NC Life Insurance Practice Exam Questions AV

Dividends received on participating life insurance policies are a). Not taxable because they are a return of unused premiums b. Taxable because they are a return on your investment c). Not taxable because they are a return on your investment d). Taxable because they are a return of unused premiums

a). Not taxable because they are a return of unused premiums Dividends on participating life insurance policies are not income taxable because they are a return of unused premiums

Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as a) Defamation. b) Coercion. c) Rebating. d) Misleading advertising.

b) Coercion. These are all considered to be Unfair Trade Practices, which are major violations that can lead to heavy penalties. Coercion, for example, is when the bank won't give you an auto loan unless you agree to buy auto insurance from them.

Before the Commissioner will issue a broker's license, the licensee must obtain a bond for at least a)$10,000 b)$15,000 c)$20,000 d)$50,000

b)$15,000 In order to receive a broker's license, the applicant must file a bond with the Commissioner for at least $15,000, or in lieu of a bond, deposit with the Commissioner the equivalent amount in cash or certificate of deposits.

Life insurance death proceeds are a)Taxed as ordinary income. b)Generally not taxed as income. c)Taxable to the extent that they exceed 7.5% of the beneficiary's adjusted gross income. d)Taxed as a capital gain.

b)Generally not taxed as income. Life insurance death benefits are generally not taxed as income.

The interest earned on policy dividends is a)40% taxable, similar to a capital gain. b)Taxable. c)Nontaxable. d)Tax deductible.

b)Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT a)Upon conversion, the premium for the permanent policy will be based upon attained age. b)Upon conversion, the death benefit of the permanent policy will be reduced by 50%. c)Evidence of insurability is not required. d)Most term policies contain a convertibility option.

b)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.

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? a) Representation b) Adhesion c) Consideration d) Good faith

c) Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

Which of the following indicated the person upon whose life the annuity income amount is determined? a). Owner b). Insured c). Annuitant d). Beneficiary

c). Annuitant The annuitant is the person upon whose life the annuity income amount is determined

All are true regarding the Insurance Commissioner's power related to hearings and investigations EXCEPT a). The Commissioner must examine every domestic insurer at least once every 5 years b). If the Commissioner finds that there is sufficient evidence to charge a person with a criminal violation, he or she may have the person arrested c. The Commissioner may hold hearing immediately after determining that a violation has occurred. d). The Commissioner may examine the affairs of anyone involved in the insurance industry

c. The Commissioner may hold hearing immediately after determining that a violation has occurred. The Commissioner must give 10 days written notice of all hearings

The initial amount of credit life insurance may NOT exceed a)An amount set by statute and adjusted regularly for inflation. b)The borrower's monthly income. c)The borrower's annual income. d)The amount to be repaid under the contract.

d) The amount to be repaid under the contract. The initial amount of credit life insurance may not exceed the total amount repayable under the contract of indebtedness.

When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy? a) They can convert their coverage to permanent life insurance with evidence of insurability .b) Family members are not provided any rights. c) They can surrender the coverage for its cash value. d) They can convert their coverage to permanent life insurance without evidence of insurability.

d) They can convert their coverage to permanent life insurance without evidence of insurability. Family members may convert their term coverage to permanent insurance if requested within the time stated in the policy.

All are true regarding the Insurance Commissioner's powers related to hearing and investigations EXCEPT a). Enact statutes to govern the insurance industry b). Disseminate information regarding the Department activities c). Enforce the NC Insurance Code d). Determine if an agent has acted in violation of the Insurance Code

a). Enact statutes to govern the insurance industry State statutes are enacted by the state legislature. The Insurance Commissioner is empowered to enforce the laws pertaining to insurance

What is a specific requirement regarding the number of employees in a SIMPLE plan? a). No more that 100 employees b). At least 100 employees c). Between 2 and 50 employees d). No more than 2 employees

a). No more that 100 employees A SIMPLE ( Saving Incentive Match of Employees) plan is available to small business that employ not more than 100 employees receiving at least 5K in compensation from the employer during the previous year.

