Life Insurance Test Notes

Which of the following insurance benefits would NOT be subject to federal income taxes in whole or in part?

Lump sum of a death benefit

What clause is designed to protect the proceeds of the life insurance from creditors of the beneficiary?

Spendthrift

An equity-indexed life insurance policy's cash value is usually linked to an index such as the

Standard & Poor's 500

Applicants whose health, habits, or occupations make them higher than normal risks are referred to as

Substandard Risks

If an insurer requests an HIV test, whose written consent is needed?

The Applicant

The principle that states that the larger the number of exposure units, the more predictable the number of future losses is known as

The Law of Large Numbers

Under a life income annuity, all of the following factors influence the benefit payment amount on a single premium deferred annuity EXCEPT:

The annuitant's age when the annuity was purchased

What happens to the death benefit if a portion has already been paid out under an Accelerated Benefit Rider?

The benefit will be reduced by the amount already paid to the insured

If a policy owner borrows funds from the cash value of her policy and does not pay back the loan amount, how will a claim on the death benefit be paid?

The death benefit paid to the beneficiary will be less the loan amount plus interest

All of the following are true concerning group life policies EXCEPT:

The group must be formed for insurance purposes

Mary receives monthly payments from her deceased husband's life insurance policy where he chose the fixed amount installment option. Each payment consists of principal and interest. How is this income taxed?

The interest portion of the payment is taxed; the principal is not taxed

All of the following statements regarding whole life insurance are true EXCEPT:

The policy's cash value decreases each year the policy is in force

If the cash value exceeds the premiums paid in a whole life policy, what are the tax consequences?

The portion that exceeds the premiums paid is taxable

Which of the following statements is incorrect about fixed annuities?

Their monthly benefit pay out amount can vary

Which of the following is NOT true about a Universal Life policy?

There is no minimum guaranteed rate of return on a Universal Life policy

A common feature of fixed, variable, equity-indexed, and market value annuities is

They all grow tax deferred

In equity indexed annuities, the equity is

Tied to an index such as the S&P 500

Distributions from a retirement plan are subject to how much penalty if the distribution is made before age 59 1/2

10%

The period to receive a full refund for life insurance or annuity policy issued to a person 60 years of age or older must be at least

30 days

A 35-year-old insured's five-year level term policy will probably renew to a

5-year level term with age 40 premiums

The tendency of less favorable insurance risks to seek or continue coverage to a greater extent than average risks is called

Adverse Selection

Which of the following terms refer to the transfer of some or all the ownership rights of a life insurance policy?

Assignment

When is a producer required to obtain a signed Statement of Good Health?

At delivery if the initial premium was not collected with the application

How long does coverage continue on a limited-pay whole life policy?

Death or Age 100

If an insured inherited a large amount of money at age 40 and desired to use it to provide a guaranteed income after her retirement at age 65, she would probably buy an Annuity

Deferred

For an insurance contract, utmost good faith means

Each party relies upon the truthfulness of the other

Which provision of life insurance policy state that the application is part of the contract?

Entire Contract Clause

In a jumping juvenile life, the component that "jumps" is the

Face Amount

Which settlement option offers an unchanging amount of benefits until all proceeds are paid?

Fixed Amount

All of the following are true about the waiver of income rider EXCEPT:

If the insured is never able to return to work, the policy will be cancelled

A depiction that includes non-guaranteed elements of a policy for individual or group insurance over a period of years is called a(n)

Illustration

An annuity that guaranteed a minimum rate return is called a(n)

Immediate Annuity

The life insurance policy provision that prevents an insurance company from denying payment of a death claim after a specified period of time due to statements in the application is known as the

Incontestability Provision

A contingency beneficiary designation in a life insurance policy is a person who will receive benefits it the

Insured dies when there is no surviving primary beneficiary

All of the following are true of a non-medical applicant EXCEPT:

It does not require underwriting

A qualified plan has all of the following characteristics EXCEPT:

It must be funded with life insurance

An insured has a $100,000 policy with an Accidental Death Benefit Rider for double indemnity. If he dies in a car crash on his way to work due to a heart attack, how much will the insurer pay to the beneficiary?

$100,000, the insured died from an illness, not an accident

The time when a policy owner contributes to an annuity is called the

Accumulation Period

The Cost of Living Rider is intended to

Adjust the death benefit for inflation

All of the following statements about insurable interest are true EXCEPT:

An insurable interest must exist at the time of the claim between the beneficiary and the insured.

Which mode of payment does not have an additional charge (loading)?

Annually

If a single premium (lump sum) is paid on whole life policy, cash value will

Be available immediately

All of the following MUST sign the application EXCEPT:

Beneficiary

Which of the following does NOT apply to credit life?

Benefits are paid directly to the insured

What do employees covered under a group contract receive?

