Life Insurance Exam
Policy loans
Only in policies with cash value Loan amount equal to cash value reduces the death benefit if not repaid insurer can defer for up to 6 months
Where can a domestic insurer sell insurance?
Only in the state that they are headquartered
Dfamation
Oral or written statement made intended to injure a person engaged in the insurance business
A rider attached to a life insurance policy that provides coverage in the insured family members is called the
Other-insured rider
Annuity parties
Owner - purchaser of annuity contract Annuitant - person who receives benefits or payments from the annuity
Profit sharing
incentive pay in which payments are a percentage of the organization's profits and do not become part of the employees' base salary
Policy loans from the cash value are not
income taxable
Return of premium (ROP) life insurance
increasing term insurance policy that pays an additional death benefit to the beneficiary
In group insurance, the master contract is for the employer, and certificates of insurance are for
individual insureds
Consumer report
information collected from employment records, credit reports, and other public sources
Material misrepresentation
information that was misrepresented that would have changed the insurer's underwriting decision
Life-income option
installment payments are paid only while the beneficiary is alive and cease on the beneficiary's death
Living needs Rider
provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years
Classifications of annuities Disposing of proceeds
pure life, annuity certain, or life refund annuity
Characteristics to concern underwriter for group insurance
purpose or nature of group size of group Turnover of group Financial strength of group
Nonforfeiture options
reduced paid up extended term cash
Llife settlements
refer to any financial transaction in which the owner of a life insurance policy sells a life insurance policy to a third party for some form of compensation
A policy that has been surrendered cannot be
reinstated
Annuities are purchased for
retirement income funding college education
contributory plan
retirement plan funded by contributions from the employer and employee
Noncontributory plan
retirement plan funded entirely by contributions from the employer
Disclosure
revealed information to help someone make an intelligent and educated decision
Earned income
salary, wages, or commissions; but not income from investments, unemployment benefits, and similar sources of income
Extended term is the automatic nonforfeiture option: same __________, shorter __________
same face amount, shorter term of coverage
Disability riders: payor benefit
similar to waiver of premium if the payor (parent or guardian) becomes disabled for at least 6 months Used in juvenile policies
Classifications of annuities Premium payment method:
single premium vs. periodic
Consideration
something of value that each party gives to the other (binding force in any contract)
Taxable
subject to taxation
Nonforfeiture options are triggered by policy _______ or ______
surrender or lapse
Qualified plans have
tax advantages
premiums are not
tax deductible
With settlement options, when the beneficiary receives payment consisting of both principal and interest, the interest portion of the payments received is _______________
taxable as income
which of the following information will be stated in the consideration clause of a life insurance policy?
the amount of premium payment
Principal
the face value of the policy; the original amount invested before the earnings
The insurance director is appointed by
the governor
Attorney General
the head of the department of justice
Director
the head of the state Department insurance
Interest-only option
the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals
An insured purchased a 10 year level term policy that is guaranteed renewable and convertible. What happens at he end of the 10 year term?
the insured may renew the policy for another 10 years, but at a higher premium rate
Attained age
the insured's age at the time the policy is issued or renewed
Settlement options are the methods used to pay the death benefit to a beneficiary upon the insured's death. They are triggered by ___________
the insured's death or age 100
an employee quits his job on May 15 and doesn't convert his group life policy to an individual policy for 2 weeks. he dies an accident on June 1. which of the following statement best describes what will happen?1. the insurer will pay a reduce death benefit to the beneficiary2. the insurer will pay the death benefit minus one month's premium3. the insurer will pay nothing because the employee has terminated his group insurance and hasn't started individual one4. the insurer will pay the full death benefit from the group policy to the beneficiary
the insurer will pay the full death benefit from the group policy to the beneficiary
Fraud
the intentional misrepresentation or deceit with the intent to induce a person to part with something of value
premium
the money paid to the insurance company for the insurance policy
Insured
the person covered by the insurance policy; may or may not be the policyowner
policyowner
the person entitled to exercise the rights and privileges in the policy
Entire contract provision
the policy and a copy of the application, along with any riders or amendments constitutes the entire contract
Level premium
the premium that does not change throughout the life of a policy
Life income with period certain option
the recipient is provided with the "best of both worlds" in terms of a lifetime income and guaranteed installment period
viatical settlement
the sale of a life insurance policy by a terminally ill insured to another party, typically to investors or investor groups, who hope to profit by the insured's early death
insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?
the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive
If age is misrepresented:
there could be a refund or a decrease in policy amount
All of the following are requirements for life insurance illustrations EXCEPT
they must be part of the contract
In a life settlement, the owner sells an existing life policy to a
third party
Insurance is a ________ of risk
transfer
Assignment
transfer of rights of policy ownership
True or false regarding cash surrender nonforfeiture options, Funds exceeding the premium paid are taxable as ordinary income
true
aleatory
unequal exchange (a lottery) Low cost premiums, high cost payout
Which of the following policies would have an IRS required corridor of gap between the cash value & death benefit?
universal life -option A (level death benefit)
stock purchase
used by privately owned corporations when each stockholder buys a policy on each of the others
cross purchase
used in partnerships when each partner buys a policy on the other
stock redemption
used when the corporation buys one policy on each shareholder
entity purchase
used when the partnership buys the policies on the partners
Insurable interest
valid interest must exist at the time of the application Blood relatives and business relationships
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?
viatical settlement
What is the name of the insured who enters into a viatical settlement?
viator
the rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called
waiver of premium
Dividends are a return of excess premiums; therefore, not taxable _____________________
when paid to the policyowner
______ ______ insurance provides lifetime (permanent) protection and accumulates cash value
whole life
Rollover
withdrawal of the money from one qualified plan and placing it into another plan
Fine for violating cease and desist order
$1,000
Fine for violating license
$10,000 to $100,000
If a person violates or fails to comply with an order from the Director, they may be fined
$100 per day up to $5,000
The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?
$100,000f
What is the resident producer license fee payable once every 2 years? A. $50 B. $250 C. $100 D. $180
$180
What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?
$2,500
What is the official name for the social security program?
Old Age Survivors Disability Insurance
Third-party ownership
When a person(s) other than the insured purchases the insurance policy.
401(k) plan
a tax-deferred investment and savings plan that acts as a personal pension fund for employees
403(b)
A retirement account similar to a 401(k) plan, but offered by non-profit organizations, like universities or charitable organizations.
Qualified retirement plan
A retirement savings plan approved by the Internal Revenue Service that provides individuals with a tax benefit
Joint life
A single policy that is designed to insure two or more lives
Fees for maintaining license
$50 application fee Every 2 years: $180 for resident insurance producer license $250 for nonresident insurance producer license $150 for a business entity $50 for a self-service storage facility limited line license $200 for a limited line license other than those listed in the limited lines producer section $50 for temporary license, annual fee for limited lines producer license, certification fee for each certified prelicensing course $20 annual fee for renewing the certification of each course
Producer's who broker insurance must file a bond along with the application for license. The bond must be issued in favor of the people of Illinois, and must be on a continuous form and for an amount equal 5% of the premium brokered the previous year, NOT to exceed A. $10,000 B. $25,000 C. $50,000 D. $100,000
$50,000
Insuring clause
(or insuring agreement) parties to the contract, premium to be paid, length of coverage, amount to be covered
Settlement options
-cash (automatic) - Life income - interest only - fixed period - fixed amount
what is the name of a clause that is included in a policy that limits,or eliminates the death benefit if the insured dies as a result of war or while serving in the militarya.limitedb.aviationc.hazardous occupationd.military service or war
.military service or war
Interest-sensitive, Market-sensitive, and Adjustable Life products
1. Adjustable Life 2. Universal Life 3. Variable Whole Life 4. Variable Universal Life 5. Interest-sensitive Whole Life 6. Indexed Life 7. Flexible Premium Policies
At what annual rate does interest on life insurance proceeds accrue from the date of death of the insured
10%
IRA withdrawals earlier than 59.5 are subject to
10% additional tax
What percentage of a company's employees must take part in a noncontributory group life plan?
