Life License Practice Test 02

Which of the following is NOT a responsibility of the Office of Insurance Regulation?

Enacting new insurance laws. New laws are enacted by the state legislature.

Both Universal Life and Variable Universal Life have a

Flexible premium. Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, so long as there is enough value in the policy to fund the death benefit.

Which of the following is an example of a limited-pay life policy?

Life Paid-up at Age 65. Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.

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.

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?

The balance of the loan will be taken out of the death benefit. If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit.

In terms of parties to a contract, which of the following does NOT describe a competent party?

The person must have at least completed secondary education. The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

The clause that protects the proceeds of a life insurance policy from creditors after the death of the insured is known as the

Spendthrift clause. The spendthrift clause protects the policy proceeds from creditors of the policyowner or beneficiary.

Which of the following is a risk classification used by underwriters for life insurance?

Standard. The three ratings classifications that denote the risk level of insureds are standard, substandard, and preferred. This classification system helps insurers to decide if an insured should pay a higher premium.

If an insured receives accelerated death benefits, what is the least amount of the original death benefit that the beneficiary would receive after the insured's death?

0%. If an insured accepts an accelerated death benefit, the death benefit received by the beneficiary will be reduced by the amount paid by the accelerated death benefit, as well as the amount of earnings lost by the insurance company in interest income. Because it is legal for an insurer to pay 100% of the death benefit before an insured dies, it is possible that the beneficiary of a policy would not receive any benefits after the insured's death.

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as

Survivor protection. Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection.

An employee will be taxed on the cost of group life insurance paid by the employer if the amount of coverage exceeds

$50,000. The cost of coverage paid by the employer in excess of $50,000 is taxed to the employee.

What level of authority is given to the Office of Insurance Regulation with respect to examination of insurer's activities to determine compliance Unfair Trade Practice laws?

Absolute. Florida statutes provide the Office of Insurance Regulation with an absolute right to examine the affairs of every person (insurers and licensees) involved in the business of insurance to see if they are engaged in any unfair trade practices.

An insurance contract must contain all of the following to be considered legally binding EXCEPT

Beneficiary's consent. The four essential elements of all legal contracts are offer and acceptance; consideration; competent parties; and legal purpose.

How are state Insurance Guaranty Associations funded?

By their members - authorized insurers. Guaranty Associations are funded by their members: all authorized insurers are required to contribute to a fund to provide for the payment of claims for insolvent insurers.

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 conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies, which put the burden of condition on either the insurer or the policyowner.

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.

The requirement that agents not commingle insurance monies with their own funds is known as

Fiduciary responsibility. Money collected with respect to an insurance transaction must be held in a position of trust by the agent or broker.

Which of the following activities would be sufficient violation to warrant rejection, revocation, or suspension of an insurance agent's license?

Forgery. Upon conviction of a felony, an agent's license will be revoked by the Commissioner.

Equity indexed annuities

Seek higher returns. Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.

Which of the following dates must be contained in a policy summary?

The date the summary was prepared. A policy summary must contain the date that the summary was prepared.

In a survivorship life policy, when does the insurer pay the death benefit?

Upon the last death. Survivorship life pays on the last death rather than upon the first death.

If an agent does not notify the insurer of an address change, what is the maximum penalty that can be imposed for a one-time offense?

$250. If the department is not notified within the required time period, a maximum fine of $250 will be imposed for the first offense; for subsequent offenses, either a minimum fine of $500 will be imposed or the agent's license will be suspended or revoked.

The death protection component of Universal Life Insurance is always

Annually Renewable Term. A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

If an employee is accepted into a group insurance plan, which status will the employee have?

Certificate holder. In group insurance, plan participants (insureds) do not receive a policy. Instead, they receive certificates of insurance, indicating that they are covered by the policy.

If an agent advises a policyholder to replace an insurance policy but only does so for the purpose of making commissions, the agent has committed an act of

Churning. "Churning" is defined as replacing insurance policies for the sole purpose of making commissions.

Applications to an insurer must include all of the following information, EXCEPT

Credit history report. Licensed agents may not submit applications to an insurer or furnish a copy of an application to a prospective insured unless the name of the insurer is legibly typed or printed on the first page of the application form at the time coverage is bound or the premium is quoted. The application must also disclose the name and license identification number of the agent as shown on the agent's license.

All of the following are personal uses of life insurance EXCEPT

Estate liquidation. Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity.

Which of the following is true regarding the spendthrift clause in life insurance policies?

It can protect the policy proceeds from creditors of the beneficiary. The spendthrift clause in a life insurance policy prevents the beneficiary's reckless spending of benefits, and protects the policy proceeds from creditors of the beneficiary or policyowner.

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 military?

Military service or war. There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war.

What is the major difference between a Stock Company and a Mutual Company?

Ownership. Mutual companies are owned by policyholders, while stock companies are owner by stockholders.

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.

All of the following are characteristics of group life insurance EXCEPT

Premiums are determined by the age, sex and occupation of each individual certificate holder. Premiums are determined by the age, sex and occupation of the entire group.

When an insurer terminates an agent's appointment, the insurer must do all of the following EXCEPT

Provide a 30-day advance notice to the Commissioner. An appointing entity may terminate an agent's appointment at any time, subject to an appointee's contract rights and with a 60-days advance notice. Once the appointment is terminated, the appointing entity must file a written notice with the department of insurance within 30 days.

