the individual who is entitled to receive the policy proceeds upon the death of T. Which of the following statements best applies to this scenario? A. J is the insured and beneficiary of the policy B. T is the insured in the policy and J is the named beneficiary C. T is the owner and beneficiary of the policy D. J is named as the owner of T's policy

B. T is the insured in the policy and J is the named beneficiary

Which of the following parties does not sign an application for life insurance? A. The insured B. The beneficiary C. The agent/producer D. The applicant

B. The beneficiary

Which rating classification is typically used in the senior marketplace so that policies can be issued without a medical exam? A. The flat amount B. The lien plan C. Rated up age D. Substandard table rate

B. The lien plan

Which term refers to a contract in which only one party is legally bound to contractual obligations after the premium is paid? A. Aleatory Contract B. Unilateral Contract C. Contract of Adhesion D. Conditional Contract

B. Unilateral Contract

A producer is explaining the concept of limited-pay life insurance to her client. Which of these statements is incorrect?

By paying over a shorter period of time, each of the payments will be lower

Which of the following describes group life insurance? A. A single policy issued to an individual covering husband, wife, and children B. A single policy issued to a group of individuals who have formed an alliance to obtain life insurance at reduced rates C. A single policy issued to a business to cover the lives of employees D. Multiple policies issued to an employer to cover a specific group of executives

C. A single policy issued to a business to cover the lives of employees

All of the following are true regarding an Attending Physician's Statement (APS), except: A. The insurer pays the physician for completing and forwarding the APS B. They are used in cases where the application or medical records reveal conditions that require further explanation C. An MIB report can be used in place of an APS D. Applicants must sign a release in order for their physician to respond to an APS request

C. An MIB report can be used in place of an APS

Which of these modes would result in the insured paying the least amount per year for life insurance? A. Semi-annual payroll deduction B. Monthly automatic bank draft C. Annual D. Quarterly

C. Annual *Paying monthly is usually the most expensive

Why is an insurance policy considered a contract of adhesion? A. Because unequal values are exchanged B. Because only one party is legally bound to the contract C. Because one party prepares the contract with little or no input from the other party D. Because the insured can cancel the contract at any time

C. Because one party prepares the contract with little or no input from the other party

Which of the following is a personal use of life insurance? A. Providing protection against living too long B. Creating an insurable interest C. Creating an immediate estate D. Compensating a business for the death of a key person

C. Creating an immediate estate

What is the difference between net premium and gross premium?

C. Expense loading

______ are primarily social organizations that engage in charitable and benevolent activities consisting of members of a given faith, lodge, or order, and are usually organized as non-profits. A. Mutual Insurance Companies B. Domestic Insurance Companies C. Fraternal Benefit Societies D. Stock Insurance Companies

C. Fraternal Benefit Societies

Which of the following statements correctly describes the difference between gross premium and net premium? A. Net premium is the total paid to the insurance company each month; Gross premium is described in terms of the number of dollars per $1000 a person pays for his/her insurance B. The net premium is the cost per $1,000 of insurance, the gross premium excludes insurance company expenses C. Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying commissions and other expenses D. Gross premium is what the insured pays to the insurance company each month; Net premium is what the agent's commission is based on

C. Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying commissions and other expenses

The ability of an individual to meet an insurance company's underwriting requirements is known as: A. Standard practice B. Medically approved C. Insurability D. Issuable

C. Insurability

Which of the following would be considered a speculative risk? A. The possibility you will die on the job at a young age B. The possibility you will become disabled C. The possibility the painting you bought might be a long-lost masterpiece D. The possibility your car is totaled in an auto accident

C. The possibility the painting you bought might be a long-lost masterpiece

A life insurance policy is being applied for on Z's life. In order for the contract to be valid, all of the following have an insurable interest and could be the owner of the policy, except: A. Z's business partner B. Z's spouse C. Z's neighbor D.Z

C. Z's neighbor

Which of the following is not a feature of term life insurance?

Cash value guarantees

In a reinsurance transaction, the company that wishes to transfer all or a portion of the financial risk of loss is known as the _________________ company.

Ceding

A legal contract must be between ____________ in order to be valid

Competent Parties

When both parties must perform certain duties and follow certain rules of conduct to make a contract enforceable, this is known as a _______________ contract.

