Life Insurance State Exam
K purchased a $10,000 Life Policy that will pay the face amount to her if she lives to age 65, or to her beneficiary if she dies before age 65. K purchased which of the following types of policies?
"Endowment at Age 65". An endowment policy is characterized by cash values that grow at a rapid pace so that the policy matures or endows at a specified date
The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n):
Accidental Death and Dismemberment
Which premium schedule results in the lowest cost to the policyowner?
Annual
Traditional individual retirement annuity (IRA) distributions must start by:
April 1st of the year following the year the participant attains age 70 1/2
On August 6, D submitted an application for a $50,000 Life Insurance policy and did not pay the initial premium. On August 18, D went to his doctor complaining of chest pains and some tests were given by the doctor. The life policy was delivered by the producer on August 20 and D explains what had recently taken place with the doctor. What action should the producer then take?
Collect initial premium along with a signed health statement
S is close to retiring and would like to purchase a policy that will yield greater gains than bonds, but will still protect the principal with a minimum level or risk. Which product would S be advised to purchase?
Equity Insurance Index
A policyowner's rights are limited under which beneficiary designation?
Irrevocable
Which statement is true regarding a minor beneficiary?
Normally, a guardian is required to be appointed in the Beneficiary clause of the contract
P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability?
P will still receive declared dividends
Which of these characteristics is consistent with a Straight Life policy?
Premiums are payable for as long as there is insurance coverage in force
J would like to maintain the right to change beneficiaries. Which beneficiary designation should be used?
Revocable
What is the underlying concept regarding level premiums?
The early years are charged more than what is needed
J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct?
The gross premium is higher on a monthly payment mode as compared to being paid annually
Insurance that is characterized by flexible premiums and an adjustable death benefit.
Universal Life
What type of life insurance incorporates flexible premiums and an adjustable death benefit?
Universal Life
What type of life insurance incorporates flexible premiums and an adjustable death benefit?
Universal Life Policy
Which of the following types of policies BEST identifies one in which the cash value may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors?
Universal Life Policy
Q would like to purchase $100,000 of permanent protection on his wife and $50,000 of Term coverage on himself under the same policy. What kind of policy should Q purchase?
Whole life policy with other insured rider
What is considered a valid reason for small businesses to insure the lives of its major shareholders?
fund a buy-sell agreement
Credit Life insurance is:
issued in an amount not to exceed the amount of the loan
1970 Fair Credit Reporting Act
provides individual's privacy protection and fair and accurate credit reporting
The Consideration clause in a life insurance contract contains what pertinent information?
the amount of premium payments and when they are due
An individual working part-time has an annual income of $25,000. If this individual has an IRA, what is the maximum deductible IRA contribution allowable?
$2,500
withdrawals from qualified plans made before at 59 1/2 and assessed and additional
10% tax penalty
K has a life insurance policy where her husband is beneficiary and her daughter is contingent beneficiary. Under the Common Disaster clause, if K and her husband are both killed in an automobile accident, where would the death proceeds be directed?
Daughter
T and S are named co-primary beneficiaries on a $500,000 Accidental Death and Dismemberment policy insuring their father. Their mother was named contingent beneficiary. Five years later, S dies of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit will the mother receive?
$0
All of the following statements about traditional individual retirement accounts are false EXCEPT
10% penalty is applied to withdrawals before age 59 1/2
An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction?
20% is held for income taxes
A producer must remit premiums to the insurer within ___ days after receipt.
45
When replacing an existing life insurance policy, the replacing insurer must notify the existing insurer within
5 business days
What is the excise tax rate the IRS imposes on individuals aged 70 1/2 or older who do not take the required minimum distributions from their qualified retirement plan?
50%
A Loss-Purchase Buy and Sell agreement among three partners, funded with individual life insurance, would require how many policies?
6. Each partner owns, is the beneficiary of and pays the premiums for life insurance on the other partners equal to his or her share of the purchase price.
How long does an individual have to "rollover" funds from an IRA or qualified plan?
60 Days
withdrawals from qualified plans are mandatory at age
70 1/2
Which of the following statements regarding the Notice Regarding Replacement of Life Insurance is CORRECT?
A copy of the notice must be signed by the applicant and submitted with the application
Which statement is TRUE regarding a Variable Whole Life policy?
A minimum guaranteed Death benefit is provided
Which of the following statements is CORRECT regarding the tax treatment of a lump-sum payment paid to a life insurance policy's primary beneficiary?
All proceeds are income tax free in the year they are received
Lloyd's of London
An association formed to underwrite and issue insurance like coverage on certain items and areas that might otherwise be uninsurable
Which product would best serve a retired individual looking to invest a lump-sum of money through an insurance company?
