life insurance comprehensive exam

An insured has contributed $12,000 in premiums toward a universal life policy. She decides to cancel the policy and take the cash value of $15,000. What are the tax consequences of this distribution?

$12,000 is a return of after tax dollars (i.e. cost basis), $3,000 is taxable as ordinary income

The Commissioner must provide a copy of any order and/or complaint filed against an individual under investigation no later than:

30 days

Any records containing consumer information an insurer, or their insurance producer, has used as a basis for recommending insurance transactions to a consumer must be maintained for:

5 years

Joe has a whole life policy with a guaranteed insurability rider. He was 21 at the time the policy was issued. If he exercises all of the options at the ages specified under the typical rider, how many policies will he end up with?

7

The Commissioner may suspend or revoke a producer's Tennessee insurance license for all of the following reasons, except:

A licensee defaults on a personal loan

An individual that applies for an insurance license may be exempt from the licensing exam if:

A producer from another state who moves to Tennessee and applies within 90 days of dropping his previous license and moving

Which of the following riders is used to increase the death benefit if death is the result of an unintended fatal injury, paying a multiple of the face amount?

Accidental Death

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

An admitted insurer

All of the following are Settlement Options, except:

B Reduced Paid-Up

Part 2 of the application consists of all of the following information, except:

Date of birth, gender

All of the following are Dividend Options, except:

Extended term

An insurance organization licensed in a state outside of Tennessee, but still located in the United States, would be considered:

Foreign

An organization that transacts insurance only with its own members is a(n):

Fraternal Benefit society

Which of the following statements regarding life insurance policy exclusions is TRUE?

Generally, aviation is excluded, except for fare-paying passengers on a commercial flight

Ultimately it is up to the _______ to determine if the proposed insured is an acceptable risk.

Home office underwriter

Which of the following statements regarding life insurance policy provisions for policies issued in Tennessee is correct?

Loans may be taken from accumulated cash values after 3 full years of paid premiums

Misrepresentation of a producers duties include all of the following, except:

Offering specialized services from the insurer's certified risk manager

Which of the following is not a way to access the money accumulated in a traditional ordinary permanent life insurance policy?

Partial surrender

Which of the following is not a major source of underwriting information?

Past life insurance owned

Linda wants her husband to be the beneficiary of her life policy but also wants to retain all rights of ownership. Which of the following types of beneficiary designations should she use?

Revocable beneficiary

Which of the following statements about policy roles is TRUE?

The insured and the policyowner are usually the same, but not necessarily

What is an annuitant, in regard to an annuity policy?

The party whose life the policy's benefits are based on

Each of the following choices are true of whole life, except:

The policy can be converted into a term life insurance plan at anytime

In order to be eligible for a producer's license in Tennessee, the Commissioner must determine that the applicant has all of the following characteristics, except:

They must be at least 21 years of age

A ___________ settlement is when a terminally ill insured sells his or her life insurance policy to a third party other than an insurance company, for an amount less than the policy's death benefit, but greater than its cash values.

Viatical

Under Tennessee law, a person authorized to sell, solicit or negotiate insurance is defined as being a/an:

insurance producer

The _________ clause identifies the parties to the contract and the perils it covers.

insuring

Medical exams are requested in all of the following situations, except:

low amount of premium

Who may use the existence of the Tennessee Life and Health Guaranty Association to sell, solicit, or induce any person to buy any insurance the Association covers?

no person

If a Tennessee insurer makes the offer of a special premium or favor as an incentive to purchase insurance, they are guilty of performing which unfair and deceptive trade practice?

rebating

In Tennessee, the Commissioner holds all of the following powers, except:

the ability to set premium rates

A small business owner used her life insurance policy as collateral for a bank loan. The face amount of the whole life policy was $100,000 and the original amount of the loan was $20,000. If the outstanding loan balance at the time the small business owner died was $10,000, how much will the policy's named beneficiary receive?

$90,000

A Tennessee insurance producer's license is valid for ______ months unless revoked or suspended.

24

In order to maintain their license in Tennessee, an insurance producer must complete:

24 hours of continuing education including 3 hours of ethics every 2 years

Which of the following life insurance policies is ideally suited for estate planning purposes?

