Life Insurance Exam

Tim has a whole life policy with an assortment of riders attached. He is blinded in an accident and receives proceeds from one of the riders. Which of the following riders paid a benefit for his loss of sight?

Accidental dismemberment rider

A person age 40 desires a life insurance policy that will allow him to increase or decrease the death benefit in the future. What would you recommend that he purchase?

Adjustable Life policy

Which of the following receipts provides coverage for an insured immediately upon the payment of the premium?

Binding receipt

Which of the following types of policy conversion is allowed without evidence of insurability?

Conversion from a term life policy to a whole life plan

Which of the following is true with regard to the taxation of a whole life insurance policy?

Death benefit is tax free and the cash value buildup is tax deferred

Jean Reamer borrowed $14,000 to purchase a new boat. What type of cost effective life insurance is best suited to make sure that her loan is paid off in the event of her death?

Decreasing term insurance

Which of the following reinsurance agreements involves a ceding insurer desiring to transfer risk to a reinsurance company and the latter accepts or rejects it on a case-by-case basis?

Facultative reinsurance

Which of the following best describes an annuity payment option in which income is guaranteed in a specified amount of funds with the balance paid to a beneficiary if the annuitant dies?

Fixed amount installment annuity

Intentional deception can most closely be associated with which of the following terms?

Fraud

Which of the following are not generally governed by replacement regulations?

Group life insurance

An event or condition that increases the likelihood of a loss occurring is known as a:

Hazard

Which of the following policies will assist a business in paying expenses and other necessary bills should a manager or director die?

Key employee insurance

Which of the following is not a dividend option?

Reduced paid up insurance

Which of the following policies is potentially the least expensive over the life of the contract?

Single premium whole life policy

Which of the following protects a beneficiary from creditors when proceeds at death are left with the insurer?

Spendthrift provision

In order for the waiver of premium benefit rider to be activated, which of the following must occur?

The insured must be under the care of a doctor

Which of the following statements is true regarding a "Conditional Receipt"?

The receipt provides coverage on a date earlier than the issue date of the policy

Dick is covered by a group life policy paid for by his employer. The face amount of coverage is $25,000. If Dick terminates his employment and wishes to convert his group coverage to an individual policy, to what type of insurance will he generally convert?

Universal Life

For a universal life policy's cash value accumulations to receive favorable tax treatment, a specific percentage of premiums must be used to purchase:

death benefit

Which of the following may an individual use to fund a traditional Individual Retirement Account (IRA)?

flexible premium annuity

When an individual retirement account is directly rolled over to another IRA of the same type, which of the following is true?

if the rollover is firm to firm then the owner receives no cash

A whole life policy will be classified as a MEC if

it does not satisfy the seven pay test ( determines whether the total amount of premiums paid into a life insurance policy, within the first seven years, is more than what was required to have the policy considered paid up in seven years)

Which of the following is true concerning the annual increase of cash value in a whole life policy?

it may be subject to taxation if the contract fails the seven pay test

The primary purpose of a business using a buy-sell agreement is to:

permit the surviving partners or shareholders to maintain control of the business

Which statement is true regarding buy-sell taxation?

premiums are not deductible, the death benefit is not taxable

Which of the following policies is best suited to provide funds to pay for taxes due and other administrative expenses with regard to a deceased's estate?

survivor life insurance

The insured and primary beneficiary die in a common accident. The insured dies at the scene and the primary beneficiary dies thirty-six days later. To whom is the insured's $250,000 death benefit paid?

the primary beneficiaries estate

A conversion privilege is included in all forms of group life insurance. How long is the conversion period available?

31 days after termination

Which of the following is described as an act by one party in exchange for a promise by the other?

A Consideration

Which of the following is provided to an applicant when a premium is collected along with an application for life insurance?

A conditional receipt

Graded premium whole life

A form of modified life insurance that provides for annual increases in premiums for a constant face amount of insurance during a defined preliminary period, with the purpose of making initial payments more affordable.

Which of the following accurately describes an equity indexed annuity?