100%
Reinstatement - if license lapses, the producer can renew it within _____ months with a doubly penalty of _____
12 months $360
Return premiums must be paid or credited to the insured's account within ____ days after receipt from the insurer
15 days If insured submits written authorization, the credit balance may be retained for no more than 12 months
How many accounts must the Illinois Life and Health Insurance Guaranty Association maintain?
2 accounts: life insurance and health insurance
How long is a insurance producer license?
2 years
Notice of hearing must be held between
20 and 30 days after service of the notice of hearing
An applicant for a fire insurance producer's license must successfully complete an approved prelicensing education course of at least
20 hours
How many hours does it take to get a Life insurance license?
20 hours total 7.5 hours in classroom
Before each license renewal, an insurance producer must complete at least _____ hours of Continuing Education (CE)
24 hours
A person whose license is revoked or whose application is refused is ineligible to apply for another license for __ years from the date of the refusal, revocation, or final court order.
3 years
An individual whose license is denied or revoked will be ineligible to apply for license for a period of A. 1 year B. 2 years C. 3 years D. 5 years
3 years
all of the following are true of an annuity owner EXCEPT 1. the owner is the party who may surrender the annuity 2. the owner must be the party to receive the benefits 3. the owner pays the premiums on the annuity 4. the owner has the right to name the beneficiary
3. the owner pays the premiums on the annuity
Licensees must inform the Director of a change of address within _____ days after the change
30 days
The director informs a producer that its license has been terminated and immediately receives a request for the charges to be reviewed in court. Within what maximum number of days must the hearing be held?
30 days
Licensed producer with a felony conviction must report it within ___ days
30 days With copy of judgement, probation, or any other relevant documents
The illinois life and health insurance Guaranty association is obligated to pay covered claims under the amount of:a. 100kb. 300kc. 500kd. 1m
300k
After leaving a job with group insurance, an insured has ___ days still covered under the group policy
31
Insurers must keep a complete file of all printed, published, or prepared advertisements on file for either ____ years or until the insurer's next ______________ by the department, whichever comes later
4 years or until the insurer's next regular examination
Under Social Security disability requirements, a worker is fully insured on a permanent basis after having worked in a covered occupation for: 10 quarters (credits) 20 quarters 30 quarters 40 quarters
40
In order to qualify for conversion from a group life policy to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?
5
Minimum number of credits required for PARTIALLY insured status
6 credits
Disability riders: waiver of monthly deductions
6 month waiting period pays deduction and NOT the full premium Usually used in universal life and variable universal life
Books and records for each fiscal or calendar year must be maintained for at lease ____ years
7 years
What is the maximum percentage of the face amount of a life insurance policy that can be paid in an acceleration of benefits?
75%
If the insurance policy is cancelled within ____ days, the licensee with refund all
90 days
Payable death benefit =
= face amount - amount withdrawn - interest earnings lost by insurer
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 term A decreasing term policy's face amount decreases as the amount of debt is reduced
Variable life, group life, and annuities are EXEMPT under which rule? A. Life Solicitation B. Insurance Disclosure C. Fiduciary D. Life Insurance Taxation
A Life Solicitation
capital sum
For accidental death and dismemberment rider, pays the principal (face amount) for an accidental death and a percentage of that amount (capital sum) for accidental dismemberment
Which of the following is TRUE regarding the premium in term policies? A The premium is level B Only level term policy has a level premium C The premium in term policies is not based on the insured's age D Decreasing term policy will have a decreasing premium
A The premium is level Regardless of the type of term insurance purchased, the premium is level throughout the term of the policy. Only the amount of the death benefit may change.
Premium Fund Trust Account (PFTA)
A financial responsibility of an insurance agent Where all collected premiums will be deposited
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 full death benefit
Who makes up the Medical Information Bureau (MIB)? A insurers B hospitals C former insured D physicians and paramedics
A insurers
buy-sell agreement
A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.
People who can sell, solicit, and negotiate insurance
A licensed insurance producer An attorney licensed to practice law A trust officer of a bank An actuary or certified public accountant employed in a consulting capacity A licensed public adjuster acting within the scope of his or her license
An annuity protects against what?
A person outliving their money
Roth IRA
A personal savings plan; contributions are not tax-deductible; earnings are tax-free
According to the life insurance replacement regulations, which of the following would be an example of policy replacement? A. A term policy expires and the insured buys another term life policy B. A policy is reissued with a reduction in cash value C. A lapsed policy is reinstated within a specific timeframe D. Term insurance is changed to a whole life policy
A policy is reissued with a reduction in cash value
Individual Retirement Account (IRA)
A qualified retirement plan that provides most individuals with a deferred federal income tax benefit.
The Director may refuse to issue a license if a licensee's aggregate amount of premiums on controlled business exceeded the aggregate amount of premiums on all other insurance business during A. 2 calendar years immediately preceding the extension date of the license B. The 6 months period immediately following the issuance of extension of the license C. Any 1 year D. The licensing period
A. 2 calendar years immediately preceding the extension date of the license
The term "illustration" in a life insurance policy refers to A. A presentation of non guaranteed elements of a policy B. Depiction of policy benefits and guarantees C. Pictures accompanying a policy D. Charts and graphs
A. A presentation of non guaranteed elements of a policy
A nonresident producer in Illinois just relocated to Indiana and became a resident producer in that state. What must the producer do to satisfy one of illinois' requirements for nonresident producers? A. File a change of address within 30 days B. Pay a fee to the Illinois Department of Insurance C. Resubmit a nonresident license application D. Nothing
A. File a change of address within 30 days
Fiduciary responsibilities apply in which of the following situations? A. Handing client premiums B. Selling insurance C. Soliciting insurance D. Binding coverage
A. Handing client premiums
To which of the following situations does the Replacement Regulation apply? A. Non-Renewable coverage expiring in 8 years B. Group Life Insurance C. Immediate annuities purchased with proceeds from an existing policy D. Coverage under a binding receipt issued by the same company
A. Non-Renewable coverage expiring in 8 years
which option for universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? A. option B B. Corridor option C. Variable option D. Option A
A. Option B
If a nonresident if applying for a license in Illinois and his home state does not require continuing education for Illinois residents A. The continuing education requirement will be waived in Illinois B. The applicant must complete the required education in Illinois before being issued a license C. The applicant can take a federal exam that will serve the continuing education requirement in Illinois D. If the applicant has been licensed for over 10 years in his home state, the continuing education requirement is waived
A. The continuing education requirement will be waived in Illinois
An applicant receives a temporary insurance producer license. After 80 days, the owner of the insurance company decides to sell the business. Which of the following is TRUE? A. The license will automatically terminate B. The license can be applied elsewhere C. The license may be converted to a permanent producer license D. The Director will assess the case and make the ultimate decision
A. The license will automatically terminate
which of the following is not true regarding the accumulation period of an annuity? a. it would not occur in a deferred annuity b. it is the oeriod during which the annuity payments earn interest c. it is the period over which the annuitant makes payments into an annuity d. it is also known as the pay in period
A. it would not occur in a deferred annuity Accumulations is a period of time where the payments earn interest and grow tax deferred
if an insured continually uses the automatic premium loan option to pay the policy premium A. the policy will terminate when the cash value is reduced to nothing B. the face amount of the policy will be reduced by the automatic premium loan amount C. the cash value will continue to increase D. the insurer will increase the premium amount
A. the policy will terminate when the cash value is reduced to nothing
Parts of the application
General information Medical information Agent's report
Assignment: Absolute vs Collateral
Absolute: All rights are assigned to the new owner Insurable interest is not required Collateral: Partial rights transferred, usually to secure a loan. Once a loan is paid off, the rights go back to the original owner
warranties
Absolutely true statements Breach of warranties can void the policy
USA Patriot Act/Anti-Money Laundering
Addresses social, economic, and global initiatives to fight and prevent terrorist activities
Characteristics of competent parties
Age (Usually 18) Sound mind (know what they are doing) Not under the influence of drugs or alcohol In this case, they cannot break the law and they cannot be against public policy
flexible premium
Allow the policyowner to increase or decrease the premium during that policy period
Universal Life Cap
Allows the owner to adjust the premium up or down and even skip paying the premium; good fit for people with variable or commission-based incomes The only type that allows for a withdrawal (instead of a loan) The only type that would allow the beneficiary to receive the death benefit AND the cash value Guaranteed interest rate in general account
A Universal Life Insurance policy is best described as?
