Life Basics, Policies, Provisions, Annuities, Qualified Plans, Taxation, General Insurance (L&H)

Which of the following transaction in an annuity will cause immediate taxation of the interest earned?

Surrendering the annuity for cash

The advantage of qualified plans to employers is

Tax-deductible contributions

If an insured dies during the grace period, what is the insurance company obligated to pay?

The face amount - any owed premium

If a retirement plan or annuity is "qualified" this means

it has favorable tax treatment

The annuity period is best defined as the time during which the annuitant

receives payments

What is the primary purpose of a 401(k) plan?

retirement

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is

A modified endowment contract

At what age can a participant receive distributions from a qualified plan without incurring a 10% penalty?

Age 59 1/2

What type of life insurance is most commonly used for group plans?

Annually Renewable term (group insurance is usually written for employee-employer groups as this form)

SIMPLE plans require all of the following except:

At least 1,000 employees (SIMPLE plan is available to small businesses that employ not more than 100 employees receiving at least 5,000 in compensation from the employer during the previous year)

The accelerated benefits provision will provide for an early payment of the death benefit when the insured

Becomes terminally ill

The life insurance policy clause that a prevents an insurance company from denying payment of a death claim after a specified period of time is known as the

Incontestability Clause (must do so within the first 2 years)

The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called

Life income with period certain

What type of policy shortens the premium paying period, but allows the coverage to continue to age 100?

Limited Pay (this whole life policy is designed so that the premiums for coverage will be completely paid-up well before age 100)

An insured had paid only part of her total number of IRA requirements before she died. What effect will this have on the insured's estate?

Only the premiums paid will be included in the estate

If an insurer makes a statement that its policies are guaranteed by the existence of the insurance Guaranty Association, that would be considered

an unfair trade practice

When an annuity is written, whose life expectancy is taken into account

annuitant

Representations are statements made by the applicant for insurance that are

considered true to the best of the applicant's knowledge

What does "renewable" mean in a term insurance policy?

continue coverage for another term without evidence of insurability

A key person insurance policy can pay for which of the following?

costs of running the business and replacing the employee

Which of the following is an example of a peril

fire (a cause of a loss)

When doing business in this state an insurance company that is formed under the laws of another state is known as which type of insurer?

foreign

Who would be allowed catch-up contributions in an individual qualified plan?

individuals age 50 or older

When agents are acting within the scope of their contract, their actions will be assumed to be the acts of the

insurer

Which of the following is the basis for a claim against an insurance policy?

loss

If an agent fails to obtain an applicant's signature on the application, the agent must

return the application to the applicant for a signature

Which of the following best describes taxation during the accumulation period of an annuity?

taxes are deferred

In insurance, an offer is usually made when

the application is submitted

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

warranty

Which of the following documents is issued by the state Department of Insurance to give an insurer permission to write insurance contracts in that state?

Certificate of Authority

An annuitant has been making periodic premium payments into an annuity. The income payments are scheduled to begin 2 years after the annuity purchase. What type of annuity is it?

Deferred

What does "level" refer to in level term insurance?

Face Amount

Fixed annuities may provide all of the following EXCEPT

Hedge against inflation

Which of the following determines the cash value of a variable life policy?

the performance of a separate account (the cash value of this policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer)

With regards to insurance contracts, an agent is deemed to represent which of the following?

insurer

A 403(b) tax-sheltered annuity is available for

teachers and non profit organizations

In a single employer group plan, what is the name of the policy issued to the group sponsor?

Master Contract (In group insurance, the actual policy, is issued to the sponsor of the group, which is often the employer)

When must insurable interest exist in a life insurance policy?

at the time of application

An annuity would normally be purchased by an individual who wants to

secure Income for retirement

Which of the following policies would NOT offer a policy loan option?

Level Term Life (A policy loan option is found only in policies that contain cash value (term life policies do not have cash value)

In a survivorship life policy, when is the death benefit paid?

Upon the last death

Which of the following is NOT true regarding an annuity certain?

