Life Insurance

Which of the following life insurance policies allows a policy owner to take out a loan from the policy's cash value?

Variable Universal Life - have cash value, so they allow policy loans. Term insurance policies do not have cash value

Insurance producers must ensure that contracts they recommend are in the best interest of the insured. This is called A)Approval. B) Underwriting. C) Suitability. D)Client protection.

C) Suitability. Insurance producers must adhere to the concept of suitability by ensuring that, to the best of their belief, the purchase, sale or exchange of a policy is in the best interest of the insured.

Which of the following is the best reason to purchase life insurance rather than annuities? A) To liquidate a sum of money over a period of years B) To create regular income payments C) To liquidate a sum of money over a lifetime D) To create an estate

D) To create an estate With insurance, the death benefit creates an immediate estate should the insured die.

If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this? A) Jumping juvenile policy B) Limited pay whole life policy C) Modified life insurance policy D) Single premium policy

A) Jumping juvenile policy While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21).

The insurance company underwriter could find information concerning the personal activities and character of an applicant from which of the following reports? A) Producer's report B) Attending physician C) Insurance company who provided the prior coverage D) Medical Information Bureau

A) Producer's report The agent communicates his/her observations concerning an applicant in the producer's report.

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then A) The benefit is received tax free. B) The benefit is subject to the exclusionary rule. C) IRS has no jurisdiction. D) The benefit is received as taxable income. Incorrect! Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.

A) The benefit is received tax free. Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT A) The policy is owned by the company. B) Any type of insurance policy may be used. C) The employer pays a bonus to a selected employee to fund the policy. D) It is considered a nonqualified employee benefit.

A) The policy is owned by the company. The policy is owned by the employee.

Which of the following is another term for an authorized insurer? A) Legal B) Admitted C) Certified D) Licensed

B Admitted Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.

If the owner of a whole life policy who is also the insured dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary? A) The face amount minus the premiums that would have been collected until the insured reached the age of 100 B) A full death benefit C) A death benefit equal to the cash value of the policy D) 50% of the death benefit

B) A full death benefit Whole life insurance policies guarantee the death benefit. If the insured lives to the age of 100, the insurance company pay the owner the face amount (equal the cash value). However, if the insured dies prior to the policy maturity date, the death benefit is paid to the beneficiary.

What is a foreign insurer? A)An insurer with licensed agents who are citizens in more than one country B) An insurer with a home office in another state C) An insurer with a home office in another country D) An insurer with licensed agents doing business in other countries

B) An insurer with a home office in another state A domestic insurer's home office is in this state, a foreign insurer's is in another state, and an alien insurer's is in another country.

Which of the following types of agent authority is also called "perceived authority"? A) Fiduciary B) Apparent C) Express D) Implied

B) Apparent Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created. Perceived=Apparent

Representations are written or oral statements made by the applicant that are A) Immaterial to the actual acceptability of the insurance contract. B) Considered true to the best of the applicant's knowledge. C) Guaranteed to be true. D) Found to be false after further investigation..

B) Considered true to the best of the applicant's knowledge. Representations are statements made by an applicant that they believe to be true.

What is the purpose of a conditional receipt? A) It serves as proof that the applicant has been determined insurable. B) It is given only to applicants who fully prepay the premium. C) It is intended to provide coverage on a date prior to the policy issue. D) It guarantees that a policy will be issued in the amount applied for.

C) It is intended to provide coverage on a date prior to the policy issue. Coverage commences on the date of the application or the date of a medical examination, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for.

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? A) Life annuity with period certain B) Increasing term C) Limited pay whole life D) Interest-sensitive whole life

C) Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT A)Payment of premium. B) Delivery receipt. C) Signed waiver of premium. D) Statement of good health.

C) Signed waiver of premium. The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.

Which of the following is an example of a producer's fiduciary duty? A) Duty to base all transactions upon the principle of Utmost Good Faith. B) The obligation to tell the truth to the best of one's knowledge C) The trust that a client places in the producer in regard to handling premiums. D) An obligation to state every known fact about the policy the producer is selling.