An Annually Renewable Term policy with a cash value account.
To sell variable life insurance policies an agent must receive all of the following except: a. A life Insurance license b. a SEC registration c. a FINRA registration d. A securities license
An SEC registration
To which of the following policies would the State regulation on illustrations NOT apply?
An individual variable life policy
All of the following are examples of third-party ownership of a life insurance policy EXCEPT
An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.
26.If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association that would be considered (Choose from the following options) 1. A misrepresentation 2. An accurate statement 3. A legal representation of the Association 4. An unfair trade practice.
An unfair trade practice
All other factors being equal, the least expensive first-year premium payment is found in
Annually Renewable Term
Life income joint and survivor
Annuity is payable to 2 annuitants (in one check) while both are living. Upon the death of the first annuitant, survivor benefits continue, either paying the full amount or reduced to 2/3 or 1/2 for the survivor's income until the survivor dies. Depending on which option is selected, these options may be referred to as Joint and Full Survivor, Joint and 2/3 Survivor, or Joint and ½ Survivor,
Modified Endowment Contract (MEC)
Any cash value policy that builds cash value faster than a Seven-Pay Whole Life Contract and therefore loses the tax advantages of life insurance.
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?
Any form of life insurance. Any form of Life insurance may be used to fund a buy-sell agreement.
Rebating
Any inducement offered in the sale of insurance products that is not specified in the policy.
Which of the following is the basic source of information used by the company in the risk selection process? A Consumer report B Application C Agent's report D Warranty
Application
Employer contributions made to a qualified plan
Are subject to vesting requirements
resident producer license
Authorizes licensee to transact insurance in a certain state
A policy owner 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?
Automatic premium loan
which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium?
Automatic premium loan
Within how many days may a person who is being examined by the Director for non financial business practices request a hearing after receiving the examination report? A. 3 days B. 10 days C. 15 days D. 30 days
B 10 days
Which of the following would be required to be licensed as an insurance producer?
B A salaried employee who advertises and solicits insurance
All of the following are regulated areas of the insurance industry EXCEPT A Investments B Commissions C Producers D Trade practices
B Commissions
Which of the following is NOT true regarding a Premium Fund Trust Account? A. It is established to maintain all the premiums B. It could be used as a claim payment account C. It is a fiduciary Account D. It may be a depository for service fees and late changes
B It could be used as a claim payment account
at the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called
Guaranteed insurability
Insurance agents are prohibited from referring to themselves as all of the following EXCEPT A. Financial Consultant B. Insurance Producer C. Financial Planner D. Investment Advisor
B. Insurance Producer
All of the following are true about the bond requirements in the state of Illinois EXCEPT A. The amount of the bond must be $2,500 or 5% of the premiums collected in the previous year B. Insurance producers with insurance companies that take responsibility for their actions are still required to post a bond C. Maintaining a bond or appointing insurance company is a requirement to holding a producer's license D. The maximum the bond would have to be is $50,000
B. Insurance producers with insurance companies that take responsibility for their actions are still required to post a bond
Which of the following statements is TRUE about a policy assignment? A. It authorizes an agent to modify the policy. B. It transfers rights of ownership from the owner to another person C. It is the same as the beneficiary designation D. It permits the beneficiary to designate the person to receive the benefits
B. It transfers rights of ownership from the owner to another person
The Director must find all of the following to be true of a viatical supplement provider applicant before a license will be issued EXCEPT A. The applicant possesses a good business reputation B. The applicant posts a bond with the Department of Insurance C. The applicant has provided a detailed plan of operation D. The applicant has paid the fee
B. The applicant posts a bond with the Department of Insurance
The necessary qualification for obtaining a producer's license in Illinois include all of the following EXCEPT A. Be at least 21 years of age B. Be considered competent and trustworthy C. Have completed an approved prelicensing course D. Have a good business reputation
Be at least 21 years of age (Can be 18 or older)
Other unfair practices
Boycott, coercion, intimidation Unfair discrimination Unfair claims practices
Elements of consideration
Bring value to one another Insurance company - promise to pay a claim Policyowner/insured - statements on the application, premium payment
Which of the following statements concerning buy-sell agreements is true?
Buy-Sell agreements are normally funded with a life insurance policy
Producer's who broker insurance must file a bond along with the application for license. The bond must be issued in favor of the people of Illinois, and must be on a continuous form and for an amount equal 5% of the premium brokered the previous year, NOT to exceedA. $10,000B. $25,000C. $50,000D. $100,000
C
Lamar owns a $50,000 whole life policy. At age 47 Lamar decides to cancel his policy and exercise the extended term option with the policy's cash value. He will receive a term policy with the face value of
C $50,000
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? A As of the first of the month after the policy issue B As of the policy issue date C As of the application date D As of the policy delivery date
C As of the application date
With which entity must a corporation register before it will be allowed to operate as an insurance agency? A. Federal Board of insurance B. MIB C. Director D. National Federation of Insurers
C Director
What are the two components of a universal policy? A Mortality cost and interest B Separate account and policy loans C Insurance and cash account D Insurance and investments
C Insurance and cash account The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher.
Variable Whole Life insurance is based on what type of premium? A. Flexible B. Graded C. Level Fixed D. Increasing
C Level Fixed
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
Which of the following is an eligibility requirement for Social Security disability income benefits? A) Being at least 50 years of age B) Currently employed status C) Fully insured status D) Experiencing at least one year of disability
C) Fully insured status
Temporary producer license can be issued to all of the following EXCEPT A. An applicant in the process of obtaining a producer license B. A court-appointed representative of a deceased licensed producer C. A spouse of disabled licensed producer before and after the sale of the business D. Designee of a licensed producer entering active military service
C. A spouse of disabled licensed producer before and after the sale of the business
According to the Fair Credit Reporting Act, all of the following would be considered negative information about a consumer EXCEPT A. Late payments B. Failure to pay off a loan C. Disputes regarding consumer report information D. Tax delinquencies
C. Disputes regarding consumer report information
All of the following are dividend options except A. Reduction of premium B. Paid-up additions C. Fixed-period installments D. Accumulated at interest
C. Fixed-period installments
All of the following are true about bond requirements in the state of illinois except A. The maximum the bond would have to be is $50,000 B. The amount of the bond must be $2,500 or 5% of the premiums collected in the previous year C. Insurance producers with insurance companies that take responsibility for their actions are still required to post a bond D. Maintaining a bond or appointing insurance company is a requirement to holding a producers license
C. Insurance producers with insurance companies that take responsibility for their actions are still required to post a bond
The main difference between immediate and deferred annuities is AThere is no difference. BThe amount of each payment. CWhen the income payments begin.