Annuity
When can a policyowner change a revocable beneficiary?
Anytime
How are surrender charges deducted in a life policy with a rear-end loaded provision?
Deducted when the policy is discontinued
An employee requested that the balance of her 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately has the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee?
Distribution is subject to federal income tax withholding
How are Roth IRA distributions normally taxed?
Distributions are received tax-free
Company Z has a Cross Purchase Buy-Sell Agreement in place among its three founding partners. If the agreement is funded with individual life insurance, what would it require?
Each partner must own a policy on the other partners
Two partners own equal shares in a business worth a total of $1,000,000. If they both commit to the purchase of a life insurance policy that will fund a Buy-Sell Agreement, which of the following is TRUE?
Each partner owns a $500,000 policy on their partner's life
Which of these statements is INCORRECT regarding the federal income tax treatment of life insurance?
Entire cash surrender value is taxable
What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies?
Family Maintenance Policy
three basic parts to a typical life insurance application
General, Medical, Agents Report
How would a contingent beneficiary receive the policy proceeds in an Accidental Death and Dismemberment (AD&D) policy?
If the primary beneficiary dies before the insured
A 55 year old recently received a $30,000 distribution from a previous employer's 401k plan, minus $6,000 withholding. Which federal taxes apply if none of the funds were rolled over?
Income taxes plus a 10% penalty tax on $30,000
How does an indexed annuity differ from a fixed annuity?
Indexed annuity owners receive credited interest tied to the fluctuations of the linked index
Types of Life Insurance Policies
Industrial, Group, Oridinary
If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the Uniform Simultaneous Death Act?
Insured's contingent beneficiary
A policyowner would like to change the beneficiary on a Life insurance policy and make the change permanent. Which type of designation would fulfill this need?
Irrevocable
What kind of life insurance beneficiary requires his/her consent when a change of beneficiary is made?
Irrevocable beneficiary
Which statement regarding third-party ownership of a life insurance policy is true?
It is used extensively in estate-planning as well as business circumstances
Which plan is intended to be used by a sole proprietor and the employees of that business?
Keogh Plan
Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?
Life income
A policyowner is allowed to pay premiums more than once a year under which provision?
Mode of Premium
M purchases a $70,000 Life Insurance Policy with premium payments of $550 a year for the first 5 years. At the beginning of the sixth year, the premium will increase to $800 per year but will remain level thereafter. The face amount will remain at $70,000 throughout the life of the policy. The type of policy that M has purchased is:
Modified Premium Life
_______________ policies are distinguished by premiums that are lower than typical whole life premiums during the first few years (usually five) and then higher than typical thereafter.
Modified Whole Life
P and Q are married and have three children. P is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the contingent beneficiary. P, Q, and R are involved in a car accident and Q and R are killed instantly. The Accidental Death benefits will be paid to
P only
A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the:
Policy Loan Provision
On a life insurance policy, who is qualified to change the beneficiary designation?
Policyowner
Which is true concerning a Variable Universal Life policy?
Policyowner controls where the investment will go and selects the amount of the premium payment
Under federal tax laws, what is the tax treatment for an employer providing $50,000 of a contributory group Term Life plan to all its eligible employees?
Portion of the premiums paid for by the employer may be a tax deduction
A policyowner is able to choose the frequency of premium payments through what policy feature?
Premium Mode
Which statement is correct regarding the premium payment schedule for whole life policies?
Premiums are payable throughout the insured's lifetime/ coverage lasts until death of the insured
K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?
Proceeds will be paid to P's estate
An insured covered by life insurance has just died. What will happen if the primary beneficiary had already died before the insured and contingent beneficiary?
Proceeds will go to the contingent beneficiary
M purchased an Accidental Death and Dismemberment (AD&D) policy and named his son as beneficiary. M has the right to change the beneficiary designation at anytime. What type of beneficiary is his son?
Revocable
Post-tax dollar contributions are found in:
Roth IRA insvements
Decreasing term:
Term life insurance that provides an annually decreasing face amount over time with level premiums. Used for Mortgage protection
C is trying to determine whether to convert her convertible term life policy to whole life insurance using her original age or attained age. What factor would affect her decision the most?
The cost
Which statement regarding the Change of Beneficiary provision is true?
The policyowner can change the beneficiary
A fiduciary responsibility is defined as
a relationship of special trust and confidence when a person is entrusted with another's funds
B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of
additional Whole Life coverage at specified times
In a qualified retirement plan, the yearly contributions to an employee's account:
are restricted to maximum levels set by the IRS
with life insurance, an insurable interest must exsists
at the inception of the policy
What action will an insurer take if an interest payment on a policy loan is not made on time?
automatically add the amount of interest due to the loan balance
Universal life insurance is characterized by:
by flexible premiums and an adjustable death benefit.