C) The trust that a client places in the producer in regard to handling premiums. An agent acts in a fiduciary capacity, based upon trust and confidence, when handling the financial affairs of their customers, including the handling of premiums.

Which of the following is the basic source of information used by the company in the risk selection process? A) Agent's report B)Warranty C) Consumer report D) Application The application is the basic source of information an insurer uses in the risk selection process.

D) Application The application is the basic source of information an insurer uses in the risk selection process.

When must insurable interest exist in a life insurance policy? A) At the time of policy delivery B) When there is a change of the beneficiary C) At the time of loss D) At the time of application

D) At the time of application In life insurance, insurable interest must exist at the time of application.

What does "liquidity" refer to in a life insurance policy? A) The death benefit replaces the assets that would have accumulated if the insured had not died. B) The policyowner receives dividend checks each year. C) The insured receives payments each month in retirement. D) Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values.

D) Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values.

When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will A) Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. B) Return the premium to Y's estate, since it has no obligation to pay the death claim. C) Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued. D) Issue the policy anyway and pay the face value to the beneficiary.

D) Issue the policy anyway and pay the face value to the beneficiary. The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.

When an applicant purchased a life insurance policy, the agent dated the application 4 months prior. When asked by the applicant, the agent said he was allowed to backdate policies up to 6 months if it would A) Shorten the contestability period. B) Eliminate pre-existing conditions. C) Help him meet a sales quota for that period. D) Lower the insured's premium.

D) Lower the insured's premium. An agent may backdate an application for up to 6 months to accomplish a lower premium rate for the insured.

Which Universal Life option has a gradually increasing cash value and a level death benefit? a)Juvenile life b)Term insurance c)Option B d)Option A

D) Option A Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures.

Where would the underwriter find relevant information not presented by the applicant on the insurance application but communicated by the producer? A) Statement of Continued Good Health B) Conditional receipt C) Inspection report D) Producer's report

D) Producer's report The producer's (agent's) report is part of the application. This allows the agent to communicate with the underwriter and provide information on the applicant known by the agent that may assist in the underwriting process.

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe? A Transfer B Avoidance C Retention D Reduction

D) Reduction The insured's change in lifestyle and habits would likely reduce the chances of health problems.

In case of a loss, the indemnity provision in insurance policies A) Allows the insured to collect 20% more than the actual loss. B) Pays the insured a percentage of the loss above and beyond the loss. C) Pays the insured as much as 95% of the loss. D) Restores an insured person to the same financial state as before the loss.

D) Restores an insured person to the same financial state as before the loss. Indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract. Indemnity= cannot gain financially, but restores to the financial state before loss

A domestic insurer issuing variable contracts must establish one or more A) Liability accounts. B) Annuity accounts. C) General accounts. D) Separate accounts.

D) Separate accounts. Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? A) The employer is the owner and the key employee is the beneficiary. B) The key employee is the owner and beneficiary. C) The key employee is the owner and the employer is the beneficiary. D) The employer is the owner and beneficiary.

D) The employer is the owner and beneficiary. With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.

Within how many days of receipt of proof of death must the insurer pay the death benefit to the beneficiary to avoid paying an interest penalty? a)15 days b)30 days c)60 days d)90 days

a)15 daysb)30 daysc)60 daysd)90 days Benefits payable that have not been paid to the beneficiary within 90 days of the receipt of proof of death will accrue interest, starting on the 91st day, at the stated rate (8% minimum) plus 3%.

What is the permitted maximum interest rate on policy loans? a)5% b)6% c)7% d)8%

a)5%b)6%c)7%d)8% There must be a provision that after 3 full years' premiums have been paid, the insurer will advance at any time at a fixed interest rate not exceeding 6% per year or variable rate not more than 8% per year.

Upon reinstatement or renewal of a policy, after a written request by the insured, how soon must an insurer provide a copy of the policy application? a)7 days b)10 days c)15 days d)20 days

a)7 daysb)10 daysc)15 daysd)20 days If an insured requests a copy of the policy application, an insurer must provide it to the insured no later than 15 days from the initial request.