CWhen the income payments begin.
Adjustable life insurance
Can assume the form of either term insurance or permanent insurance Policyowner may adjust: premium or premium pmt period, face amount, coverage period Suitable for insureds whos incomes are unpredictable
Adjustable Life
Can be term or whole life, can convert from one to the other Premium: Can be increased or decreased by policyowners Face Amount: Flexible, set by policyowner with proof of insurability Cash value: Fixed rate of return, general account Policy loans: can borrow cash value
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?
Cash surrender: once cash surrender value is paid, the contract is over
Indexed Life
Cash value is dependent upon performance on an equity index like the S&P 500 Guaranteed minimum interest rate Face amount increases annually to adjust for inflation
An insurer must obtain a _______ ___ ___________ prior to transacting business in this state
Certificate of Authority
Characteristics of admitted/authorized Authority Insurers
Certificate of authority Approved to transact insurance in a state
Settlement options
Choices available to the insured/owner for distribution of insurance proceeds.
If a person without a license sells, solicits, or negotiates insurance, it is considered a __________________ Misappropriating funds is a
Class A misdemeanor Class 4 felony
Violation of rebating is a
Class B misdemeanor
A legally acceptable attempt by an existing in sure to persuade their client to continue an existing life insurance policy in force when a written communication is received from the replacing ensure is called
Conservation
What happens when a policy is surrendered for its cash value?
Coverage ends and the policy cannot be reinstated.
Illinois Life and Health insurance Guaranty Association
Created as a nonprofit legal entity to protect the insured and their beneficiaries against insolvent or impaired insurers
In the event a licensed producer dies, a temporary license will be issued to the deceased producer's representative. This temporary license will allow the license to perform all of the following acts EXCEPTA. Renew policiesB. Collect premiums dueC. Service existing policiesD. Solicit insurance
D
The Director notifies a producer of license termination on March 1. On April 15, the Director receives a request to review the changes in a court of law. What is the latest possible court date that can be set for the hearing? A. April 25 B. May 15 C. October 15 D. The court date will not be established
D
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?a) The beneficiary must pay interest to the insurer.b) The beneficiary will receive the lump sum, plus interest.c) The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments.d) The beneficiary will only receive payments of the interest earned on the death benefit.
D
Which of the following would provide an underwriter with the information concerning an applicant's health history?a. a medical examinationb. the agents reportc. the inspection reportd. The medical information Bureau
D
The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?
It will go to the insured's estate
The requirement that producers must account for all insurance funds collected, and without the expressed consent of the insurance company are not permitted to commingle those funds with their own funds, is known as A. Fiduciary responsibility B. Premium accountability C. Fiscal responsibility FD. Accepted accounting principle
Fiduciary responsibility
Joint Life
First To die
Fixed vs. variable annuities Fixed
Fixed ROI - guaranteed Income pmt amts - guaranteed premium investd - general account license required - life insurance
Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? A Flexible life B Variable life C Adjustable life D Universal life
D Universal life
Which of the following is a key distinction between variable whole life and variable universal life products? A Variable universal life is regulated soley through FINRA B Variable whole life allows policy loans from the cash value C Variable universal life has a fixed premium D Variable whole life has a guaranteed death benefit
D Variable whole life has a guaranteed death benefit
Which is NOT true about beneficiary designations?
D) The beneficiary must have insurable interest in the insured.
All of the following are true regarding reinstatement of a lapsed producer license EXCEPT A. A producer's license may be reinstated within 12 months without having to pass a written exam B. To reinstate a lapsed license a penalty of double the unpaid renewal fee shall be required C. A licensed insurance producer who is unable to comply with license renewal producers due to military service may request a waiver of those procedures D. A producer's license may be reinstated within 24 months without having to pass written exam
D. A producer's license may be reinstated within 24 months without having to pass written exam
An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his
D. Attained age If an employee terminates membership in the insured group, the employee has the right to convert to an individual whole life policy without proving insurability. The insurer will determine what type(s) of policy an employee may convert to, but it must be issued at a standard rate, based on the individual's attained age.
A proposed policy form includes accelerated benefits. before the policy can be legally used, it must be approved by which of the following? A. Guaranty Association B. Medical Information Bureau C. Policy Review Board D. Department of Insurance
D. Department of Insurance
Which is true about the cash surrender nonforfeiture option? A. After the cash surrender, the insured is covered for a grace period of one month B. The policy remains active for some time C. The policyholder receives the original cash value of the policy D. Funds exceeding the premium paid are taxable as ordinary income
D. Funds exceeding the premium paid are taxable as ordinary income
in life insurance policies, cash value increases A. are income taxable immediately B. are taxed annually C. are only taxed when owner reaches age 65 D. grow tax deferred
D. Grow tax deferred
Which of the following is not true regarding a Premium Fund Trust Account? A. It is a fiduciary account B. It may be a depository for service fees and late charges C. It is established to maintain all the premiums D. It could be used as a claim payment account
D. It could be used as a claim payment account
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? A. One-year term B. Reduction of premium C. Accumulation at Interest D. Paid-up option
D. Paid-up option
Qualified retirement plan characteristics
Designed for the exclusive benefit of the employees and their beneficiaries Are formally written and communicated to the employees Use a benefit or contribution formula that does not discriminate in favor of the prohibited group - officers, stockholders, or highly paid employees Are not geared exclusively to the prohibited group Are permanent Are approved by the IRS Have a vesting requirement
#5. When twin brothers applied for life insurance from Company A, the company found that while neither of them smoked and both had a very similar lifestyle, one of the twins was in a much stronger financial position than the other. Because of this, the company charged him a higher rate for his insurance. This practice is considered
Discrimination
Which of the following terms is used to name the nontaxed return of unused premiums?
Dividend
One-year term option
Dividend option in which the policyowner uses the dividend as a single premium to purchase one-year term protection
All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT A. Dividends from a mutual insurer B. An offer of employment C. Stocks, securities, or bonds D. An offer to share in commissions generated by the sale
Dividends from a mutual insurer
What are the types of domicile insurers?
Domestic insurer Foreign insurer Alien insurer
Accelerated (Living) Benefit rider
Early payment of partial death benefit For terminal illness that will result in insured's death within 2 years Usually added at no cost Reduces the death benefit by the amount paid to the insured
Surrender
Early termination of a policy by the policyowner
All of the following statements are true regarding tax-qualified annuities EXCEPTA) Employer contributions are not tax deductible.B) Tax accumulation is deferred.C) They must be approved by the IRS.D) Withdrawals are taxed
Employer contributions are not tax deductible
An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n)
Equity Indexed Annuity
Life settlement contract
Established terms: The death benefit Policy ownership Any beneficial interest Interest in a trust or any other entity that owns the policy
How often does a viatical settlement provider's license expire?
Every year
Characteristics of group life insurance
Evidence of insurability is usually not required Participants do not receive a policy because they do not own or control the policy
Which nonforfeiture option has the highest amount of insurance protection? a) Conversion b) Decreasing Term c) Reduced Paid-up d) Extended Term
Extended term
Which rider when attached to permanent life insurance policy provides an amount of insurance on every family memeber
Family term rider
j applied for a life insurance policy one January. the policy was issued January 31. j's agent was vacationing at the time the policy was issued, so j did not receive the policy until February 18. j decides that he does not want the policy. when would j need to return to the insurer in order to receive a full refund of premium paid?
February 28th, or 10 days after the time the policy is delivered
Classifications of annuities How premiums are invested
Fixed vs. variable
An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?