A Whole Life Insurance Policy endows when the:
cash value equals the death benefit
A policy loan is made possible by which of these life insurance policy features?
cash value provision
Which of the following is NOT a problem when existing life insurance is replaced with new coverage?
comprehensive coverage may increase under the new policy
two types of major receipts
conditional and binding
Which of the following features of a group Term Life policy enables an individual to leave the group and continue his or her insurance without providing evidence of insurability?
conversion privilege
The Universal Life Policy is called an unbundled Life Policy because the policyholder can see the expense charges, the interest earned, and the:
cost of insurance
F needs life insurance that provides coverage for only a limited amount of time with a death benefit that changes regularly according to a schedule. What kind of policy is needed?
decreasing term
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?
decreasing term (because at the end of the term the cash value is exhausted)
Credit life insurance is typically issued with which of the following types of coverage?
decreasing term (because it can be matched against the time period of a loan)
A Family Income Policy is a combination of Whole Life and
decreasing term insurance
What does a 401(k) plan generally provide its participants?
deferral contributions
All of these are characteristics of an Adjustable Life policy, EXCEPT: -adjustable premiums -adjustable premium payments period -combination of term and whole life insurance -face amount can be adjusted using policy dividends
face amount can be adjusted using policy dividends
Interest-Sensitive Whole Life policies have a:
flexible premium payment
What kind of special need would a policyowner require with an Adjustable Life insurance policy?
flexible premiums
In life insurance, the needs approach is used mostly to establish:
how much life insurance a client should apply for
Employer noncontributory group life policies must allow for all of the following EXCEPT
insured can determine the benefit amount
In a Life insurance contract, an insurance company's promise to pay stated benefits is called the:
insuring clause
How are policyowner dividends treated in regards to income tax?
interest on accumulations is taxed
What type of life policy covers 2 lives and pays the face amount after the first one dies?
joint life policy
Life insurance written to cover a need for a specified period of time at the lowest premium is called:
level term
An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?
long term care
A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid:
mandatory income tax withholding on the transfer amount
Rick recently died and left behind an individual IRA account in his name. His widow was forwarded the balance of the IRA. The widow qualifies for the:
marital deduction
A producer license may be suspended or revoked if the producer is found to be engaging in
misrepresentation
In an individual retirement account (IRA), rollover contributions are:
not limited by dollar amount
As a condition to be approved for a loan, a creditor may require the borrower to
obtain an insurance policy through an insurer of the borrower's preference
If an applicant for an annuity refuses to provide suitability information, the producer should
obtain the consumer's signed statement documenting his or her refusal to provide suitability information
A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision?
payor provision
A retirement plan that sets aside part of the company's net income for distributions to qualified employees is called a:
profit-sharing plan
Interest on life insurance proceeds is
required if the claim was not paid within 30 days of the date insurer received the claim
If a producer is going to deposit any premium into a bank account prior to remitting the funds to the insurer, he/she must use a
separate insurance trust account
Which type of plan allows an employer to give money to an employee for buying a life insurance policy and also permits the employee to select the beneficiary?
split-dollar plan
What type of life insurance are credit policies issued as?
term
insurable interest exists when:
the death of the insured would have a clear impact on the policy owner
When applied to Whole Life insurance, the word "straight" denotes:
the duration of premium payments
Who is normally considered to be the owner of a 403(b) tax-sheltered annuity?
the employee
A noncontributory group term life plan is characterized by:
the entire cost of the plan is paid for by the employer
consideration is
the first premium payment along with the application
A level premium indicates
the premium is fixed for the entire duration of the contract
Which of the following characteristics is CORRECT about Interest Sensitive Whole Life?
there is a flexible premium payment
Which of the following types of policies BEST identifies one in which the cash value may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors?
universal life
When is the face amount paid under a Joint Life and Survivor policy?
upon the death of the last insured
A term life insurance policy matures:
upon the insured death during the term of the policy
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?
variable universal life
A life insurance policy that provides a policyowner with cash value along with a level face amount is called:
whole life
A Return of Premium life insurance policy is:
whole life and increasing term. will receive the death benefit along with all paid premiums
A policy that becomes a Modified Endowment Contract (MEC):
will lose many of it's tax advantages
If an annuity application was not taken in person, an insurer must provide the applicant a Buyer's Guide
within 5 business days of the insurer receiving the application
Upon request, when must the Colorado Supplement to the Summary of Benefits and Coverage Form be provided?
within 7 business days