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? a)Limited pay whole life b)Interest-sensitive whole life c)Life annuity with period certain d)Increasing term

a)Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100.

When a licensee is accused of any act, omission, or misconduct that would subject the licensee to a license suspension or revocation, with the approval of the Commissioner, the license may be surrendered for a period of a)Time to be set by the Commissioner. b)90 days. c)6 months. d)1 year.

a)Time to be set by the Commissioner. The Commissioner sets the time for a licensee suspension or revocation.

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? a)The same as the original policy minus the cash value b)Equal to the original policy for as long as the cash values will purchase. c)In lesser amounts for the remaining policy term of age 100. d)Equal to the cash value surrendered from the policy

b)Equal to the original policy for as long as the cash values will purchase. With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.

All of the following entities regulate variable life policies EXCEPT a)The Guaranty Association. b)Federal government. c)The SEC. d)The Insurance Department.

a)The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called a)Graded premium whole life. b)Single premium whole life. c)Modified Endowment Contract (MEC). d)Level term life.

b)Single premium whole life. Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception.

The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say? a)The proceeds will be split evenly between the two beneficiaries. b)The policyowner can specify the way proceeds are split in the policy. c)The way proceeds are split between beneficiaries is decided by which type of policy is chosen. d)Life insurance policies may have only one beneficiary.

b)The policyowner can specify the way proceeds are split in the policy.

In life insurance, when must the policy summary be presented? a). At the time of application b). Before accepting the initial premium deposit c). At the time of policy delivery d). Within 30 days of policy delivery

b). Before accepting the initial premium deposit The insurer must provide a buyer's guide and a policy summary to all prospective purchases before accepting the initial premium deposit

All other factors being equal, the least expensive first-year premium payment is found in a)Level Term b)Annually Renewable Term. c)Increasing Term. d)Decreasing Term.

b)Annually Renewable Term. Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.

Which nonforfeiture option provides coverage for the longest period of time? a)Accumulated at interest b)Reduced paid-up c)Extended term d)Paid-up option

b)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.

A licensee who ceases to maintain residency in North Carolina is required to deliver any insurance licenses to the Commissioner by mail or in person within how many days after terminating residency? a)10 days b)21 days c)30 days d)90 days

c)30 days Any licensee who ceases to maintain his residency in North Carolina shall deliver his insurance license or licenses to the Commissioner by personal delivery or by mail within 30 days after terminating residency.

After an insurer appoints a new agent, the Commissioner must be notified within a). 10 days b). 15 days c). 20 days d). 30 days

d). 30 days Within 30 days of new agent appointments, the insurer must file the names, addresses, and other information with the Commissioner.

If a licensee is convicted of a criminal violation, the licensee's insurance license is a)Automatically revoked. b)Not affected. c)Suspended after a hearing. d)Automatically suspended.

d)Automatically suspended. The conviction of an insurance licensee for a criminal violation automatically suspends the license of that person.

Which of the following best describes annually renewable term insurance? a)Neither the premium nor the death benefit is affected by the insured's age. b)It provides an annually increasing death benefit. c)It is level term insurance. d)It requires proof of insurability at each renewal.

c)It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

The regulation of the insurance industry primarily rests with a)Private insurers. b)The federal government. c)The State. d)The NAIC.

c)The State. Each state regulates the business of insurance conducted within that state.

Insurance companies are required to provide proof of loss forms to the claimant within how many days after receipt of notice of loss? a) 15 b) 30 c) 31 d) 45

a) 15 When any company under any insurance policy requires a written proof of loss after notice of the loss has been given by the insured or beneficiary, the company must furnish a blank form within 15 days.