Within how many days from a pretrial hearing must insurance producers report to the Commissioner any criminal prosecutions brought against them? a)7 days b)10 days c)30 days d)60 days

a)7 daysb)10 daysc)30 daysd)60 days

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the a)Contingent beneficiary b)Irrevocable beneficiary c)Revocable beneficiary d)Secondary beneficiary.

a)Contingent beneficiary.b)Irrevocable beneficiary.c)Revocable beneficiary.d)Secondary beneficiary. The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent. Revocable = changeable at any time by the policyowner, without consent of beneficiary Irrevocable= not changeable without consent

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? a)Decreasing term b)Variable life c)Universal life d)Whole life

a)Decreasing termb)Variable lifec)Universal lifed)Whole life A decreasing term policy's face amount decreases as the amount of debt is reduced.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called a)Dividends are not taxable. b)Dividends are taxable only after a certain amount is accumulated annually. c)Dividends are taxable in some life insurance policies and nontaxable in others. d)Dividends are considered income for tax purposes.

a)Dividends are not taxable.b)Dividends are taxable only after a certain amount is accumulated annually.c)Dividends are taxable in some life insurance policies and nontaxable in others.d)Dividends are considered income for tax purposes. Dividends are not considered to be income for tax purposes, since they are the return of unused premiums. The interest earned on the dividends, however, is subject to taxation as ordinary income.

Events or conditions that increase the chances of an insured loss occurring are referred to as a)Exposures b)Risks. c)Perils d)Hazards

a)Exposures.b)Risks.c)Perils.d)Hazards. Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occurring.

The authority granted to an agent through the agent's contract is referred to as a)Express authority b)Apparent authority c)Implied authority d)Absolute authority

a)Express authority.b)Apparent authority.c)Implied authority.d)Absolute authority Express powers are written into the contract between the insurer and the agent.

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose? a)Fixed amount option b)Interest only option c)Life income with period certain d)Joint and survivor

a)Fixed amount optionb)Interest only optionc)Life income with period certaind)Joint and survivor With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called a)Graded premium whole life. b)Single premium whole life. c)Modified Endowment Contract (MEC) d)Level term life.

a)Graded premium whole life.b)Single premium whole life.c)Modified Endowment Contract (MEC).d)Level term life. Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception.

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? a)Incontestability period b)Assignment c)Automatic premium loan d)Waiver of premium

a)Incontestability periodb)Assignmentc)Automatic premium loand)Waiver of premium -This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium. -This is a life insurance nonforfeiture option that allows the insurer to pay overdue premiums on a policy by establishing a loan against the policy's cash value. -APL happens AFTER the grace period passes

Why is an equity indexed annuity considered to be a fixed annuity? a)It is not tied to an index like the S&P 500 b)It has a guaranteed minimum interest rate. c)It has modest investment potential. d)It has a fixed rate of return.

a)It is not tied to an index like the S&P 500.b)It has a guaranteed minimum interest rate.c)It has modest investment potential.d)It has a fixed rate of return. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate. Equity and fixed indexed annuities=Guaranteed minimum interest rates

A participating insurance policy may do which of the following? a)Provide group coverage b)Pay dividends to the stockholder c)Require 80% participation d)Pay dividends to the policyowner

a)Provide group coverageb)Pay dividends to the stockholderc)Require 80% participationd)Pay dividends to the policyowner

Agents who persuade insureds to cancel a policy in favor of another one when it might not be in the insured's best interest are guilty of a)Rebating. b)Twisting c)Defamation d)Misrepresentation.

a)Rebating.b)Twisting.c)Defamation.d)Misrepresentation. Twisting is a misrepresentation that persuades an insured or a policyowner, to his or her detriment, to cancel, lapse, or switch policies.