A form of non-variable annuity

Modified Endowment Contract (MEC)

A life insurance policy under which the amount a policy owner pays in during the first years exceeds the sum of net level premiums that would have been payable to provide paid-up future benefits in seven years.

A life insurer's promise to pay the death benefit is found in which of the following provisions?

Insuring provision

Which of the following is true regarding an interest sensitive whole life policy?

Interest credited increases cash value and shortens the premium payout period

Which of the following is true regarding dividends paid by a permanent life insurance policy?

Interest earned on dividends in taxable

Which of the following provides interest payments to the primary beneficiary following the death of the insured?

Interest only option

Brad buys a permanent life insurance policy that has a fixed premium for five years. In the sixth year, the premium increases to a higher amount and stays level for life. What type of policy is this?

Modified Life

Life insurance protection will be provided to an insured in consideration of a premium payment. Which of the following life insurance policies possesses the lowest initial premium?

Modified life

What type of life insurance policy may a person purchase to make sure that a debt or loan will be paid off in case of his or her premature death?

Mortgage redemption insurance

What life insurance policy provision permits the policyholder to select the face amount of protection, name a beneficiary, or to borrow from the policy's cash savings value?

Owner's rights provision

Which of the following types of annuity will potentially pay an annuitant with the greatest amount of income but has no guaranteed survivorship?

Straight life annuity

Which of the following parties may change the beneficiary designation in a life insurance policy?

The policy owner

If a policy owner applies for reinstatement after a policy lapse, the insurer will require the completion of a reinstatement application. Statements made on this application are contestable for what period of time?

Two years

If Dick terminates his employment and wishes to convert his group coverage to an individual policy, to what type of insurance will he generally convert?

Universal life

Which of the following life insurance policies permits a beneficiary to receive a death benefit and the cash value upon the death of the insured?

Universal life option B: provides an increasing death benefit as the cash value increases. Therefore, UL Option B will pay a beneficiary an amount equal to the death benefit and the cash value upon the death of the insured

An insurer which issues an insurance contract after accepting an incomplete application may have engaged in which of the following

Waiver

If an insurance company issues a health insurance policy based upon an incomplete application, it has unknowingly engaged in a:

Waiver

Which of the following best describes when an insurer fails to enforce a provision in an insurance policy?

Waiver

A second rider has also been added which will prevent the policy from lapsing if Dick becomes disabled. This rider is known as the:

Waiver of premium rider

According to the Uniform Simultaneous Death Act, when an insured and the primary beneficiary are killed in a common disaster and it is not known who died first, what does the policy presume?

the insured survives the beneficiary

John owns a whole life policy. If he uses the equity in it to secure a loan, which of the following is true?

the lender becomes the primary beneficiary for its interest

Which approach is used to determine the appropriate amount of life insurance an emergency fund will need to provide continuing income to a survivor

the needs approach

A policy loan from a cash value life insurance plan is generally not taxable. However, part or all of it may be taxable as ordinary income if:

the policy has been designated an MEC

In which of the following ways is an annuity similar to a whole life or term life insurance policy?

they are both characterized by prepaid financing

Which of the following best describes the purpose of key-employee life insurance plans?

to provide funds to locate and train a new person

Which of the following provisions is required in pension plans that guarantee an employee minimum benefits in the event of termination of employment prior to retirement?

vesting provision

Cash value life insurance includes nonforfeiture benefits. Which of the following is such a benefit that appears in a permanent life insurance plan, whether issued to cover an individual or an eligible group ?

1. cash surrender 2. extended term insurance 3. reduced paid-up insurance

Which of the following statements regarding the Fair Credit Reporting Act (FCRA) is correct?

Applicants must be notified within a short period of time that their credit report or any investigative report has been requested

A conditional premium receipt states that coverage is effective:

As of the date of receipt if the application is approved

Which of the following is characterized by the least expensive premium ?

Decreasing term life

A pension plan characterized by a fixed income amount in the future is known as:

Defined benefit

The suicide clause

If an insured commits suicide within the first two years after a policy is issued, the death benefit will not be paid. However, the insured's heirs will receive a return of premiums.

Which of the following policy provisions prevents an insurer from denying a death claim in the future after the purchase of a life insurance policy?