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. When producers give or promise anything of value that is not specified in the policy, they are guilty of rebating.

If an employer decides to change its life insurance policy to a similar one with a different insurer, which of the following describes the extent that replacement regulations will be exercised?

Replacement regulations will not apply in this situation. If a new life insurance policy is provided under a group life insurance policy covering employees or members of an association, replacement regulations do not apply.

What are the 2 offices of the Financial Services Commission?

The Office of Financial Regulation and the Office of Insurance Regulation. The following 2 offices are established within the Commission: the Office of Financial Regulation and the Office of Insurance Regulation, which specifically regulates the business of insurance in the state.

An employer offers group life insurance to its employees for the amount of $10,000. Which of the following is true?

The cost of coverage is a deductible expense by the employer. The cost of coverage paid by the employer in excess of $50,000 is taxed to the employee.

Who does the secondary addressee provision protect?

The insured over the age of 64. The secondary notice/addressee provision protects elderly insured. Coverage for persons age 64 and older that has been in force for at least 1 year cannot lapse for nonpayment of premium after expiration of the grace period without the insurer notifying the policyowner and a specified secondary addressee (if designated in writing by the policyowner) of the impending lapse in coverage.

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.

In a life settlement contract, whom does the life settlement broker represent?

The owner. Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners.

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.

Agents who persuade insureds to cancel a policy in favor of another one when it might not be in the insured's best interest are guilty of

Twisting. Twisting is a misrepresentation that persuades an insured or a policyowner, to his or her detriment, to cancel, lapse, or switch policies.

What is the name of the insured who enters into a viatical settlement?

Viator. Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called

Joint and survivor. A joint and survivor option pays while either beneficiary is still living.

Which of the following would be required to be licensed as an insurance producer?

A salaried employee who advertises and solicits insurance. A person does not require an insurance producer license if he or she only advertises without intent to solicit insurance. However, once there is solicitation, a license is required.

J purchased a $100,000 Joint Life policy on himself and his wife. Eight years later, he died in an automobile accident. How much will his wife receive from the policy?

$100,000. In joint life policies, the death benefit is paid upon the first death only.

An agent delivers a life insurance policy to the proposed insured. The insured makes a decision not to accept the policy. The insured may return the policy for a full refund of premium within how many days?

14. The free-look provision in Florida allows the insured to return a life policy or annuity after 14 days if dissatisfied for any reason.

Which of the following would be an example of an unfair claims settlement practice?

Failing to acknowledge a claim within 30 days. Insurers must either affirm or deny a claim within a reasonable amount of time, but no later than 30 days

If a life insurance policy has an irrevocable beneficiary designation,

The beneficiary can only be changed with written permission of the beneficiary. If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

Variable Life insurance is based on what kind of premium?

Level fixed. Variable Life insurance is a level fixed premium investment based product.

Which of the following is NOT true regarding policy loans?

Money borrowed from the cash value is taxable. Money borrowed from the cash value is not taxable. Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.

The inclusion of the Life and Health Guaranty Association in an advertisement by an insurer is

Forbidden. No insurance company can advertise the existence of the Guaranty Association; nor can an agent bring up the Guaranty Association in a sales presentation.

Can a group that is formed for the sole purpose of obtaining group insurance qualify for group coverage?

No, the group must be formed for a purpose other than obtaining group insurance. In order to qualify for group coverage, the group must be formed for a purpose other than obtaining group insurance. In other words, it must be a natural group. There are generally two types of groups eligible for group insurance: employers sponsored, and association sponsored.

Which is NOT true about beneficiary designations?

The beneficiary must have insurable interest in the insured. A beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have to have an insurable interest in the policyholder.

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.

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?

The customer's associates, friends, and neighbors provide the report's data. Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.

Who bears all of the investment risk in a fixed annuity?

The insurance company. Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. Income payments do not vary from one payment to the next. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.

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. The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

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?

Lower. Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.

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.

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.

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. Permitting individuals of the same class to be charged a different rate for the same insurance is an unfair trade practice of discrimination.

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?

Fixed amount. When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.

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.

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.

What is the other term for the cash payment settlement option?

Lump sum. Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

An insurer incorporated in which of the following locations would be considered a foreign insurer in Washington, D.C.?

Maryland. A foreign insurer is an insurance company that is incorporated in another state or territorial possession. Mexico and Canada are foreign countries, so their insurers will be considered alien. An insurer that is incorporated and that operates in Washington, D.C. would be considered domestic.

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. Rebating is defined as offering any inducement in the sale of insurance products that is not specified in the policy, including money, reductions in commissions, promises, and personal services. Both the offer and acceptance of a rebate are illegal.

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.

A person insured under a group life insurance policy can make an assignment of all or any part of the incidents of ownership conferred on the insured by the policy or by law, to any of the following EXCEPT

The policyholder. Any person insured under a group life insurance policy can make to any person, other than the policyholder, an assignment of all or any part of the incidents of ownership conferred on the insured by the policy or by law, including the right to exercise the conversion privilege and the right to name a beneficiary.

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.

All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT

Upon conversion, the death benefit of the permanent policy will be reduced by 50%. Convertible term insurance is convertible without proof of insurability up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured's attained age.