Certificate of Insurance

An Adjustable Life policy allows for the policy owner to do all of the following EXCEPT:

Choose the investment vehicle

To prevent people from taking advantage of minors of the mentally incompetent, a contract must have which element?

Competent Parties

An applicant failed to disclose a material fact on an application. He is guilty of...

Concealment

Any areas of ambiguity in an insurance concept are decided in favor of the insured because the contract is a(n)

Contract of Adhesion

Which of the following group life plans require 75% of eligible members to participate?

Contributory

The type of policy that can be changed from one that does not accumulate cash value to one that does is

Convertible Term Policy

Which of the following amounts must increase in an increasing term policy?

Death Benefit

Which of the following features allows an insurance policy to remain in force for a specific number of days beyond the premium due dates?

Grace Period

Which rider would allow for the purchase of additional insurance at specified dates or events, without evidence of insurability?

Guaranteed Insurability

The minimum rate of return an annuity earns in a fixed annuity is determined by the

Guaranteed Interest Rate

Events or conditions that increase the probability of a loss occurring are referred to as

Hazards

A deliberate act that causes harm to another person regardless of whether the offering party intended to injure the aggrieved party is a

Intentional Tort

A policy owner that has an irrevocable beneficiary cannot request policy changes unless the

Irrevocable beneficiary signs the change request

Which of the following is true about the 10-day free look period for a new life insurance policy?

It commences when the policy is delivered

A policy owner surrenders a whole life policy for a reduced paid-up policy. What will happen to the cash value?

It continues to increase

Which of the following types of annuities would be best suited for a retired couple who are seeking income for as long as both lives?

Joint & Survivor Annuity

When the business is the owner, pays the premium, and is the beneficiary of a life insurance policy, this is an example of what kind of business insurance?

Key Person

How are monies withdrawn from an annuity during the accumulation phase taxed?

Last in, first out basis

An insured owns a term insurance policy in which the amount of protection remains constant during the term period, What kind of term insurance does he own?

Level

Which type of annuity settlement stop when the annuitant dies?

Life Annuity

An annuity which pays a specified number of years whether the annuitant is alive or dead is known as a

Life Annuity with Period Certain

Which of the following settlement options pays a specific amount to the annuitant with no residual value payable to a beneficiary?

Life Income

An insured intentionally understates her age on her application for a life policy. At death the insurer will take which of the following actions?

Pay a reduced death benefit based on the insured's actual age

Which of the following is not a requirement of group life conversion?

Proof of insurability is required

The purpose of the Automatic Premium Loan rider is to

Protect against an unintentional lapse of coverage

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period and proof of insurability is provided. This accomplished under the

Reinstatement Period

An annually renewable term policy

Renews each year with an increased premium

Statements in the application for insurance that must be true to the best of the applicant's knowledge are called

Representations

If an individual commits suicide within six months after purchasing an insurance policy, the insurer will

Return the premium paid

An annuity that begins paying one month after it is purchased would be a

Single Premium Immediate Annuity

What type of risks allows both gains and losses?

Speculative

To discourage early termination of an annuity, what is included in an annuity contract?

Surrender Charges

Risk in insurance terminology refers to the

Uncertainty of Loss

Which of these policies can include a Waiver of Cost of insurance rider?

Universal Life

Annuities may be purchased with all of the following payment methods EXCEPT:

Variable Payments

When are benefits paid from a joint life policy?

When the first insured dies

The insured pays $1,200 annually for her life insurance premium. This year, she has accumulated $175 worth of dividends, which she applies to her next premium payment which will be $1,025. Which dividend option has she chosen?

Reduction of Payment

If a change needs to be made to an application, the correct method would be for the agent to

Make the changes, have the applicant initial it, and submit to the insurer

A database maintained by the insurance companies to collect and maintain information on applications and claims is called the

Medical Information Bureau

A whole life policy in which the cash value builds faster than a 7-pay whole life policy is called

Modified Endowment Contract

When debt, income, mortgage, and expenses are taken into account to determine the amount of insurance an insured should purchase it is known as the

Needs Approach

Benefits payments in a qualified annuity consists of principal and interest. How is the benefit portion that represents a return or principal taxed?

Not taxable

All of the following are nonforfeiture options EXCEPT:

One-year term

Which dividend option allows for the purchase of additional permanent insurance?

Paid-Up Additions

If a proposed insured dies before the policy is issued but while in possession of a conditional receipt, the company will

Pay the policy proceeds only if the policy would have been approved as applied for

The consideration involved in an insurance contract on the part of the insured referred to as

Payment of the first premium and statements made on an application

In a policy insuring the life of a child, which of the following allows the premiums to be waived in the event of the death or disability of the person responsible for premium payments?

Payor Benefit Rider

Dividends paid by a participating life insurance policy are

Received tax free

Which nonforfeiture option allows for insurance with a lower face amount but coverage that will remain the same as the original policy?

Reduced Paid-Up Insurance