Life Insurance MI
An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer?
$10,000, no tax consequence During an IRA direct transfer (or direct rollover), the full amount gets reinvested from one plan to the other.
If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually?
$3,000 If $100,000 of life insurance proceeds were used in a settlement option paying $13,000 per year for 10 years, $10,000 per year would be income tax free (as principal) and $3,000 per year would be income taxable (as interest)
How much is an agent's appointment fee?
$5 Each agent must pay a $5 appointment fee to the Commissioner.
Within what time period after completing prelicensing education must an applicant file a certificate of education completion with the Commissioner?
12 months The applicant must file a certificate of completion of the prelicensing courses taken to prove that the courses were not taken more than 12 months before the Commissioner received the application.
If a statement of policy information is not furnished to the applicant at the time of application, how soon must the form be delivered to the applicant?
15 Days If a statement of policy information is not given the applicant at the time of application, the form must be delivered within 15 working days after the application
A temporary license in this state is valid for a maximum of
180 Days
Within how many days does a licensee have to inform the Commissioner of a change of address?
30 A licensee must inform the Commissioner of a change of legal name or address within 30 days of the change
A flexible premium universal life insurance policy must provide a grace period of
30 Days
An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay?
50% tax on the amount not distributed as required . When immediate annuities are used to pay IRA benefits, distributions must begin no later than age 70½ in order for the annuitant to avoid penalties. The penalty is 50% of the shortfall from the required annual amount
Michigan insurance policies can specify a time limit during which legal action against the insurer can be taken. This time limit, however, has to be at least
6 years Michigan law prohibits any provision that limits the time during which a legal action may be initiated to less than 6 years after the cause of such action occurs.
An applicant for a Counselor's license in Michigan must possess all of the following EXCEPT
A license to practice law. An applicant for a counselor's license must possess a reasonable understanding of the provisions, terms, and conditions of the type of insurance he/she wishes to counsel, as well as a reasonable understanding of the Michigan insurance code and possess a good business reputation and good moral character.
All of the following events will terminate a producer's certificate of appointment EXCEPT
A new Commissioner or Director is put into office. An appointment by an insurer is based upon the person maintaining a valid insurance license. Although the appointment is made by the head of the Insurance Department, that person leaving the office does not terminate existing appointments
What is a rebate
A rebate is an illegal act which involves returning something of value to the client as an inducement to buy, such as the commission. Rebates are only allowed if specifically stated in the policy. Insurance dividends are not considered rebates as the IRS considers it as a return of overpaid premium
Which of the following individuals could qualify for a temporary insurance license?
A retired producer An employee of a deceased producer The designee of a producer that is called to active service with the Navy A deceased producer's brother who is employed by the Department of Insurance The Commissioner may furnish a temporary license to the designee of a producer who has been called to active service with the United States Armed Forces.
What is a material misrepresentation?
A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.
An insured misstates her age at the time the life insurance application is taken. This misstatement may result in
Adjustment in the amount of death benefit. If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.
If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered
An unfair trade practice. It is an unfair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the Insurance Guaranty Association. Though it is illegal to advertise, the statement is still true and would not be considered a misrepresentation.
Which of the following is a short-term annuity that limits the amounts paid to a certain fixed period or until a certain fixed amount is liquidated?
Annuity certain Annuity Certain option allows the annuitant to select the time period or the amount of the benefits to be paid out. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date
Which concept is associated with "exclusion ratio"?
Annuity payments A portion of an annuity payment is taxable, while another portion is not. The return of the principal paid in is nontaxable. The portion that is taxable is the actual amount of payment, less the expected return of the principal paid in. This relationship is called the "exclusion ratio."
Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?
Apparent Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.
The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called
Avoidance.
The accelerated benefits provision will provide for an early payment of the death benefit when the insured
Becomes terminally ill. The accelerated benefits provisions allow the owner to be advanced a significant portion of the death benefit when the insured is terminally ill.
What is TRUE about a class designation?
Beneficiaries are not identified by name. A class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive.
Producers are permitted to share or split commissions, providing that
Both are properly licensed for the line of insurance. In order for producers to receive commissions from the sale of insurance, they must be properly licensed for that line of insurance.