Joint Survivorship

After the blackout period has ended, the widow or widower may receive a Social Security income benefit based on the ___________.

PIA of the deceased spouse

The insurance industry is primarily regulated at the _________ level.

state

What is the primary purpose of the reinstatement provision?

to put a policy back in force as if it had never lapsed

The reinstatement period for a lapsed life insurance policy in Tennessee must be:

3 years

When investigating a producer for violations of the state's insurance regulations, the Commissioner would consider all of the following aggravating rather than mitigating circumstances, except:

The licensee tried to rectify the situation

All of the following are TRUE regarding a Variable Annuity, except:

The number of annuity units received upon annuitization, and the unit value, remain level

Harry and Sally were equal partners in a catering business worth $400,000. They entered into a buy-sell agreement that provided funding whether one of them died or was disabled. The annual premium for each of the disability insurance policies was $2,000. All of the following statements are correct, except

The premiums are tax deductible

Why are dividends not taxable as income when paid out to a participating policyholder?

They represent a return of a portion of the premium paid

What is the primary incentive for a third party to acquire a life insurance policy from a terminally ill insured?

To profit at the time of claim

The ____________ provision prevents a Whole Life Policy from lapsing, as long as there is adequate cash value, if the insured/policyowner forgets to pay the premium by the end of the grace period.

automatic premium loan

The ______________ clause is the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the policy is in force.

Insuring

All employer-paid premiums for amounts of group life insurance over $__________ are reported as taxable income to the employee.

$50,000

When the death of an insured occurs within a specified period, causing the policy to pay double or triple benefits, this policy must have which of the following riders?

Accidental Death Rider

The annuity pay-in period is also referred to as the ________ period.

Accumulation

An unauthorized insurer is any insurer in Tennessee that is transacting insurance business without a(n):

Insurance producer License

Which of the following is FALSE regarding Settlement Options?

Both principal and interest received as a result of a settlement option are taxed as ordinary income to the beneficiary

All of the following are correct regarding renewable term insurance, except:

Evidence of insurability is required to renew the policy

Under the Fair Credit Reporting Act, which of the following statements is correct?

If an individual is denied coverage, they can request a copy of the report

Under what circumstances should the producer obtain a Statement of Good Health?

If no premium was paid at time of application and the policy is now being delivered

A misstatement of an insured's age was not discovered until after the insured died. The policy had been in effect for 3 years. What will the insurer do to address this situation?

Pay benefits based on what past premiums would have purchased at the correct age

When an applicant does not smoke, exercises regularly, seldom drinks, and eats moderately and is considered to be a better-than-average risk, they would likely qualify for:

Preferred status and pay a lower premium

A life Insurance policyowner receives an annual dividend. One option for this dividend is to use it to offset the annual obligation to the insurer. What is this option called?

Premium Reduction

Beth exercised an owner's option on a life policy to stop paying premiums but continue to be covered until she was age 100. Which Nonforfeiture Option did she choose?

Reduced Paid-Up

Which of the following is NOT a Dividend Option?

Reduced Paid-Up

If a client is unsure about whether or not he/she can obtain coverage or how much it would cost, what can the producer suggest to see what the insurer can do without tying up any of the client's funds?

Submit a trial application

Which of the following statements show proper compliance with Tennessee law relating to actions the Commissioner may take in response to an insurers, or an insurance producers, violations while transacting insurance business?

The Commissioner has the authority to subpoena witnesses, and examine them under oath during the investigation of a licensees possible violations

Angie is the insured under a $100,000 10 year term life insurance policy with her spouse named as her beneficiary. If she dies in year 9, what will her spouse receive?

The face amount of the policy

An insured has a $175,000 permanent life insurance policy and is having difficulty keeping up with the premium payments. Which Nonforfeiture Option would allow him to forego the premiums and retain the same face amount until the cash surrender value is exhausted?

extended term

The nonforfeiture option that provides coverage for the shortest duration is:

extended term

The nonforfeiture option that provides the most amount of coverage is:

extended term

An insurer authorized to do business in State A, which was incorporated in State B, is considered what type of insurer in State A?

foreign

Under Social Security, a worker needs 10 years of work to be considered ________ insured.

fully

All of the following are true of a substandard risk, except:

the premium would be discounted