To purchase insurance, the policy owner must face the possibility of losing money or something of value in the event of loss. What is this concept called? a) Insurable interest b). Indemnity c). Exposure d). Pure Loss

a) Insurable interest To purchase insurance, the policy owner must face the possibility of losing money or something of value in the event of loss this is called insurable interest

Which of the following would be true of both the fixed-period and fixed-amount settlement options? a). Both guarantee that the principal and interest will be fully paid out b). The amount of payments is based on the recipient's life expectancy. c). The size of installments decreases after certain period of time d). Both guarantee payments for the life of the beneficiary

a). Both guarantee that the principal and interest will be fully paid out Neither the fixed-period nor fixed-amount settlement options guarantee income for the life of the beneficiary; however they both guarantee that the entire principal and interest will be distributed

When the owner of participating whole life policy uses the dividend to provide more life insurance coverage, which of the following dividend options is being used? a). Paid-up additions b). Reduce the premium c). Fixed amount d). Reduced paid up

a). Paid-up additions The paid-up addition dividend option is used to purchase more paid-up insurance each year, thereby increasing the death benefit

If the Commissioner is scheduling a hearing for a potential violation of the Insurance Code, what is the minimum required notice? a)10 days b)15 days c)30 days d)45 days

a)10 days All hearings will be held at a time and place designated in a written notice provided by the Commissioner. The notice must be provided at least 10 days prior to the hearing, and must also state any specific charges.

Which of the following acts would be grounds for a person's license suspension, revocation, or refusal to renew? a)An agent fails to pay state income tax. b)An agent unknowingly misrepresents the terms of an insurance contract. c)An agent refuses to offer an explanation to a policyholder concerning the coverage provided by another insurer. d)A broker does not return a client's calls on timely basis.

a)An agent fails to pay state income tax. Failure to pay state income tax is a violation subject to license suspension or revocation; all the other examples are not.

Which of the following premium payment modes will incur the lowest overall payment? a)Annual b)Semi-annual c)Quarterly d)Monthly

a)Annual Annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower.

All of the following describe the purpose of the North Carolina regulations governing the solicitation of life insurance EXCEPT a)Educate the buyer about policy protection by the Guaranty Association. b)Require insurers to deliver information to applicants to improve their ability to select the most appropriate kind of life insurance. c)Improve the buyer's understanding of the basic features of the policy. d)Improve the ability of the buyer to evaluate the relative costs of similar life plans.

a)Educate the buyer about policy protection by the Guaranty Association. The regulations of life insurance solicitation are intended to improve the buyer's knowledge and understanding of life insurance policies or plans.

Mortality - Interest + Expense = a)Gross premium b)Benefits budget c)Operating expenses d)Net premium

a)Gross premium If "mortality" represents the cost of insured mortality, "interest" represents the interest earned by an insurer, and "expense" (or "loading") represents company operating costs, then the interest is subtracted from the cost of mortality, yielding the net premium, and the loading is added to the net premium to yield the gross premium.

Which of the following is NOT true about a joint and survivor annuity benefit option? a)Payments stop after the first death among the annuitants. b)A period certain option may be included. c)This option guarantees income for two or more recipients. d)The surviving annuitant may receive reduced payments.

a)Payments stop after the first death among the annuitants. A joint and survivor annuity will pay until the last annuitant has died; however, the surviving annuitant may receive reduced payments.

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? a)Reduction of premium b)Paid-up addition c)Accumulation at interest d)Cash option

a)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.

Equity indexed annuities a)Seek higher returns. b)Are more risky than variable annuities. c)Are security instruments. d)Invest conservatively.

a)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.

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? a)The insured may choose to convert to term or permanent individual coverage. b)The insured would not need to prove insurability for a conversion policy. c)The insured may convert coverage to an individual policy within 31 days. d)The premium for individual coverage will be based upon the insured's attained age.

a)The insured may choose to convert to term or permanent individual coverage. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance.

Which of the following insurance providers must be nonprofit and sell insurance only to its members? a) Reciprocal b) Fraternal c) Service d) Mutual

b) Fraternal To be characterized as a fraternal benefit society, the organization must be nonprofit, have a lodge system that includes ritualistic work and maintain a representative form of government with elected officers. Insurance may only be sold to members of the society.