An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?
Conditional
A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change?
Cost of Living Rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.
A key person insurance policy can pay for which of the following?
Costs of training a replacement A key person insurance policy will pay for costs of running the business and replacing the employee.
Two individuals are in the same risk and age class; yet, they are charged different rates for their insurance policies due to an insignificant factor. What is this called?
Discrimination Permitting individuals of the same class to be charged a different rate for the same insurance is the unfair trade practice of discrimination.
If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT
Erase the incorrect answer and record the correct answer. An agent should not use white-out, erase or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary.
In terms of Social Security, what is the name for the time period after the youngest child of a family turns 16 and before the surviving spouse may start receiving retirement benefits?
Erase the incorrect answer and record the correct answer. Blackout period begins when the youngest child reaches the age of 16, and ends when the surviving spouse qualifies for retirement benefits, as early as age 60. No benefits are paid during this time.
Items stipulated in the contract that the insurer will not provide coverage for are found in the
Exclusions clause Exclusions are restrictions of coverage as stated in the policy.
A man wants to buy a life insurance policy in which he can count on guaranteed minimum benefits. Which type should he buy?
Fixed Fixed life insurance policies offer minimum guaranteed or fixed benefits stated in the contract. The other type of policy, variable life, varies in its cash value because its value is based on the stocks that support it.
If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?
Fixed period Under the fixed-period installments option (also called 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
What insurance concept is associated with the names Weiss and Fitch?
Guides describing company financial integrity Because an insurance company's strength and stability are two very crucial factors in its sustainability, independent rating services have formed to publish regular updates on the financial integrity of different insurance companies. Weiss and Fitch are two of these services, although there are more.
The Commissioner may waive pre-licensing requirements or examinations for someone who has been a licensed insurance producer
In the preceding 12 months. If an applicant has been licensed in the past 12 months, the Commissioner may waive education and examination requirements.
Annually renewable term policies provide a level death benefit for a premium that
Increase Annually Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.
The Medical Information Bureau (MIB) was created to protect
Insurance companies from adverse selection by high risk persons The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.
Which statement regarding insurable risks is NOT correct?
Insureds cannot be randomly selected. Granting insurance must not be mandatory, selecting insureds randomly will help the insurer to have a fair proportion of good risks to poor risks. All other statements are true.
Who makes up the Medical Information Bureau?
Insurers The Medical Information Bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.
Which of the following statements regarding HIV testing for life insurance purposes is NOT true?
Insurers are barred from requesting HIV testing. It is common for insurers to require HIV testing when an applicant seeks a policy with a large face amount. The insurer must abide by a variety of rules created by its respective state.
All of the following actions by a person could be described as risk avoidance EXCEPT
Investing in the stock market. Investing in the stock market is not an example of risk avoidance; it creates a possibility of a loss.
When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will
Issue the policy anyway and pay the face value to the beneficiary. The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.
What is the benefit of choosing extended term as a nonforfeiture option?
It has the highest amount of insurance protection. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.
All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT
It is a life contingency option. Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only, and there are no life contingencies.
Which of the following is NOT true regarding a Certificate of Authority?
It is equivalent to an insurance license. It is issued by the state department of insurance. It is issued to group insurance participants. It may be necessary for transacting business in a specific state. It's the 3rd one
What is the purpose of a conditional receipt?
It is intended to provide coverage on a date prior to the policy issue. Coverage commences on the date of the application or the date of a medical examination, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for.
In which of the following situations is it legal to limit coverage based on marital status?
It is never legal to limit coverage based on marital status.
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?
It is reduced to the amount of what the cash value would buy as a single premium. In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.
An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?
It will increase because the insured will be 5 years older than when the policy was originally purchased The premium will remain level during the entire level premium term policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal.
A couple near retirement is planning for their golden years. They want to make sure that their retirement annuity provides monthly benefits for the rest of their lives. Should one of them die, the other would still like to continue receiving benefits. Which settlement option should they choose?
Joint and Survivor Joint & Survivor option guarantees an income for two or more recipients that none of them can outlive.
Which of the following is NOT considered a misrepresentation as it pertains to unfair trade practices?
