Life Insurance Basics (Ch. 3)

Which of the following is NOT an example of a business use of Life Insurance? 1. Buy-sell Funding 2. Executive Bonuses 3. Key Person 4. Workers Compensation

4. Workers Compensation

Another name for a substandard risk classification is 1. Elevated 2. Rated 3. Controlled 4. Declined

2. Rated

Which of the following would least likely be considered a legitimate need that would be paid by insurance proceeds? 1. Vacation travel expenses 2. Travel expenses for family to come to the funeral 3. Debt cancellation 4. Day care

1. Vacation travel expenses

All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT 1. Gender 2. Occupation 3. Education 4. Age

3. Education

If an insured changes his payment plan from monthly to annually, what happens to the total premium? 1. Decreases 2. Stays the same 3. Doubles 4. Increases

1. Decreases

In a life settlement contract, whom does the life settlement broker represent? 1. The owner 2. The insurer 3. The beneficiary 4. The life settlement intermediary

1. The owner

Which of the following is an example of liquidity in a life insurance contract? 1. The money in a savings account 2. The cash value available to the policyowner 3. The death benefit paid to the beneficiary 4. The flexible premium

3. The death benefit paid to the beneficiary

What describes the specific information about a policy? 1. Illustrations 2. Buyer's guide 3. Producer's report 4. Policy summary

4. Policy summary

Which of the following individuals must have insurable interest in the insured? 1. Beneficiary 2. Underwriter 3. Producer 4. Policyowner

4. Policyowner

Which of the following is used to compare the cost of one life insurance policy against another in order to guide prospective purchasers to policies that are competitively priced? 1. Cost comparison methods 2. Policy cost guides 3. Consumer prices indices 4. Policy cost indices

1. Cost comparison methods

The responsibility of making certain that an applicant for insurance is filled out completely, correctly, and the best of his or her knowledge is the responsibility of whom? 1. The applicant 2. The producer 3. The beneficiary of the applicant 4. The insurance company

2. The producer

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than 1. Prior to filling out an application for insurance 2. With the policy 3. Upon issuance of the policy 4. Within 30 days after the first premium payment was collected

2. With the policy

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 1. Issue the policy anyway and pay the face value to the beneficiary 2. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved 3. Return the premium to Y's estate, since it has no obligation to pay the death claim 4. Keep the premium and reject the risk on the basis the applicant died before the policy could be issued

1. Issue the policy anyway and pay the face value to the beneficiary

Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life? 1. Coverage is based on the predicted needs of that family 2. The death of an insured must be premature 3. It must be assumed that the death of the insured will occur immediately 4. Need is predicted using the number of years until the insured's retirement

4. Need is predicted using the number of years until the insured's retirement

An insured purchased an individual life insurance policy with a face amount of $15,000. He pays a premium each month. What type of policy is that? 1. Industrial life 2. Home service insurance 3. Commercial life 4. Ordinary life

4. Ordinary life

Which of the following will be included in a policy summary? 1. Copies of illustrations and application 2. Comparisons with similar policies 3. Primary and secondary beneficiary designations 4. Premium amounts and surrender values

4. Premium amounts and surrender values

All of the following are characteristics of group life insurance EXCEPT 1. Group life insurance is written as a master policy 2. Individuals covered under the policy receives a certificate of insurance 3. Certificate holders may convert coverage to an individual policy without evidence of insurability 4. Premiums are determined by the age, sex, and occupation of each individual certificate holder

4. Premiums are determined by the age, sex, and occupation of each individual certificate holder

Are insurance company underwriters allowed to discriminate? 1. No, higher risks pay higher premium 2. No, discrimination is an unfair practice 3. Yes, but only for gender 4. Yes, but not unfairly

4. Yes, but not unfairly

What is the time period called during which the surviving spouse of the insured does not receive Social Security income benefits? 1. Probationary period 2. Blackout period 3. Waiver of premium 4. Retention of captial

2. Blackout period

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? 1. Term insurance only 2. Permanent insurance only 3. Universal life insurance only 4. Any form of life insurance

4. Any form of life insurance

An insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information? 1. Interviews 2. State records 3. Medical records 4. Application

4. Application

Who makes up the Medical Information Bureau? 1. Hospitals 2. Former insured 3. Physicians and paramedics 4. Insurers

