Practice Exam Questions 10/10/23
What is the other term for the cash payment settlement option? a)Proceeds b)Lump sum c)Principal amount d)Face amount
b)Lump sum
In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT a)The amount of insurance. b)The type of investment. c)The length of coverage. d)The premium.
b)The type of investment.
Traditional IRA contributions are tax deductible based on which of the following? a)Owner's age b)IRA limit c)Owner's income d)How long the plan has been in force
c)Owner's income
Which of the following statements about group life is correct? a)The group sponsor receives a Certificate of Insurance. b)The policy can be converted to an individual term insurance policy. c)The cost of coverage is based on the ratio of men and women in the group. d)The premiums are higher than in an individual policy because there is no medical exam.
c)The cost of coverage is based on the ratio of men and women in the group.
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? a)Term life b)Limited pay c)Universal life d)Adjustable life
c)Universal life
Which of the following Life Insurance policies would be considered interest sensitive? a)Whole life b)Increasing term c)Universal life d)Adjustable life
c)Universal life
In most instances, a variable contract must be on file with the Commissioner before it may be issued. However, this can be avoided if the insurer is affiliated with an admitted life insurance company that has issued variable contracts for at least a)5 years. b)10 years. c)1 year. d)3 years.
d)3 years.
If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to a)Require a yearly medical examination. b)Lower its insurability standards. c)Refuse to issue the policy. d)Charge a higher premium.
d)Charge a higher premium.
Which of the following includes information regarding a person's credit, character, reputation, and habits? a)Consumer history b)Insurability report c)Agent's report d)Consumer report
d)Consumer report
When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n) a)Key person policy. b)Fraternal association. c)Aleatory contract. d)Executive bonus.
d)Executive bonus.
Which nonforfeiture option has the highest amount of insurance protection? a)Conversion b)Decreasing Term c)Reduced Paid-up d)Extended Term
d)Extended Term
Which of the following would help prevent a universal life policy from lapsing? a)Face amount b)Adjustable premium c)Corridor of insurance d)Target premium
d)Target premium
In forming an insurance contract, when does acceptance usually occur?a)When an insurer delivers the policy b)When an insurer receives an application c)When an insured submits an application d)When an insurer's underwriter approves coverage
d)When an insurer's underwriter approves coverage
Are insurance company underwriters allowed to discriminate? a)No, higher risks pay higher premium b)No, discrimination is an unfair practice c)Yes, but only for gender d)Yes, but not unfairly
d)Yes, but not unfairly
What is the continuing education requirement for producers during the initial licensing period of 36 months? a)60 hours, including 3 hours in ethics b)24 hours, including 1 hour of ethics c)45 hours, including 3 hours in ethics d)40 hours, including 5 hours in ethics
a)60 hours, including 3 hours in ethics
Which of the following produces evaluations of insurers' financial status often used by state departments of insurance? a)AM Best b)NAIC c)Consumer's guide d)SEC
a)AM Best
The two types of assignments are a)Absolute and collateral. b)Absolute and partial. c)Complete and partial. d)Complete and proportionate.
a)Absolute and collateral.
If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information EXCEPT the applicant's a)Ancestry. b)Credit history. c)Habits. d)Prior insurance.
a)Ancestry.
When an annuity is written, whose life expectancy is taken into account? a)Annuitant b)Beneficiary c)Life expectancy is not a factor when writing an annuity. d)Owner
a)Annuitant
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
Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as a)Contracts of adhesion. b)Unilateral contracts. c)Aleatory contracts. d)Binding contracts.
a)Contracts of adhesion.
What is another name for interest-sensitive whole life insurance? a)Current assumption life b)Variable life c)Term life d)Adjustable life
a)Current assumption life
A Universal Life insurance policy has two types of interest rates that are called a)Guaranteed and Current. b)Option A and Option B. c)Fixed and Variable. d)Minimum and Target.
a)Guaranteed and Current.
All of the following are examples of risk retention EXCEPT a)Premiums. b)Deductibles. c)Copayments. d)Self-insurance.
a)Premiums.
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)Universal life b)Whole life c)Decreasing term d)Variable life
c)Decreasing term
All of the following would be different between qualified and nonqualified retirement plans EXCEPT a)Taxation of withdrawals b)Taxation of contributions c)IRS approval requirements d)Taxation on accumulation
d)Taxation on accumulation
A 60-year-old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true? a)No taxes are due since the plan participant is over age 59 1/2 .b)There is a 10% early withdrawal penalty. c)The amount distributed is subject to ordinary income tax. d)The amount of the distribution is reduced by the amount of a 20% withholding tax.
d)The amount of the distribution is reduced by the amount of a 20% withholding tax.