Entire contract clause

Which of the following provisions places limitations on an insurer's or producer's authority to waive a provision in an insurance contract?

Entire contract provision

Physical Hazard Morale Hazard Moral Hazard

Physical - tangible, measurable and observable injury sources (wet floors) Morale - insured should have known better (not wearing a seatbelt) Moral - person has the intent to defraud the employer for the receipt of undeserving benefits (purposeful office injury)

What provision found in a life insurance policy allows an insurer to assess an extra charge if the policyowner makes payments on a quarterly basis?

Premium paying provision

Buy-Sell Taxation:

Premiums are not deductible AND the death benefit is not taxable

Which annuity contract could potentially pay the greatest monthly income once the annuitizatiion period commences

Pure life annuity

Which policy option allows a policy owner to implement a single premium purchase

Reduced paid up insurance

Corridor

The amount of pure insurance protection above the cash value (in universal life insurance)

Viatical settlements are amounts paid by a viatical settlement company to a terminally ill person. Which of the following is true regarding a viatical settlement?

The amount payed to the viator is tax free

The binding force in an insurance contract is:

The consideration

If whole life insurance is utilized to support a key person life insurance arrangement, which of the following is allowed to borrow against the policy's cash value?

The employer

The Fair Credit Reporting Act requires that a notice to the applicant be included and a premium receipt provided to a life insurance applicant. This notice explains that:

The insurer can conduct an investigative consumer report at its own discretion

Which of the following is used to determine what portion of an annuity payment is a return of principal and what portion is taxable?

exclusion ratio

Which of the following accurately describes an equity indexed annuity?

a form of non-variable annuity

Endowment

a permanent insurance policy. It pays a death benefit to a beneficiary if the insured dies during the endowment period. If the insured survives the endowment period, he or she receives the cash value.

What type of whole life policy would you recommend to your client if she desired to have 30,000 in ten years

a ten year endowment

Guaranteed insurability benefit

allows the insured to purchase additional amounts of life insurance at various option dates in the future without proving insurability.

Characteristics of annual renewable term insurance include

an annual increase in the premium and a level death benefit

A Section 1035 Exchange

an avenue an individual may use to exchange an older life insurance contract for a more modern one, as long as the owner does not receive any cash in the exchange. A Section 1035 Exchange is not a type of qualified plan.

An increasing term rider is characterized by

an increasing face amount

When may the owner of an annuity contract change the beneficiary designation?

at any time during the accumulation period

Group term life insurance participation rates:

in noncontributory - 100% in contributory - 75%

A survivorship life policy generally covers two individuals. Which of the following provides a reason for purchasing such a life insurance policy?

it provides funds to pay off possible estate or inheritance taxes

Applications for coverage are usually accompanied by an initial premium. An applicant who submits an application to the insurer without an initial premium has:

made an invitation

The type of annuity which guarantees the owner a fixed interest rate for a specific period of time is known as a:

market value adjusted annuity

When a life insurance policy renews at the end of a specified period, what may the policyowner do in order to continue coverage?

pay a higher premium for a new specified premium

The payor benefit clause states:

premiums will be waived until the insured child reaches the age of maturity

Which of the following organizations would use a salary reduction agreement to fund the retirement needs of its employees?

private school (using 403b)

Life annuity

promises to pay the annuitant monthly income for life with no minimum guaranteed amount of payments?

Nonforfeiture options are available to the owner of a cash value life insurance policy. Which of the following options provides the insured with life insurance for the greatest length of time?

reduced paid up insurance

A prepaid life insurance policy is issued. When the policy is delivered by the producer, he or she should

remind the policy holder of the ten day free look period

The provision which permits a policyowner to return a life insurance policy within a certain period of time following delivery and receive a full refund of premium is the:

ten day free-look period

Credit life insurance policies generally provide which of the following types of life insurance?

term life insurance

One option available is the reduced paid-up insurance option. The amount of insurance that one may purchase under this option is based upon the insured's attained age and

the amount of the cash value

If an insured purchases a decreasing term life insurance policy, what portion of the contract decreases?

the death benefit