Guaranteed insurability option. The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.
Contingent beneficiary (AKA secondary or tertiary beneficiary)
Has a second claim in the event that the primary beneficiary dies before the insured They don't receive anything if the primary beneficiary is still living at the time of the insured's death
Primary beneficiary
Has first claim to the policy proceeds following the death of the insured
Which of the following is an eligibility requirement for all social security disability income benefits?
Have attained fully insured status
The purpose of the Illinois Guaranty Association is to
Help protect policyowners and beneficiaries against financial loss caused by the insolvency of an insurance company
Nonresident license requirements
Holds a valid resident license in good standing with home state Submits a proper request for license Submits orignial application or uniform application Reciprocity
Common Disaster Clause
If the insured and the primary beneficiary died in a common disaster, it is presumed that the primary beneficiary died first
The Uniform Simultaneous Death Law
If the insured and the primary beneficiary died in the same accident, the policy proceeds are to be distributed as if the primary beneficiary died first
Where can a alien insurer sell insurance?
In countries other than the one where they are headquartered
Policy Maturity
In life policies the time when the face value is paid out
In the case of suicide
In the first 2 years, premiums are refunded with no benefit After 2 years, death benefit will be paid
Life income joint and survivor settlement option guarantees
Income for 2 or more recipients until they die
A Return of Premium term life policy is written as what type of term coverage?
Increasing
Insurers cannot advertise protection by the
Insurance Guaranty Association
Which of the following defines the term controlled business
Insurance written on the interest of the producer who solicits a policy
Paid-up option
Insurer first accumulates the dividends at interest and then uses the accumulate dividends, plus interest, and the policy cash value to pay the policy up early
Which of the following policy components contains the company's promise to pay?
Insuring clause
Policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annual to his spouse, but that the principal will be paid to their children when they reach a certain age. What settlement option should the policyowner choose?
Interest only option
An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments & expense factors, the cash values could change from those shown in the policy at issue time. The policy is an:
Interest-sensitive whole life policy.
What is the benefit of choosing extended term as a nonforfeiture option?
It has the highest amount of protection
Which of the following is true of a children's rider added to an insured's permanent life insurance policy?
It is TERM coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age.
Which of the following is TRUE regarding the accumulation period of an annuity?
It is a period during which the payments into the annuity grow tax deferred.
If a retirement plan or annuity is "qualified," this meansA) It accepts after-tax contributions.B) It is noncancellable.C) It is approved by the IRS.D) It has a penalty for early withdrawal
It is approved by the IRS
Which of the following best describes annually renewable term insurance?
It is level term insurance
Which of the following is true about the premium on the children's rider in a life insurance policy?
It remains the same no matter how many children are added to the policy: it is based on an average number of children.
twin brothers are starting a new business. they know it will take years to build the business to the point that they can pay off debt incurred in starting the business. what type of insurance would be the most affordable and still provide a death benefit should one of them die? 1. whole life 2. ordinary life 3. joint life 4. decreasing term
Joint Life
Joint Life vs. Survivorship Life
Joint life - insured 2 or more, premium based on joint average age, death benefit upon FIRST death Survivorship life - insured 2 or more, premium based on joint average age, death benefit upon LAST death
A married couple owns a permanent policy which covers both of their lives and pays the face amount of the policy only upon the death of the first. Which policy is that?
Joint-life policy
What two terms are associated directly with the premium?
Level or flexible
Licenses are recievable for
Life Variable Life and Variable Annuity products Accident and health or sickness Property Casualty Personal lines Other lines
Life insurance vs annuities
Life - risk of dying too soon, creates an estate, pays a death benefit (at death) Annuities - risk of living too long, liquidates an estate, pays an annuity benefit (while living)
Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?
Life Income with period certain
Ronald is buying life insurance policies. He is unclear which one to buy, and his insurer explains the costs of similar plans, in addition to their basic features. Which rule requires the insurer to disclose such information?
Life solicitation rule
All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy?A. half the amountB. lowerC. higherD. as high
Lower
Annuity uses
Lump-sum settlements Qualified retirement plans Retirement income Education funds
Intentional misrepresentation
Lying on purpose
Powers of director of insurance
Make rules and regs to implement insurance code Conduct investigations to determine if someone has violated those laws Conduct examinations, investigations, and hearings for administering the insurance laws efficiently Institute any actions or proceedings as necessary to enforce Illinois insurance laws and regulations
Duties of the replacing insurer include
Make sure the producer signs notice Maintain records related to replacement for 3 years Send to existing insurer within 3 days of receiving replacement application
Signatures required
Minimum: Agent Proposed insured purchasing insurance on themselves Regular: Agent Policyowner (wife) Proposed insured (husband)
The Replacement Regulation minimizes
Misrepresentation
What is the term for how frequently a policyowner is required to pay the policy premium? A. Consideration B. Mode C. Schedule D. Grace period
Mode
NAIC
National Association of Insurance Commissioners, an organization composed of insurance Commissioners from all states and jurisdictions formed to resolve insurance regulatory issues
Types of exclusions
Noncommercial aviation Hazardous occupation or hobbies War and military service
The director suspend a producer's license. Which of the following occupations would the producer serve during the suspension?
None
501(c)(3)
Nonprofit group that is permitted to lobby and campaign; donations to it are not tax deductible.
Notice regarding replacement of life insurance or annuity
Notice warns the applicant to get all the facts before deciding to replace existing coverage
an insured has a life insurance policy from a participating company and receives quarterly dividends. he has instructed the company to apply the policy dividends to increase the death benefit. the dividend option that the insured has chosen is called
Paid-up additions
Which option is being utilized when the insurer accumulates dividends at the interest and then uses the accumulated dividends plus interest and the policy cash value to pay the policy up early.
Paid-up option
Medical exams
Paramedical report - completed by a paramedic or registered nurse Attending physician statement - completed by the applicant's medical doctor
Commission
Payment to the agent by the insurance company for placing insurance, usually a percentage of the policy premium
which of the following riders would NOT cause death benefit to increase? 1. accidental death rider 2. payor benefit rider 3. guaranteed insurability rider 4. cost of living rider
Payor Benefit Rider
Variable life
Permanent insurance Premium: Fixed (if whole life); flexible (if universal life) Face amount: Can increase or decrease to a stated minimum cash value: not guaranteed; separate account policy loans: can borrow cash value
Universal life
Permanent insurance with renewable term protection component premium: flexible; minimum or target Face amount: flexible; set by policyowner with proof of insuability Cash value: guaranteed at a minimum level; general account Policy loans: can borrow cash value
Fiduciary capacity
Position of trust, employer-employee
Classification of Risks
Preferred Standard Substandard Declined
Periodic premium
Premiums are paid in installments over a period of time
In which of the following instances would the premium be tax deductible?
Premiums paid by an employer on a $30,000 group term life insurance plan for employees
Automatic Premium Loans (APL)
Prevents unintentional lapse Automatically taken from cash value due at the end of the grace period Will be deducted from death benefit if not repaid Insurer honors immediately
Under standard circumstances, at what point should a Buyer's Guide be distributed to a prospective buyer?
Prior to the initial premium
All policy applications must identify which of the following? A. Conditions of acceptance B. Producer who solicited the applicant's business C. MIB D. Director
Producer who solicited the applicant's business
A couple owns a life insurance policy with a children's term rider. Their daughter is reaching the max age of dependent coverage so she will have to convert to permanent insurance in the near future. Which will she need to provide for proof of insurability?