Benefits stop at the annuitants death (these are short-term annuities which limit the amount paid to a certain fixed period)

Which of the following is a generic consumer publication that explains life insurance policies in general terms to help the applicants make educated decisions

Buyer's Guide

Which of the following may contribute to an HR-10 plan?

Self Employed Plumber (HR-10 plans are for self-employed persons)

Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?

They are received tax free

Events or conditions that increase the chances of an insured loss occurring are referred to as

hazards

All advertisements, regardless of their source, are the responsibility of the

insurer

When a beneficiary receives payments consisting of both principal and interest portions, which part(s) are taxable as income?

interest only

Which of the following is NOT the consideration in an insurance policy?

the application given to a prospective insured

What is a definition of a unilateral contract

a contract under which only one party makes an enforceable promise

An insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information?

application

Employer contributions made to a qualified plan

are subject to vesting requirements

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner. What dividend option could she use?

Paid-up option (the insurer can accumulate dividends at interest and then use them, to pay the policy earlier then planned)

An individual buys a flexible premium deferred life annuity with 20-year period certain. What would the beneficiary receive if the annuitant died 5 years after beginning the annuity phase?

Payments for 15 years

What annuity settlement option provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death?

Pure Life (has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy)

An applicant buys a non qualified annuity, but dies before the starting date. For which of the following beneficiaries would the contract's interest NOT be taxable?

Spouse

What type of policy provides permanent protection?

Whole Life (this policy is referred to as permanent protection, as long as the premium is paid, coverage will continue for the life of the insured)

An insured may reactivate a lapsed life insurance policy within a specified period of time, with proof of insurability. Which policy provision allows this?

A lapsed premium may be REINSTATED within a specified period of time (usually 3 years) by paying back premiums, and providing insurability

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

Beneficiary

A week after an insured receives a new life policy, he decides to return it and requests a refund of premium. What provision gives the insured the right to return the policy?

Free Look (allows the policy owner a specified time period (usually 10 days) from policy delivery to look it over and return it

Which of the following reasons for an early distribution of funds from a qualified retirement plan would incur a 10% penalty?

Participant's debt

Which of the following insurance policies has two death benefits options?

Universal life (Option A is the level death benefit option, Option B is the increasing death benefit option)

Which of of the following would be likely to establish a Simplified Employee Pension Plan (SEP)

a small employer

When transacting insurance business in this state, an insurer formed under the laws of another country is known as what type of an insurer?

alien

Which of the following is considered the nontaxable return of unused premiums?

dividend

Which of the following is NOT a type of hazard?

exposure

Events or conditions that increase the chances of an insured loss occurring are referred to as

hazards.

Which of the following best describes the underwriting process for life insurance?

selection, classification, and rating of risks

Upon policy delivery, the agent must confirm that all of the following are received EXCEPT

signed waiver of premium; policy does not go into effect until the premium has been collected

Which type of life insurance policy generates immediate cash value?

single premium whole life policy generates immediate cash value due to the lump-sum premium payment made to the insurer

Peril is most easily defined as

the cause of loss insured against

For the purpose of insurance, risk is defined as

the chance of loss

The waiver of cost rider is found in what type of insurance?

Universal Life (if the insured becomes disabled, the rider allows the cost of insurance to be waived, with exception of premium costs)

The sole beneficiary of a life insurance policy dies before the insured. If the policy owner fails to change the beneficiary before the insured's death, the policy proceeds will go to

The insured's estate (in absence of a viable beneficiary)

Which of the following is NOT a characteristic of an insurable risk?

the loss must be catastrophic

If the beneficiary wants a guarantee that policy proceeds will be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?

Fixed period

If taken as a lump sum, life insurance proceeds to beneficiaries are passed

Free of federal income taxation

How does reinsurance benefit the insurer?

it helps protect against catastrophic losses

Which of the following premium modes would result in the highest annual cost for a life insurance policy?

monthly, if the policy owner choses to pay the premium more frequently than annually, there will be an additional charge (loading) so premium would be higher

All of the following is included in the definition of "transacting insurance" EXCEPT

obtaining an insurance license