Conditional

A life insurance policy is a unilateral contract, because: A. It insures only one life B. The exchange of values is unequal C. Only one party writes the contract D. Only one party can be charged with breach of contract

D. Only one party can be charged with breach of contract

All of the following are Anti-Money Laundering 'red flags', except: A. Paying for an entire policy up front with cash B. Strong reliance on wire or electronic fund transfers to foreign accounts C. Early cancellation of the policy, regardless of cancellation fees (surrender charges) D. Paying annual policy premiums

D. Paying annual policy premiums

An unincorporated organization that is formed by individuals, firms, and business corporations that exchange insurance on one another and whose members are known as subscribers is called a: A. Mutual Insurance Company B. Risk Retention Group C. Fraternal Benefit Society D. Reciprocal Insurance Company

D. Reciprocal Insurance Company

Which of the following are characteristics of universal life insurance policies?

Death benefit options, death benefit, and premiums may be changed

Which of the following is NOT an actual marketing and distribution model?

Exclusive Writing System

Which type of producer authority is specifically stated in the producer's contract?

Express

A person with a legal or ethical relationship of trust with another party is a:

Fiduciary

Specified amount of coverage, benefits and premium with no inflation protection. Cash value growth has guarantee

Fixed

Which of the following is an insurance company that is organized under the laws of a different state within the United States?

Foreign

Master policy issued to plan sponsor and typically written as annual renewable term. Makes up 40% of all insurance

Group

The Needs Analysis Approach always assumes the death of the insured to be:

Immediate

Which type of producer authority is not spelled out in the contract, but is necessary for carrying out the producer's duties?

Implied

Each of the following is an element of a legal contract, except:

Indemnity

Which of the following is NOT one of the essential elements of any legal contract?

Indemnity

Which principle of insurance restores the insured to the same economic condition that existed before the loss?

Indemnity

The policyowner is the applicant, controls the policy, and maintains the right to make all decisions regarding coverage

Individual

Debit life insurance is classified as which of the following?

Industrial

Which of the following manufacturers and issues insurance policies and contracts?

Insurance companies

A(n) __________ is the person or entity that is covered by an insurance policy.

Insured

Which of the following is the definition of fraud?

Intentional deceit with the intent to gain

Each of the following must be included in an insurable risk, except:

Large group with different risks. An insurable risk must also include a large number of groups with the same perils, affordable premiums, and the loss must be measurable.

The _____________ department of an insurance company advertises and sells policies to the public.

Marketing or Sales

Risk reduction is a way of ___________.

Minimizing the chance of loss

An applicant inaccurately representing information on the application is guilty of:

Misrepresentation

Dishonest tendencies that increase the probability of loss are what types of hazard?

Moral

A ________________ insurance company is owned by policyholders.

Mutual

Issued by stock insurers and do not pay policy dividends

Non-Participating

A (an)_________ is used when the insured's age, medical history, or amount of coverage does not require a medical exam for underwriting purposes.

Nonmedical application

B was 42 when the life insurance policy was issued. 42 is referred to as the ______ age of the policy.

Original

Issued by mutual insurers; dividends considered return of excess premium and are not guaranteed; and policyowner has dividend options to choose from

Participating

Premium higher than term when other factors equal, protection continues to age 100 or until surrendered, and provides cash accumulation

Permanent

A level term policy means that the ____________ remains the same throughout the lifetime of the policy.

Policy proceeds

All of the following are types of insurers, except:

Proprietary insurers

Which of the following is a sound legal method of minimizing adverse selection?

Quality underwriting practices

Which of the following is not true about a reciprocal insurance company?

Reciprocal companies may only transact liability insurance

If an insurance company wants to transfer all or part of the risk it has accepted, it would buy which of the following types of insurance?

Reinsurance

The process of analyzing risk exposures and designing programs to handle them is known as:

Risk Management

What is the correct risk management term for minimizing the chance of a loss?

Risk reduction

It is the _________ who issues a Certificate of Authority enabling an insurer to conduct insurance business within a particular state.

State Insurance Commissioner

Once the gross amount of dollars required to fund an insured's needs has been determined using the needs analysis approach, what is the next step?

Subtract and assets available to fund financial needs after death

Lowest premium outlay, temporary coverage for short term need, no cash value, and the benefit can be level, increasing or decreasing

Term