Proof of insurability is not required
survivor protection
Providing funds for surviving spouses and dependents
Fixed vs. variable annuities Variable
ROI - not guaranteed Income pmt amts - not guaranteed premium investd - separate acct license required - life insurance + securities
All of the following are true regarding rebates EXCEPT A. Rebates are allowed if it's in the best interest of the client B. Rebates are only allowed if specifically stated in the policy
Rebates are allowed if it's in the best interest of the client
An agent offers his client free tickets to a sporting event in exchange for the purchase of an insurance policy. The agent is guilty of
Rebating
Which nonforfeiture option provides coverage for the longest period of time?
Reduced paid-up Would provide protection until the insured reached 100, but the face amount is reduced to what the cash would buy
Business of Life Settlement
Refers to any activity relating to the solicitation and sale of a life settlement contract to a third party who has no insurable interest in the insured
Initial premium is based on current assumptions about
Risk, interest, expense
Types of insurance transactions
SANS Sale - effectuation of a contract of insurance Advising - concerning coverage or claims Negotiating - insurance or annuities Soliciting - insurance or annuities on behalf of another person
Survivorship Life
Second to die (Last survivor)
Replacing insurance company
Send the existing insurance company within 3 working days the notice that identifies the insured and the policies proposed for replacement
Which of the following is NOT a duty of the Director of Insurance? A. Enforcing the insurance code B. Issuing Certificates of Authority C. Setting premium rates D. Examining authorized insurers
Settling premium rates
An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy?
She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan
A women has a life policy in force for $300,000. She is terminally ill. She wants to get some people who said they could advance her $100,000 is she would sign ownership over them
She probably met with a Viatical Settlement Company.
Which type of life insurance policy generates immediate cash value?
Single premium
Types of whole life insurance
Single premium - one lump sum limited pay - pay a set # of years or to a specified age straight life - pay until death or age 100
Process of Issuing an insurance policy
Solicitation and sales presentations Underwriting: Field and company Premium determination Policy issue and delivery
Which policy would be classified as a traditional level premium contract?
Straight life
In order for a firm to maintain its registration as a legal insurance company, what must it do? A. Pass a semi-annual inspection for the first 2 years B. Submit a biennial fee to the Director C. Nothing. Once a firm is registered with the Director, there is nothing that an insurer must do in order to maintain the registration D. Submit registration application annually
Submit a biennial fee to the director
Which of the following would help prevent a universal life policy from lapsing?
Target premium The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
Qualified retirement plan characteristics
Tax deductible Plan approved by IRS Plan cannot discriminate Earnings grow tax deferred All withdrawals are taxed
Simplified Employee Pension (SEP)
Tax-deferred account to which the self-employed and employees of very small businesses can contribute.
Tax deffered
Taxes on investments or gains (such as interest or dividends) are paid at a future date instead of in the period in which they incur tax
Which of the following is an example of a producer being involved in an unfair trade practice of rebating?
Telling a client that his first premium will be waived if he purchased the insurance policy today
______ __________ has no cash value
Term insurance
Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?
Term rider
Consequences of incomplete application
The agent is responsible for making sure the application is complete Return application to applicant for completion Policy issued with unanswered questions will be interpreted as if the insurer: Has waived their right to an answer Is not allowed to deny coverage because of unanswered question on the application
Who assumes the risk for variable annuities?
The annuitant
When an annuity is written, whose life expectancy is taken into account?
The annuitant The annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and the annuity owner are often the same person but do not have to be.
all of the following statements about equity index annuities are correct EXCEPT
The annuitant receives a fixed amount of return (They do not)
The Director must find all of the following to be true of a viatical supplement provider applicant before a license will be issued EXCEPT
The applicant posts a bond with the Department of Insurance
Which of the following is NOT the consideration in a policy?
The application given to a prospective insured
How to pay benefits to a minorwhich of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?
The benefits will either be paid to the minor's guardian, paid to the trustee of the minor if the trust is named beneficiary, or paid as directed by a court.
if an insured withdraws a portion of the face amount in the form of accelerated benefits cause of terminal illness, how will that affect the payable death benefit from the policy?
The death benefit will be smaller
which of the following is INCORRECT concerning a noncontributory group plan?
The employees receive individual policies.
All of the following are correct regarding misrepresentation except Misrepresentation includes guarantee of dividends The fines for misrepresentation range from $50 to $1,000 The fines for misrepresentation range from $200 to $10,000 Misleading advertisements are considered misrepresentation
The fines for misrepresentation range from $50 to $1,000
44.An agent wants to include an illustration written by his insurance company. Which of the following best describes the conditions under which he may use the illustration?
The illustration must stay exactly as it is
Dividend - Accumulation of interest
The insurance company keeps the dividend in an account where it will accumulate interest. The policyowner can withdraw the dividends at any time Interest on the dividends is taxable
Classifications of annuities When income payments begin
immediate vs. deferred
A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?
The insured's premiums will be waved until she is 21
Who bears the investment risk on whole life insurance?
The insurer
Dividends - cash
The insurer sends the policyowner a check for the amount of the divided as it is declared, usually annually
Dividends - reduction of premiums
The insurer uses it to reduce next year's premium. If the policyowner usually pays an annual premium of $1,000 and the insurer declares a $100 dividend, the policyowner would only pay a $900 premium that year
What provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?
The insuring clause
If an insured skips a premium payment on a universal life policy, what happens?
The missing premium may be deducted from the policy's cash value. The policy will NOT lapse.
If an insured skips a premium payment on a universal life policy:
The missing premium may be deducted from the policy's cash value. The policy will not lapse.
What is the advantage of reinstating a policy instead of applying for a new one?
The original age is used for premium determination
All of the following are true of key person insurance EXCEPT
The plan is funded by permanent insurance only; key person coverage may be funded by ANY type of life insurance.
What does the entire contract consist of?
The policy and the copy of the application
Who bears the investment risk on variable life
The policyowner
Beneficiary designations may either be revocable or irrevocable
The policyowner, without the consent or the knowledge of the beneficiary, may change a revocable designation at any time. An irrevocable designation may not be changed without the written consent of the benficiary
Regarding a Straight Life policy, does its premium increase, decrease, or stay the same over time?
The premium steadily decreases over time, in response to its growing cash value
Which of the following best defines target premium in a universal life policy?
The recommended amount to keep the policy in force throughout its lifetime
A group insurance policy was solicited by a limited insurance representative. Which of the following is true according to the disclosure regulation?
The representative's name and signature must appear on the master policy
Vesting
The right of a participant in a retirement plan to retain part or all of the benefits
Under an extended term nonforfeiture option, the policy cash value is converted to
The same face amount as in the whole life policy
which of the following is not true of life settlements ?a.the seller must be terminally illb.they could be used for key person coveragec.they could be sold for amount greater than the cash valued.they involve insurance policies with large face amounts
The seller must be terminally ill
What is the purpose of settlement options in life insurance policies?
They determine how the death proceeds will be paid
Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner?
Third-party ownership
All of the following are true regarding the guaranteed insurability rider EXCEPTA) The insured may purchase additional insurance up to the amount specified in the base policy.B) It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events.C) This rider is available to all insureds with no additional premium.D) The insured may purchase additional coverage at the attained age
This rider is available to all insureds with no additional premium.
Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated?
Those who have been insured under the plan for at least 5 years
Cease and desist
To stop or discontinue
Premium receipt
Type of receipt issued when premiums are collected with the application
Exclusions
Types of risks the policy will not cover
In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract elements does this describe?
Unilateral
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium?
Universal life
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?
