Life Insurance Test Questions
Which of the following 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.
Which of the following is NOT true regarding the annuitant?
The annuitant cannot be the same person as the annuity owner
Which of the following determines the cash value of a variable life policy?
The performance of the policy portfolio The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.
Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy?
Owner's Rights Policyowners can learn about their ownership rights by referring to the policy.
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.
State law specifically prohibits using illegal inducements in the marketing of insurance. All of the following would be considered illegal inducements EXCEPT
Inviting prospective clients to the grand opening of the company's new office. Inducement is an illegal practice. It involves offering anything of value to a prospective client that is not specified in the policy as an incentive to buy insurance. Stock, bonds, benefit certificates, dividends or profits could be used as inducement.
What describes the specific information about a policy?
Policy summary A policy summary describes the features and elements of the specific policy for which a person is applying.
In any case where there is a controversy or dispute between the insurance company and the insured, the soliciting agent is the agent of the
Company.
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. A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.
When a producer was reviewing a potential customer's coverage written by another company, the producer made several remarks that were maliciously critical of that other insurer. The producer could be found guilty of
Defamation. A producer or broker who makes oral or written statements intended to injure another producer or insurer is guilty of the unfair trade practice of defamation.
Which of the following statements about the reinstatement provision is true?
It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. Upon policy reinstatement, the policyowner will be required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest.
The term "conservation effort" deals with
Discouraging policyholders from dropping existing policies. The act of trying to discourage a policyholder from dropping his/her existing policy is called "conservation effort".
Annually renewable term policies provide a level death benefit for a premium that
Increases annually. Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.
The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?
Reduction of premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.
An insurance agent has received a request for a hearing from the Commissioner. Within how many days must the hearing be held?
30 days If the Commissioner finds that the request for a hearing is made in good faith, a hearing will be held within 30 days after receipt of the request.
Which of the following would be considered a violation of life insurance advertising regulations?
Calling a variable insurance policy an investment plan Insurance policies may not be sold as investment plans; their sole purpose is insurance.
How long is the waiting period for benefits to be paid in a long-term care policy or rider?
90 days In Georgia, long-term care benefits begin after a 90-day waiting period in which the insured or a covered family member has an eligible physical or cognitive disability.
All of the following are requirements for life insurance illustrations EXCEPT
They must be part of the contract An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values..
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?
Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.
An insurance company has published a brochure that inaccurately portrays the advantages of a particular insurance policy. What is this an example of?
False advertising False advertising is the illegal practice of advertising or circulating materials that are untrue, deceptive, or misleading.
J applied for a life insurance policy on January 10. The policy was issued on 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 the policy 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. The 10-day free-look period begins when the policy is delivered.
Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?
A minor son of the insured Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee.
Which of the following best describes annually renewable term insurance?
It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.
When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called
Class designation. A designation such as the child of the insured, or all children of the insured, or all current members of a group, is called a "class designation." The individuals need not be specifically named, since each who meet the qualifications of being included in the class will share in the benefit.
All of the following statements concerning dividends are true EXCEPT
Dividend amounts are guaranteed in the policy. Dividends cannot be guaranteed.
For a retirement plan to be qualified, it must be designed for the benefit of
Employees. Qualified plans are designed for the exclusive benefit of the employees and their beneficiaries.
Which of the following is NOT true regarding a nonqualified retirement plan?
It needs IRS approval. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.
Which of the following will be included in a policy summary?
Premium amounts and surrender values A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.
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 waived until she is 21. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.
If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than
With the policy. If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium.
A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?
Level term A 20-year term policy is written to provide a level death benefit for 20 years.
Which of the following is NOT true regarding Equity Indexed Annuities?
They earn lower interest rates than fixed annuities. Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. The company is guilty of
Misrepresentation. Issuing or circulating any sales material that is false or misleading would be considered misrepresentation and is illegal.
If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a
Guaranteed insurability rider. The Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.
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.
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to
Purchase a single premium policy for a reduced face amount. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT
Signed waiver of premium. The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.
A 40-year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarries and dies at age 61, leaving 2 grown-up children. Assuming he never changed the beneficiary, the policy proceeds will go to
The insured's estate. Because there is no viable beneficiary at the time of death, proceeds are paid to the insured's estate.
Which of the following is a key distinction between variable whole life and variable universal life products?
Variable whole life has a guaranteed death benefit. Variable universal life insurance may or may not have a minimum death benefit, unlike variable whole life insurance which guarantees a minimum death benefit.
A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called
Cost of living rider. A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living.
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.
An 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. When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.
The insured is also the policyowner of a whole life policy. What age must the insured attain in order to receive the policy's face amount?
100 Whole life insurance policies mature when the insured reaches the age of 100. The cash value at that time is scheduled to equal the face amount; therefore, when the insurance company pays the face amount, it also, in effect, pays the cash value.
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?
3 days Investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.
Which of the following would NOT be considered a purpose of life insurance solicitation regulations in Georgia?
Help buyers choose most qualified insurance producers The purpose of life insurance solicitation regulation is to provide buyers with information which will improve their ability to select the most appropriate policy, improve their understanding of the basic features of the policy, and improve their ability to evaluate the relative costs of similar plans of life insurance.
What is another name for interest-sensitive whole life insurance?
Current assumption life
Any inducement offered to the insured in the sale of an insurance policy that is not specified in the policy is an unlawful practice known as
Rebating. Rebating is defined as any inducement offered to the insured in the sale of insurance products that is not specified in the policy. Both the offer and acceptance of a rebate are illegal.
Which of the following applicants would NOT qualify for a Keogh Plan?
Someone who works 400 hours per year A person must have worked at least 1,000 hours per year to be eligible for a Keogh Plan.
Who is the owner and who is the beneficiary on a Key Person Life Insurance policy?
The employer is the owner and beneficiary. With the key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.
An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company?
Fair Credit Reporting Act The Fair Credit Reporting Act governs what information can be collected and how the information can be used.
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.
Which two terms are associated directly with the premium?
Level or flexible A level premium is one in which the premium payment never changes. A flexible premium is found in Universal life policies where the insured changes their premium payment.
Which of the following information about the applicant is NOT included in the General Information section of the application for insurance?
Medical background Part 1 - General Information of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. The applicant's medical background is addressed in Part 2 - Medical Information.
Traditional IRA contributions are tax deductible based on which of the following?
Owner's income Traditional IRA contributions are tax deductible, but may be limited if the owner's income exceeds a certain level.
All of the following would be eligible to establish a Keogh retirement plan EXCEPT
The president and employee of a family corporation. Keogh plans are for self-employed individuals and their employees.
In this state, what is the maximum fine for transacting insurance without a license?
$1,000 Willfully transacting insurance without a proper license is considered a misdemeanor and is punishable by a fine not to exceed $1,000.
Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years?
A policy summary A policy summary usually includes all the listed information, and must be delivered along with a new policy.
What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?
Common Disaster Clause The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary.
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.
Life income joint and survivor settlement option guarantees
Income for 2 or more recipients until they die. The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.
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. Availability of insurance benefits or coverage may not be denied based on sex or marital status. Marital status may be considered for the purpose of defining persons eligible for dependent benefits.
Which of the following statements is correct regarding a whole life policy?
The policyowner is entitled to policy loans. Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans.
An insurance company has published a brochure that inaccurately portrays the advantages of a particular insurance policy. What is this an example of?
False advertising False advertising is the illegal practice of advertising or circulating materials that are untrue, deceptive, or misleading.
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. Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.
A participating insurance policy may do which of the following?
Pay dividends to the policyowner A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.