4. Insurers

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? 1. Premiums are taxable to the employee 2. Premiums are not tax deductible as a business expense 3. Premiums are tax deductible by the key employee 4. Premiums are tax deductible as a business expense

2. Premiums are not tax deductible as a business expense

Which of the following best describes gross annual premium? 1. Basic insurance rates plus commissions 2. Expense premium 3. Net premium plus expenses 4. Annual loading

3. Net premium plus expenses

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT 1. Other insurance coverage 2. Family health history 3. Alcohol and tobacco consumption 4. Recent surgeries

1. Other insurance coverage

If someone wants to buy a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should that person buy? 1. Permanent 2. An annuity 3. A modified Endowment Contract 4. Term

1. Permanent

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? 1. Predicted needs of the family after the insured's death 2. Insured's current and future income 3. Insured's annual expenses 4. Effect of inflation on income over time

1. Predicted needs of the family after the insured's death

Which of the following is usually true of a participating life insurance policy? 1. It assesses premiums against stockholders 2. It pays dividends to policyowners 3. It may be converted to a term life policy 4. It pays dividends to stockholders

2. It pays dividends to policyowners

Why should the producer personally deliver the policy when the first premium has already been paid? 1. To ensure the producer gets paid commission 2. To find out how the family has been doing since the initial presentation 3. To make sure the policy is not stolen or lost 4. To help the insured understand all aspects of the contract

4. To help the insured understand all aspects of the contract

What is the purpose of the buyer's guide? 1. To allow the consumer to compare the costs of different policies 2. To provide the name and address of the agent/producer issuing the policy 3. To list all policy riders 4. To provide information about the issued policy

1. To allow the consumer to compare the costs of different policies

What does "liquidity" refer to in a life insurance policy? 1. The death benefit replaces the assets that would have accumulated if the insured had not died 2. The policy owner receives dividend checks each year 3. The insured receives payments each month in retirement 4. Cash values can be borrowed at any time

4. Cash values can be borrowed at any time

Which of the following statement regarding HIV testing for life insurance purposes is NOT true? 1. Positive test results will be forwarded to the state's Department of Health if a physician is not selected by the applicant 2. The testing practices must meet the criteria of the U.S. Department of Health and Human Services 3. HIV testing is regulated at the state level 4. Insurers are barred from requesting HIV testing

4. Insurers are barred from requesting HIV testing

Which of the following stipulates that life insurance premiums can be paid in advance of policy issuance? 1. Payment of premium clause 2. Grace period provisions 3. Policy issuance clause 4. Prepayment clause

1. Payment of premium clause

As a field underwriter, a producer is responsible for all of the following tasks EXCEPT 1. Obtain appropriate signatures on the application for insurance 2. Issue the policy that is requested 3. Help prevent adverse selection 4. Solicit business that will fall within the insurer's underwriting guidelines

2. Issue the policy that is requested

Which of the following would provide an underwriter with information concerning an applicant's health history? 1. The inspection report 2. The Medical Information bureau 3. A medical examination 4. The agent's report

2. The Medical Information bureau

Which of the following is the basic source of information used by the company in the risk selection process? 1. Agent's report 2. Warranty 3. Consumer report 4. Applicant

4. Applicant

Which is the primary source of information used for insurance underwriting? 1. Applicant interviews 2. Medical records 3. Private investigations 4. Applications

4. Applications

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to 1. Charge a higher premium 2. Require a yearly medical examination 3. Lower its insurability standards 4. Refuse to issue the policy

1. Charge a higher premium

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional reciept. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date? 1. The date of application 2. The date of medical exam 3. The date of policy delivery 4. The date of issue

2. The date of medical exam

When J. applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by 1. A physician of the applicant's choice and at his expense 2. A home officer underwriter 3. A paramedic or examining physician at the insurer's expense 4. The agent

3. A paramedic or examining physician at the insurer's expense

A producer is helping a married couple determine the financial needs of their children in the even one or both should die prematurely. This is a personal use of life insurance known as 1. Survivorship insurance 2. Juvenile protection provision 3. Survivorship protection 4. Life planning

3. Survivorship protection

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective? 1. As of the application date 2. As of the policy delivery date 3. As of the first of the month after the policy issue 4. As of the policy issue date