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company? a)Warranty b)Aleatory c)Adhesion d)Subrogation

b)Aleatory An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk.

All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT a)The insurer determines the amount for each payment. b)It is a life contingency option. c)It will pay the benefit only for a designated period of time. d)The payments are not guaranteed for life.

b)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.

If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this? a)Single premium policy b)Jumping juvenile policy c)Limited pay whole life policy d)Modified life insurance policy

b)Jumping juvenile policy While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21).

Which of the following is another term for the accumulation period of an annuity? a)Annuity period b)Pay-in period c)Premium period d)Liquidation period

b)Pay-in period The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity.

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? a)Premiums are taxable to the employee. b)Premiums are not tax deductible as a business expense. c)Premiums are tax deductible by the key employee. d)Premiums are tax deductible as a business expense.

b)Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.

Which of the following Life Insurance policies would be considered interest sensitive? a)Increasing term b)Universal life c)Adjustable life d)Whole life

b)Universal life As well as being a flexible premium policy, universal life is also an interest-sensitive policy. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest.

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive? a)$0 b)$50,000 (50% of the policy value) c)$100,000 d)$300,000 (triple the amount of policy value)

c)$100,000 The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

What type of an interest rate is guaranteed in universal life policies a). Adjustable interest rate b). Current interest rate c). Contract interest rate d). Nominal interest rate

c). Contract interest rate The insurer guarantees a contract interest rate. A current interest rate is not guaranteed in the contract and may be higher because of current market conditions

Which of the following best describes fixed-period settlement option? a)The death benefit must be paid out in a lump sum within a certain time period. b)Income is guaranteed for the life of the beneficiary c)Both the principal and interest will be liquidated over a selected period of time. d)Only the principal amount will be paid out within a specified period of time.

c)Both the principal and interest will be liquidated over a selected period of time. Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time.

Which of the following are NOT fundable by annuities? a)A person's retirement b)Estate liquidation c)Death benefits d)Cash accumulation for any reason

c)Death benefits Annuities are most commonly used to fund a person's retirement, but they can technically be used to accumulate cash for any reason. Annuities can also be used to liquidate an estate. Annuities do not provide death benefits; those are provided by life insurance.

Which nonforfeiture option has the highest amount of insurance protection? a)Decreasing Term b)Reduced Paid-up c)Extended Term d)Conversion

c)Extended Term The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time.

Which of the following would be considered an advantage of owning term insurance? a)It provides the death benefit regardless of when the insured dies. b)It provides the greatest living benefits to the insured. c)It provides the highest amount of coverage for a temporary period of time. d)It provides the greatest cash value for a temporary period of time.

c)It provides the highest amount of coverage for a temporary period of time. Term insurance has no cash value and provides no death benefit if the insured dies after the policy is expired; however, it provides the highest amount of protection for a temporary period of time.

A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that? a)Second-to-Die b)Family Income Policy c)Joint Life Policy d)Survivorship Life Policy

c)Joint Life Policy Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends.

Which of the following products requires a securities license? a)Equity Indexed annuity b)Deferred annuity c)Variable annuity d)Fixed annuity

c)Variable annuity A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities.

An insured brought an insurance policy that requires him to pay $150 in premiums on the 15th of each month. He takes an extended vacation and forgets to pay the premium. Ten days later, his policy is still in effect and has not lapsed. Which policy provision allowed for this? a). Waiver of premium b). Automatic premium loan c). Incontestability d). Grace period

d). Grace period Grace period is a mandatory found in all life insurance policies that provide coverage for a period of time after the premium becomes past due.

Which of the following is NOT true regarding a deferred annuity? a). It is used to accumulate funds for retirement b). It can be purchased with single lump sum c). The annuity grows tax deferred d). Income payments begin within 1 year from the date of purchase

d). Income payments begin within 1 year from the date of purchase Deferred annuity benefit payments begin sometime after one year after the contract was purchased. The rest of the statements are true regarding deferred annuities.