Under a group plan for an Association, the term "employee" may include a)Spouses of association employees. b)Spouses of the officers of the association. c)Retired employees of the association. d)All of the above would meet the criteria of "employee" for this type of policy.

a)Spouses of association employees.b)Spouses of the officers of the association.c)Retired employees of the association.d)All of the above would meet the criteria of "employee" for this type of policy.

Which of the following statements about a suicide clause in a life insurance policy is true? a)Suicide is covered as long as the policy is in force.b)Suicide is excluded as long as the policy is in force c)Suicide is excluded for a specific period of years and covered thereafter d)Suicide is covered for a specific period of years and excluded thereafter

a)Suicide is covered as long as the policy is in force.b)Suicide is excluded as long as the policy is in force.c)Suicide is excluded for a specific period of years and covered thereafter.d)Suicide is covered for a specific period of years and excluded thereafter.

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as a)Survivorship insurance. b)Juvenile protection provision. c)Survivor protection. d)Life planning.

a)Survivorship insurance.b)Juvenile protection provision.c)Survivor protection.d)Life planning. Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection.

All of the following entities regulate variable life policies EXCEPT a)The Guaranty Association b)Federal government c)The SEC d)The Insurance Department.

a)The Guaranty Association.b)Federal government.c)The SEC.d)The Insurance Department. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.

The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true? a)The annuitant must be a natural person. b)A corporation can be an annuitant as long as it is also the owner. c)A corporation can be an annuitant as long as the beneficiary is a natural person d)The contract can be issued without an annuitant.

a)The annuitant must be a natural person.b)A corporation can be an annuitant as long as it is also the owner.c)A corporation can be an annuitant as long as the beneficiary is a natural person.d)The contract can be issued without an annuitant. Owners of annuities can be individuals or entities like corporations and trusts, but the annuitant must be a natural person, whose life expectancy is taken into consideration for the annuity.

Which of the following is NOT true regarding the annuitant? a)The annuitant must be a natural person. b)The annuitant cannot be the same person as the annuity owner. c)The annuitant's life expectancy is taken into consideration for the annuity. d)The annuitant receives the annuity benefits.

a)The annuitant must be a natural person.b)The annuitant cannot be the same person as the annuity owner.c)The annuitant's life expectancy is taken into consideration for the annuity.d)The annuitant receives the annuity benefits. While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person.

All of the following are characteristics of a group life insurance plan EXCEPT a)The cost of the plan is determined by the average age of the group. b)There is a requirement to prove insurability on the part of the participants. c)The participants receive a Certificate of Insurance as their proof of insurance. d)A minimum number of participants is required in order to underwrite the plan

a)The cost of the plan is determined by the average age of the group.b)There is a requirement to prove insurability on the part of the participants.c)The participants receive a Certificate of Insurance as their proof of insurance.d)A minimum number of participants is required in order to underwrite the plan

When a fixed annuity owner pays pays a monthly annuity premium to the insurance company, where is this money placed? a)The insurance company's general account b)Forwarded to an investor c)Each contract's separate account d)The annuity owner's account

a)The insurance company's general accountb)Forwarded to an investorc)Each contract's separate accountd)The annuity owner's account

Which of the following terms describes making false statements about the financial condition of any insurer that are intended to injure any person engaged in the business of insurance? a)Undercutting b)Twisting c)Slandering d)Defamation

a)Undercuttingb)Twistingc)Slanderingd)Defamation Defamation is making statements that are false as to the financial condition of any insurer and which are calculated to injure any person engaged in the business of insurance

Children's riders attached to whole life policies are usually issued as what type of insurance? a)Variable life b)Adjustable life c)Whole life d)Term

a)Variable lifeb)Adjustable lifec)Whole lifed)Term Children's term riders provide term insurance with coverage expiring when the minor reaches a certain age.

When does the free look period begin? when it is delivered when it is applied for

the date the policy is delivered to the owner: The free-look period begins on the date that the policy is delivered to the policyowner. If the policyowner is not satisfied for any reason, he or she can return the policy for a full refund of the premium paid.