1. As of the application date

The term "illustration" in a life insurance policy refers to 1. Pictures accompanying a policy 2. Charts and graphs 3. A presentation of nonguaranteed elements of a policy 4. A depiction of policy benefits and guarantees

3. A presentation of nonguaranteed elements of a policy

All of the following are requirements for life insurance illustrations EXCEPT 1. They must identify nonguaranteed values 2. They must differentiate between guaranteed and projected amounts 3. They must be part of the contract 4. They may only be used as approved

3. They must be part of the contract

An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant is killed in an automobile accident the next day, which of the following is TRUE? 1. The application will be voided 2. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy 3. The premium would be returned to the insured's estate because the policy was not issued 4. The deathcalim will be rejected

2. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy

An applicant who receives a preferred risk classification qualifies for 1. Higher premiums than a person who receives a sub-standard risk 2. Higher premiums than a person who receives a standard risk 3. Lower premiums than a person who receives a standard risk 4. Dividends payable for lack of claims

3. Lower premiums than a person who receives a standard risk

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? 1. Agent's Report 2. General Information 3. Medical Information 4. Inspection Report

3. Medical Information

In the event the key employee quits or is terminated, what provision allows the policyowner to transfer coverage to the replacement employee, provided the new employee evidence of insurability? 1. Free look 2. Change of insured 3. Consideration 4. Misstatement of age

2. Change of insured

All of the following are true of key person insurance EXCEPT 1. The plan is funded by permanent insurance only 2. There is no limitation on the number of key employee plans in force at any one time 3. The employer is the owner, payor and beneficiary of the policy 4. The key employee is the insured

1. The plan is funded by permanent insurance only

Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount? 1. Split dollar agreement 2. Buy-sell agreement 3. Profit and loss agreement 4. Key person agreement

2. Buy-sell agreement

Which of the following is NOT a characteristic of variable annuities? 1. The cash value is adjusted for inflation 2. They offer guaranteed stock performance 3. The contract owner bears the investment risk 4. Benefits are dependent on the performance of securities

2. They offer guaranteed stock performance

Insurance producers must ensure that contracts they recommend are in the best interest of the insured. This is called 1. Approval 2. Underwriting 3. Suitability 4. Client protection

3. Suitability

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will 1. Pay the policy proceeds up to an established limit 2. Not pay the policy proceeds under any circumstances 3. Automatically pay the policy proceeds 4. Pay the policy proceeds only if it would have issued the policy

4. Pay the policy proceeds only if it would have issued the policy

An insurer wants to obtain information from investigators regarding an applicant for insurance. What must the insurer do in order to legally acquire this information? 1. Recieve written permission from the Department of Insurance 2. Recieve a signed statement from the insured which authorizes the investigation 3. Sign a waiver that the information will be kept confidential 4. Present the insured with a Disclosure Authorization Notice

4. Present the insured with a Disclosure Authorization Notice

Which is generally true regarding insureds who have been classified as preferred risks? 1. They can borrow higher amounts off of their policies 2. They can decide when to pay their monthly premiums 3. They keep a higher percentage of any interest earned on their policies 4. Their premiums are lower

4. Their premiums are lower

Which of the following is the best reason to purchase life insurance rather than annutities? 1. To liquidate a sum of money over a lifetime 2. To create an estate 3. To liquidate a sum of money over a period of years 4. To create regular income payments

2. To create an estate

What is the purpose of key person insurance? 1. To insure retirement benefits are available to all key employees 2. To maintain an account that insures the owner of a company remains solvent 3. To lessen the risk of financial loss because of the death of a key employee 4. To provide health insurance to the families of key employees

3. To lessen the risk of financial loss because of the death of a key employee

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? 1. Insurance Index 2. Policy Summary 3. Illustractions 4. Buyer's Guide

4. Buyer's Guide

Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy? 1. The employer is the owner and the key employee is the beneficiary 2. The key employee is the owner and beneficiary 3. The key employee is the owner and the employer is the beneficiary 4. The employer is the owner and beneficiary

4. The employer is the owner and beneficiary

An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize? 1. Estate liquidation 2. Nonpayment of premium 3. Change of beneficiary 4. Viatical settlement

4. Viatical settlement