How long is a free-look period for replacement policies? a)10 days b)14 days c)20 days d)30 days

d)30 days The replacing insurer must provide to the policyowner notice of the right to return the policy or contract within 30 days of the delivery of the contract and receive an unconditional full refund of all premiums.

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? a)Term insurance only b)Permanent insurance only c)Universal life insurance only d)Any form of life insurance

d)Any form of life insurance Any form of Life insurance may be used to fund a buy-sell agreement.

Which of the following is TRUE about a class designation? a)Beneficiaries must be part of the insured's immediate family. b)It is not allowed. c)It determines the succession of beneficiaries. d)Beneficiaries are not identified by name.

d)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.

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? a)Limited Term b)Limited Pay c)Interest-sensitive Whole Life d)Modified Life

d)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.

An insured committed suicide one year after his life insurance policy was issued. The insurer will a)Pay the policy's cash value. b)Pay the full death benefit to the beneficiary c)Pay nothing. d)Refund the premiums paid.

d)Refund the premiums paid. If the insured commits suicide within 2 years following the policy effective date, the insurer's liability is limited to a refund of premium.

Which of the following applicants would NOT qualify for a Keogh Plan? a)Someone who has been employed for more than 12 months b)Someone who is over 25 years of age c)Someone who works for a self-employed individual d)Someone who works 400 hours per year

d)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.

In whole life insurance, when is the policy cash value scheduled to equal the face amount? a). At the insured's age 100 b). By the policy's 10th year c). When the insured paid up all policy loans d). It depends on the type of whole life purchased

a). At the insured's age 100 The cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 and is paid out

A Universal Life Insurance policy is best described as a/an a)Annually Renewable Term policy with a cash value account. b)Variable Life with a cash value account. c)Whole Life policy with two premiums: target and minimum. d)Flexible Premium Variable Life policy.

a)Annually Renewable Term policy with a cash value account. 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.

When an insurer requires a written proof of loss after notice of such loss has been given by the insured or beneficiary, the company must a) Request a police report from the Department of Motor Vehicles. b) Furnish a blank form to be used for that purpose. c) Document the request for further investigation. d) Submit the loss claim to underwriting for premium review and resolution.

b) Furnish a blank form to be used for that purpose. When any company under any insurance policy requires a written proof of loss after notice of such loss has been given by the insured or beneficiary, the company or its representative must furnish a blank form to be used for that purpose.

Cash Value guarantees in whole life policy are called a). Dividends b). Nonforfeiture values c). Living Benefits d). Cash Loans

b). Nonforfeiture values Because permanent life insurance policies have cash values, there are certain guarantees that are built into the policy that cannot be forfeited by the policy owner. These guarantees (know as nonforfeiture values) are required by state law to be included in the policy. A table showing the nonforfeiture values must be included in the policy for a minimum period of 20 years. The policy owner has options as to how to exercise nonforfeiture values.

Your customer doesn't mind paying a higher premium as long as he gets a life insurance product that would allow for a faster growth of the cash value. What kind of policy would you recommend? a)A whole life policy b)An endowment policy c)A term policy d)An annuity

b)An endowment policy Because the cash value in an endowment has to build up faster since the funds are intended to be used while the insured is alive, the premium for an endowment is considerably more expensive than an ordinary straight life policy.

According to the life insurance replacement regulations, which of the following would be an example of policy replacement? a). Term insurance is changed to Whole Life policy b. A lapsed policy is reinstated within a specific timeframe c). A policy is reissued with a reduction in cash value d. A term policy expires, and the insured buys another term life policy

c). A policy is reissued with a reduction in cash value Replacement refers to any transaction in which new life insurance or an annuity is purchased, resulting in reduced paid-up insurance, continuation of extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values

Which of the following will NOT be an appropriate use of a deferred annuity? a)Accumulating funds in an IRA b)Funding a child's college education c)Creating an estate d)Accumulating retirement funds

c)Creating an estate Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education. Unlike life insurance, annuities do not create an estate, but liquidate it.