Universal life Universal life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount of frequency of withdrawals are usually limited.
cash (lump-sum) payment
Unless the recipient chooses a different mode of settlement chooses a different mode of settlememt, the contract pays the proceeds in cash (lump-sum) payment
extension of temporary insurance producer license
Up to 180 days Necessary for the servicing of an insurance business: To the family of a deceased or disabled producer To a member or employee of a business To the designee who enters active service in the armed forces of the US
Dividends - paid up additions
Used to purchase a single premium policy in addition to the face amount of the permanent policy Each small single premium payments will increase the death benefit of the original policy
Long-term care
Usually a separate policy but can be added as a rider to a life insurance policy Used for early payment of part of the face amount to pay for long-term care Insurer will subtract lost interest for the early payment from the death benefit
Which of the following statements would best describe the difference between viatical settlements and accelerated death benefits?
Viaticals are funded by a third party, and Accelerated Death Benefits are provided by the insurer that issued the original policy
Disability riders: waiver of cost of insurance
Waives the cost of insurance and other expenses Does NOT waive premiums necessary to accumulate cash values In universal life policies
Disability riders: waiver of premium
Waved if insured is totally disabled 6 month waiting period refund of premium after waiting period if insured is still disabled
All of the following benefits are available under social security except A death benefits B welcare benefits C old-age and retirement benefits D Disability benefits
Welfare benefits
In forming an insurance contract, when does acceptance usually occur?
When an insurer's underwriter approves coverage The offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.
When does coverage begin
With a premium: effective date Without a premium: Statement of good health + premium = effective date
Which of the following statements regarding the the taxation of Modified Endowment Contracts is FALS
Withdrawals are not taxable
Deferred
Withheld or postponed until a specified time or event in the future
Insurance policy
a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
According to the entire contract provision, what document must be made part of the insurance policy?
a copy of the original application for insurance
Statute
a formal written law enacted by legislature; insurance statues can be found in the state insurance code
Reciprocity
a mutual interchange of rights and privileges
Life settlement provider
a person (other than the owner) who enters into a life settlement contract with the owner
Applicant or proposed insured
a person applying for insurance
Life settlement broker
a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract
Activities of daily living (ADLs)
a person's essential activities that include bathing, dressing, eating, transferring, toileting, continence
Illustration
a presentation or depiction that includes non guaranteed elements of a policy of individual or group life insurance over a period of years
Indemnity
a principle of reimbursement on which insurance is based; in the event of a loss, an insurer reimburses the insureds of beneficiaries for the loss
Tax deductible
a reduction of taxable income, resulting in lower tax liability
For variable products, underlying assets must be kept in
a separate account
For variable products, underlying assets must be kept inA A revenue account.B A money market account.C A general account.D A separate account.
a separate account
fixed-period installment option (period certain)
a specified period of years is selected and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period
Conditions for an Accelerated (Living) benefit rider
a terminal illness a medical condition that requires an extraordinary medical intervention or one that drastically limits the insured's life span Inability to perform activities of daily living permanent institutionalization or confinement to a long-term care facility
An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?
a) A portion of the benefit up to a limit is tax free; the rest is taxable income.
Riders
added to a policy to modify provisions that already exist
Viatical settlements
allow someone living with a life-threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death
Reinstatement provision
allows a lapsed policy to be put back in force Maximum time is usually 3 years after the policy has lapsed To reinstate, they must provide evidence of insurability
Once a MEC,
always a MEC
executive bonus
an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee
Inducement
an offer that attempts to influence the other party
Nonprofit organization
an organization that uses its surplus to fulfill its purpose instead of distributing the surplus to its owners or members
Group insurance is written as
annually renewable term insurance
A universal life insurance policy is best described as an
annually renewable term policy with a cash value account
variable annuity
annuitant may receive different rates of return on funds that are paid to the annuity
The annuity period is also known as the _____________, ___________, or ____________
annuitization period, liquidation period, or payout period When the sum that has been accumulated is converted into a stream of income payments to the annuitant
Which of the following is incorrect regarding a $100,000 20-year level term policy?
at the end of 20 years, the policy's cash value will equal $100,000
Savings Incentive Match Plan for Employees (SIMPLE)
available to small businesses that employ no more than 100 employees.
Premium rates on a joint life policy are determined by
averaging the ages of both insureds
Options
offer insurers and insureds ways to invest or distribute a sum of money available in a life policy
which of the following is not true regarding policy loans? a. a policy loan maybe repaid after the policy is surrendered b. money borrowed from the cash value is taxable c. policy loans can be repaid at death d. an insurer can charge interest on outstanding policy loans
b. money borrowed from the cash value is taxable
Variable Universal life insurance agents MUST
be registered with FINRA have a securities license be licensed by the state to sell life insurance
Nonforfeiture values
benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses
personal
between insurer and insured
The interest earned on dividends is: a. Taxableb. Tax deductible c. Nontaxable d. 40% taxable, similar to a capital gain
c taxable
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT: a. the employer pays a bonus to a selected employee to fund to policy b. it is considered a non qualified employee benefit. c. the policy is owned by the company d. any type of insurance policy may be used.
c. the policy is owned by the company
Dividend options
cash reduction of premium accumulation at interest paid up additions paid up insurance one year term
conditional
certain conditions must be met
Provisions
characteristics of an insurance contract and are fairly universal from one policy to the next
Absolute assignment is the ___________________ of ownership rights Collateral assignment is the ________________ of rights
complete and permanent partial and temporary
The common disaster clause protects the
contingent beneficiary
Pretax contribution
contribution made before federal and/or state taxes are deducted from earnings
Taxes must be paid either upon _____________________ or upon ______________, not both (if taxed on one end, will not be taxed on the other)
contribution or distribution
Nonqualified retirement plans characteristics
contributions not currently tax deductible plans does not need irs approval plans can discriminate Earnings grow tax deferred Excess over cost basis is taxed
family term
coverage for one or more family members other than the insured Level term insurance attached to the base policy Usually expires at age 65 for the spouse, or age 18 or 21 for children
How soon must the insurer pay a death benefit claim after receiving the proof of death? a) 30 days b) 1 year c) 6 months d) 2 months
d) 2 months
#5. When is the earliest a policy may go into effect?a)When the first premium is paid and the policy has been deliveredb)When the insurer approves the applicationc)After the underwriter reviews the policyd)When the application is signed and a check is given to the agent
d)When the application is signed and a check is given to the agentThe policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for.
Shorter life expectancy = __________ benefit, longer life expectancy = ____________
higher, lower gotta love gender inequality
7-pay test
if premiums paid during the first 7 years exceed the net level premium that should have been paid, it is a MEC (Modified Endowment Contract)
Variable universal life insurance
dually regulated by state (insurance department) and federal (SEC/FINRA) entities Because it is considered a securities product, regulated by the SEC and FINRA
Accelerated benefit =
early payment of part of death benefit to the insured from the insurer for qualifying medical expenses
Traditional IRAs and Roth IRAs are for individuals with ___________________
earned income
Policy replacement
existing policy lapses or terminates - New policy Existing policy reissued as - reduction in cash value Existing policy - converted to Reduced paid-up or extended term insurance
In the event of a terminal illness or injury, accelerated benefits pay earlier than scheduled a portion of the policy's
face amount
What does "level" refer to in the level term insurance?
face amount
A MEC is an overfunded life insurance policy = ____________________
failed the 7-pay test
Life insurance proceeds paid to a named beneficiary are generally free of _______________________ if taken as a lump sum
federal income taxation
temporary insurance producer license
for 90 days has met all requirements but has not taken exam Applicant must be enrolled in a training course or program conducted to fulfill prelicensing requirements
Coercion
forceful act or threat aimed to influence a person to act against his or her will
If a life policy owner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a
guaranteed insurability rider
Consideration example
insurance company promises to pay a claim policyowner/insured: statements on the application and premium payment
surplus lines insurance
insurance that is not available from admitted insurers
Adverse selection
insuring of risks that are more prone to losses than the average risk (those with dangerous jobs are more likely to purchase products like life insurance)
Annually renewable Term (ART)
is the purest form of term insurance. The death benefit remains level, and the policy may be guaranteed to be renewed each year without proof of insurability, but the premium increases annually
what is the benefit of choosing extended term as a nonforfeiture option? A. it can be converted to a fixed annuity B. it has the highest amount of insurance protection C. it matures at age 100 D. it allows for coverage to continue beyond maturity date
it has the highest amount of insurance
Annually renewable term insurance is _______ term insurance.