Making comparisons between different policies Making accurate comparisons of policies is not illegal
What is the term for how frequently a policyowner is required to pay the policy premium?
Mode
B just bought a new car, which he anticipates will be paid for 4 years from now. He also wants to buy a life insurance policy, but is financially limited until the car is paid off. Which of the following types of policies would be best for B?
Modified Life A Modified Life policy would be best. It charges a lower premium for the first few policy years and then a higher level premium for the remainder of the life of the policy. These policies were developed to make the purchase of whole life insurance more attractive for individuals who have limited financial resources but will be able to afford higher premiums in the near future
Using a class designation for beneficiaries means
Naming beneficiaries as a group. Class designations are used when an insured chooses to distribute benefits among the living beneficiaries and/or their heirs without naming each individual person, such as "all my children."
The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the
One-year term option. The dividend is utilized to purchase one-year term insurance.
If someone wants to buy a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should that person buy?
Permanent Unlike term insurance, permanent insurance provides lifetime death protection, including premature death, and a savings or investment option.
What describes the specific information about a policy?
Policy summary
Pertaining to insurance, what is the definition of a fiduciary responsibility?
Promptly forwarding premiums to the insurance company Fiduciary refers to a position of trust. When an agent is handling the premiums that belong to an insurance company, they are acting in a fiduciary capacity.
A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?
Proof of insurability is not required. If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.
Another name for a substandard risk classification is
Rated Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium
Which nonforfeiture option provides coverage for the longest period of time?
Reduced Paid-Up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.
When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy, as well as a refund of all of the premiums paid. Which rider is attached to the policy?
Return of premium The Return of Premium Rider pays the beneficiary not only the face amount of the policy but also the amount that had been paid in premiums. The rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned. The Return of Premium Rider is funded by using increasing term insurance.
All of the following are considered unfair trade practices in the business of insurance EXCEPT
Sharing Commission Sharing commissions is allowed as long as both producers are properly licensed. All other choices are unfair trade practices.
All of the following entities regulate variable life policies EXCEPT
The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC
Which of the following would NOT fall into the category of costs associated with death?
The expense of a vacation for surviving family members These costs would take into account the final medical expenses of the insured, funeral expenses, and day to day expenses of maintaining the family including rent or mortgage payments, car payments, utilities, groceries, etc.
Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT
The loss must not be catastrophic. There must be a sufficient number of homogeneous exposure units to make losses reasonably predictable. The loss produced by the risk must be definite. The loss may be intentional. It's the last one
Which of the following is true regarding a market value adjusted annuity?
The owner is guaranteed a fixed interest rate for a specific period of time. Under a market value adjusted (modified guaranteed) annuity, the insurer guarantees a competitive interest rate for a specific period (the longer the period, the better the guaranteed rate). At the end of the period, the owner has the option of taking the accumulated value or reinvesting the values at a new interest rate.
All of the following statements are true regarding installments for a fixed amount EXCEPT
The payments will stop when the annuitant dies. Installments for a fixed amount option has no life contingencies. A specific amount of benefits will be paid until funds are exhausted whether or not the annuitant is living
An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen?
The policy will not be affected. In insurance, fraud is the intentional misrepresentation of material information that is crucial when deciding whether or not to write a contract for an applicant. If an insurer finds that an applicant has committed fraud, it can void the contract, provided that the discovery occurs within the first two years of the effective policy date. In this particular instance the applicant did not commit intentional fraud.
How must a replacing producer respond to an applicant wishing to replace existing life insurance?
The producer must provide the applicant with a Notice Regarding Replacement. In a replacement transaction, a producer must present to the applicant a Notice Regarding Replacement, signed by both the applicant and the producer.
In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT
The type of investment. Typically, the owner of an adjustable life policy has the following privileges: increasing or decreasing the premium, changing the premium-paying period, increasing or decreasing the face amount of coverage, or changing the period of protection
What is the purpose of key person insurance?
To lessen the risk of financial loss because of the death of a key employee A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills or business contacts. A business can lessen the risk of such loss by the use of key person insurance
What type of account will most likely be established for a minor?
Trust
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 and frequency of withdrawals are usually limited.
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
Warranty A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.
The interest earned on policy dividends is
taxable