Annually renewable term policies provide a level death benefit for a premium that a)Remains level. b)Fluctuates. c)Increases annually. d)Decreases annually.

c)Increases annually. Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid? a)Beneficiary clause b)Consideration clause c)Insuring clause d)Entire contract clause

c)Insuring clause The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.

In a variable life insurance policy, all of the following assets are held in the insurance company's general account EXCEPT a). Mortality reserves b). Face amount reserves c). Incidental benefit amounts d). Cash surrender values

d). Cash surrender values The insurer does not guarantee or participate in the investment risk of a variable life insurance policy. Because all underlying assets must kept in separate account variable life insurance policies cannot provide guaranteed cash surrender value

An insured receives an annual life insurance dividend check. What term best describes this arrangement? a)Cash option b)Reduction of Premium c)Annual Dividend Provision d)Accumulation at Interest

a)Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

Which of the following best describes a misrepresentation? a)Discriminating among individuals of the same insuring class b)Issuing sales material with exaggerated statements about policy benefits c)Making a deceptive or untrue statement about a person engaged in the insurance business d)Making a maliciously critical statement that is intended to injure another person

b)Issuing sales material with exaggerated statements about policy benefits Misrepresentation is issuing, publishing or circulating any illustration or sales material that is false, misleading or deceptive as to policy benefits or terms, the payment of dividends, etc. This includes oral statements.

An important fact about financial status of an insure was deliberately withheld. Which of the following terms best describes this action? a). Twisting b). Loading c). False financial statement d). Defamation

c). False financial statement Statements of this kind - when used to put the company into a favorable light are often called false financial statements

Under what circumstances will the contingent beneficiary receive the death benefit? a). If designed by the insured b). If designed by the primary beneficiary c). If the primary beneficiary dies before the insured d). If the tertiary beneficiary dies before the insured

c). If the primary beneficiary dies before the insured

A college student will graduate next year. His studies have limited his ability to work, so he has borrowed funds to pay for his education. He would like to start a permanent life insurance program that would cover his debt and still be affordable during the period he is establishing his earning potential. An appropriate policy would be a). Level Term to age 65 b). Single Premium Whole Life c). Modified Whole Life d). Current Assumption Whole Life

c). Modified Whole Life Modified life required low premiums at the beginning of the policy. The premiums are increased at a later date, usually three to five years after the issue.

All of following are true of annually renewable term insurance EXCEPT a). The death benefit remains level b). The policy must be renewed no matter what happens to one's health c). Proof of insurability must be provided at each renewal d). The premium increases each year

c). Proof of insurability must be provided at each renewal ART is a form of level term insurance, in which the death benefit remains level and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the insured's attained age.

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? a)Conditional b)Personal c)Adhesion d)Unilateral

c)Adhesion A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written.

What happens when a policy is surrendered for its cash value? a)The policy can be reinstated by paying back all policy loans and premiums. b)The policy can be converted to term coverage. c)Coverage ends and the policy cannot be reinstated. d)Coverage ends but the policy can be reinstated at any time.

c)Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

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? a)It will decrease for the new 5-year term since the insured is now a lesser risk to the company. b)It will increase each year during the next 5 years as the face amount increases each year. c)It will increase because the insured will be 5 years older than when the policy was originally purchased. d)It will remain the same for the new 5-year term.

c)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.

What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? a)Installment refund b)Joint and survivor c)Pure life d)Life with guaranteed minimum

c)Pure life A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors.

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? a)The death benefit can be increased only when the policy has developed a cash value. b)The death benefit can be increased only by exchanging the existing policy for a new one. c)The death benefit can be increased by providing evidence of insurability. d)The death benefit cannot be increased.

c)The death benefit can be increased by providing evidence of insurability. The policyowner (insured) would need to prove insurability for the amount of the increase.