level term insurance
group life insurance
life insurance that provides a master policy for a group; each eligible group member receives a certificate of insurance
An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it?
limited-pay life
Do fixed annuities earn higher or lower interest rates than Equity Indexed Annuities?
lower Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates
HR-10 or Keogh plans
make it possible for self-employed persons to be covered under an IRS qualified retirement plan
Modes: Premium mode
manner or frequency that the policyowner pays the policy premium higher frequency = higher premium
Policy endownment
maturity date
Ownership rights include
name and change the beneficiary right to the policy cash value, dividends, and loans select settlement options assign the policy
An annuitant must be a ________ person.
natural
Exempt
not subject to an obligation
Single premium
one lump sum payment
Children's term rider is ______ premium for ______ children
one premium for all children
Under life-income (straight life) settlement option, the recipient cannot _____________
outlive the benefit payments
________ pays into Annuity pays to _________
owner pays into Annuity pays to Annuitant
The accumulation period is also known as the _____-___-______
pay-in-period period of time over which the owner makes payments (premiums) into an annuity
Lump sum
payment of the entire benefit in one sum
which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?
payor benefit
Fixed amount installment options
pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted. The recipient selects a specified fixed dollar amount to be paid until the proceeds are gone
Accidental death rider
pays some multiple of the face amount if death is the result of an accident as defined in the policy must occur within 90 days of accident Mostly either double or triple
In a viatical settlement, the owner receives a ___________ of the policy's cash value
percentage
Grace period
period of time after the due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days)
Entire contract =
policy + copy of application + any riders or amendments
Ownership rights belong to the
policyowner
Free look
policyowner has 10 days from receipt (when policyowner receives the policy) to look over the policy and can return it for a full refund of premium
Incontestability clause
prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years Even with mistakes
LIFO (Last in, First Out)
principle applied to asset management in life insurance products, under which it is assumed that the funds paid into the policy last will be paid out first
FIFO (First in, first out)
principle under which it is assumed that the funds paid into the policy first will be paid out first
key person insurance
protects against the loss of a key employee or key executive by making the business the beneficiary if a key person dies. The business is the owner, premium payor, and beneficiary.
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as A Consideration B Legal purpose C Contract of adhesion D Acceptance
A Consideration Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.
insurer (principal)
the company who issues an insurance policy
Buyer's Guide
Generic information about insurance policies Helps compare policies Usually provided at the time of the application
Where can a foreign insurer sell insurance?
In states other than the one where they are headquartered
Types of term policies
Increasing term - return of premium policy Level term - most common, often used for life situations like a parent with young kids Decreasing term - often used to protect mortgages or loans
Underwriting criteria
Insurable? Yes or no What premium to charge? Primary criteria: health, occupation, lifestyle, hobbies, habits
The Medical Information Bureau (MIB) was created to protect
Insurance companies from adverse selection by high risk persons
The _________ is required to pay the cost of the medical examination
Insurer
Disclosure Authorization Notice
Insurer's practices for collecting information Must be in plain language Must be approved by the department of insurance
Characteristics of stock ownership?
Issue nonparticipating policies Owned by stockholders Pay dividends to stockholders (taxable as ordinary income)
________ ____________ provides the greatest amount of coverage for the lowest premium.
Term insurance
Variable life insurance
contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance
Fixed life insurance
contracts that offer guaranteed minimum or fixed benefits
Liquidation of an estate
converting a person's net worth into a cash flow
life insurance
coverage on human lives
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?
Adhesion A contract of adhesion is prepared only by the insurer; the insured's only option is to accept or reject the policy as it is written
What are the 4 elements of a Legal Contract?
Agreement - offer and acceptance Consideration Competent parties Legal purpose
Suspicious Activity Report (SAR)
Covers transactions of $5,000 or more Red flags: Customer uses fake ID Conducts transactions just below amounts required for reporting Breaks transaction into two smaller transactions (Must be filed with Fin CEN within 30 days of initial discovery)
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT A Consideration B Legal Purpose C offer and acceptance D Conditions
D Conditions Conditions are part of the policy structure
Replacement policy rule
Never cancel the old policy until the new one is issued
Characteristics of nonadmitted/unauthorized Authority Insurers
No certificate of authority Prohibited from transacting insurance in a state
Elements of an agreement
Offer - applicant submits an application for insurance Acceptance - insurance company issues a policy
Disclosure Statement
Provided to the applicant at the time of the application Basic information about cost and coverage
An agent's report includes
Required signatures Changes in application Consequences of incomplete applications collecting the initial premium and issuing the receipt Replacement
Policy Summary
Specific information about the policy being issued Usually provided prior to or at policy delivery
How to handle changes in an application
Start with a new application OR Draw line through error and have applicant initial the change
Representations
Statements that are true to the best of one's knowledge Not guaranteed to be true (believed to be true) Insured's statements on the application are considered representations Ex. Do you have cancer?
Types of Insurers - Ownership
Stock and Mutual
Term vs permanent
Term - temporary, specific period of time, no cash value Whole - permanent, to age 100, lifetime protection, has cash value
Endow
The cash value of a whole life policy has reached the contractual face amount
Misrepresentation
Untrue statement - misspoke or forgot
Agent/Producer
a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer
Beneficiary
a person who receives the benefits of an insurance policy
Cash value
a policy's savings element or living benefit
Suitability
a requirement to determine if an insurance product is appropriate for a customer
Qualified plan
a retirement plan that meets IRS guidelines for receiving favorable tax treatment
Level in level term insurance refers to the ________ ___________, which does not change
death benefit
Insurance agents are referred to as ______ ____________
field underwriters
Securities
financial instruments that may trade for value (for example, stocks, bonds, options)
Stranger-originated Life Insurance (STOLI)
insurance arrangement in which a person with no relationship to the insured purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting when the insured dies
Characteristics of mutual ownership?
issue participating policies owned by policyowners pay to policyowners (return of unused premiums)
unilateral
one-sided promise policyowner pays premium, insurance company must pay claims for active policies and is legally enforceable
Cash value insurance
permanent protection living benefits cash value = face amount at insured's age 100 (policy maturity)
lapse
policy termination due to nonpayment of premium
Characteristics of convertible
right to convert the coverage at expiration evidence of insurability is not required premium may be higher priced at the insured's attained (current) age
Characteristics of renewable
right to renew the coverage at expiration evidence of insurability is not required priced at the insured's attained (current) age
investigative consumer report
similar to consumer report, but additional information is obtained through an investigation and interviews with associates, friends, or neighbors of the consumer (insured)
Conditional receipt
states that coverage will be effective either on the date of application or the date of the medical exam, whichever occurs last, as long as the policy is issued as applied for
adhesion
take it or leave it
Term insurance
temporary, least expensive, no cash value, no loans, matures at death Types - level, increasing, decreasing Features - renewable, convertible Uses - maximum protection, lowest cost, increasing term for riders, decreasing term for debts
The producer is also known as
the agent
Face amount
the amount of the benefit stated in the life insurance policy
Death benefit
the amount paid upon the death of the insured in a life insurance policy