A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why? a)There are not enough people in the group to qualify for group life insurance. b)The group has not been established for long enough. c)The purpose of the group was to purchase life insurance. d)Their profession poses too high of a risk for the insurer.

c)The purpose of the group was to purchase life insurance. In order to qualify for small group life insurance, a group must be formed for a purpose other than attaining life insurance.

In term policies, what happens to the premium throughout the term of the policy? a) Premium gradually increases. b) Premium gradually decreases. c) Premium fluctuates. d) Premium always remains level.

d) Premium always remains level. There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy.

Which of the following is TRUE regarding an indeterminate premium whole life policy? a) The premium is lower in the first year of the policy; then it is gradually raised every year. b) The premium is level throughout the life of the policy. c) The premium is usually higher in the first few years of the policy. d) The premium can be raised up to a guaranteed maximum rate.

d) The premium can be raised up to a guaranteed maximum rate. Indeterminate premium whole life policy premium rate may vary from year to year. After the initial period (usually 2-3 years) when a lower premium is paid, the insurer establishes a new rate which could be raised up to the guaranteed maximum stated in the policy, kept the same or lowered, based on the company's expected mortality, expense and investments.

All of the following are true of the Survivorship Life policy EXCEPT a). The death benefit is not paid until the last death b). The premium would be lower than in a joint life policy c). It can insure more than 2 lives d). The premium is based on the age of each insured

d). The premium is based on the age of each insured Survivorship Life (or second-to-die policy) 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 reinstatement provision in life insurance policies in this state allows an owner of a lapsed policy to reestablish it within how many years? a)2 b)3 c)4 d)5

d)5 Reinstatement provision allows a policy to be reinstated at any time within 5 years after the policyowner defaulted on a premium payment.

Any person who violates a cease and desist order of the Commissioner pertaining to consumer information privacy may be subject to which of the following penalties? a)Imprisonment for up to 5 years b)Imprisonment for up to 1 year c)A monetary fine up to $5,000 for each violation d)A monetary fine up to $10,000 for each violation

d)A monetary fine up to $10,000 for each violation Violations of the cease and desist order pertaining to consumer information privacy will result in a monetary fine of not more than $10,000 for each violation.

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? a)Waiver of premium b)Incontestability period c)Assignment d)Automatic premium loan

d)Automatic premium loan This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation? a)Variable life b)Universal life c)Whole life d)Decreasing term

d)Decreasing term A decreasing term policy's face amount decreases as the amount of debt is reduced.

Which of the following best describes an insurance company that has been formed under the laws of this state? a)Sovereign b)Alien c)Foreign d)Domestic

d)Domestic A company is domestic when doing business within the state in which it is incorporated.

What are the two components of a universal policy? a)Insurance and investments b)Mortality cost and interest c)Separate account and policy loans d)Insurance and cash account

d)Insurance and cash account A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher.

During a sales presentation a producer intentionally makes a statement which may mislead the insurance applicant. This describes a)Defamation. b)Twisting. c)Coercion. d)Misrepresentation.

d)Misrepresentation. Making false or misleading statements with the intent to defraud another is misrepresentation.

Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? a)Corridor option b)Variable option c)Option A d)Option B

d)Option B Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.

All of the following are the types of term insurance depending on how the face amount changes during the policy term EXCEPT a)Decreasing. b)Level. c)Increasing. d)Renewable.

d)Renewable. There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may fluctuate.

All of the following are true about variable products EXCEPT a)The minimum death benefit is guaranteed. b)The cash value is not guaranteed. c)Policyowners bear the investment risk. d)The premiums are invested in the insurer's general account.

d)The premiums are invested in the insurer's general account. Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk.

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? a)The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. b)The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. c)One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. d)The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

d)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 renewable provision allows the policyowner to renew the coverage at the expiration date a). Only with evidence of insurability b). With evidence of insurability if the insurer requires it c). With evidence of insurability if the insurer risk has increased d. Without evidence of insurability

d. Without evidence of insurability The renewable provision allows the policy owner the right to renew the coverage at the expiration date without evidence of insurability.