Which of the following is usually true of a participating life insurance policy? a)It pays dividends to policyowners. b)It may be converted to a term life policy. c)It pays dividends to stockholders. d)It assesses premiums against stockholders.
a)It pays dividends to policyowners.
Which of the following is true regarding a single life settlement option? a)It provides income the beneficiary cannot outlive. b)Payments continue until the entire principal is exhausted. c)Proceeds are paid out in a lump sum. d)It provides income for a specified period of time.
a)It provides income the beneficiary cannot outlive.
When a fixed annuity owner pays a monthly annuity premium to the insurance company, where is this money placed? a)The insurance company's general account b)Forwarded to an investor c)Each contract's separate account d)The annuity owner's account
a)The insurance company's general account
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.
What type of insurance would be used for a Return of Premium rider?a)Annually Renewable Term b)Increasing Term c)Level Term d)Decreasing Term
b)Increasing Term
An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? a)Underwriter's Report b)Inspection Report c)Medical Information Bureau's report d)Agent's Report
b)Inspection Report
Why is an equity indexed annuity considered to be a fixed annuity? a)It is not tied to an index like the S&P 500. b)It has a guaranteed minimum interest rate. c)It has modest investment potential. d)It has a fixed rate of return.
b)It has a guaranteed minimum interest rate.
Which of the following is correct regarding credit life insurance? a)It has a maximum term of 20 years. b)It insures the life of a debtor. c)It is purchased on an installment basis. d)It insures the life of a creditor.
b)It insures the life of a debtor.
An insurer wants to obtain information from investigators regarding an applicant for insurance. What must the insurer do in order to legally acquire this information? a)Sign a waiver that the information will be kept confidential b)Present the insured with a Disclosure Authorization Notice c)Receive written permission from the Department of Insurance d)Receive a signed statement from the insured which authorizes the investigation
b)Present the insured with a Disclosure Authorization Notice
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
Misrepresenting the terms of a policy is a violation that may result in a)A fine of between $500 and $5,000 b)A fine of up to $2,000 or imprisonment for up to 2 years c)A fine of up to $1,000 or imprisonment for up to 6 months d)A fine of between $100 and $1,000 and imprisonment for up to 1 year
c)A fine of up to $1,000 or imprisonment for up to 6 months
Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member? a)Children's rider b)Additional insured rider c)Family term rider d)Spouse rider
c)Family term rider
In insurance transactions, fiduciary responsibility means a)Being liable with respect to payment of claims. b)Commingling premiums with agent's personal funds. c)Handling insurer funds in a trust capacity. d)Maintaining a good credit record.
c)Handling insurer funds in a trust capacity.
When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value? a)Mortality costs b)The cash surrender amount c)Outstanding loans and interest d)The face amount
c)Outstanding loans and interest
What provision in an insurance policy extends coverage beyond the premium due date? a)Free look b)Automatic premium loan c)Waiver of premium d)Grace period
d)Grace period
An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true? a)He will have to pay a penalty regardless of his age. b)He will not have to pay a penalty, regardless of his age. c)He cannot withdraw money from his MEC before age 59½. d)He will have to pay a penalty if he is younger than 59½.
d)He will have to pay a penalty if he is younger than 59½.
All of the following describe the purpose of insurance rate regulation EXCEPT a)Ensure that rates are not excessive, or unfairly discriminatory. b)Promote the public welfare. c)Regulate cooperative action among insurers in rate making. d)Help insurers establish rates that would ensure profits.
d)Help insurers establish rates that would ensure profits.
Which of the following is NOT considered a misrepresentation as it pertains to unfair trade practices? a)Stating that the insurance policy is a share of stock b)Exaggerating the benefits provided in the policy c)Stating that the competitors will arbitrarily increase their premiums each year d)Making comparisons between different policies
d)Making comparisons between different policies
An insured stops making payments on a loan taken from his cash value policy. What will most likely happen? a)The insurer will increase the interest rate on the loan and charge a penalty. b)The insurer will not permit the policyowner to take out any more loans. c)The policy will be reduced to an extended term option. d)The policy will terminate when the loan amount with interest equals or exceeds the cash value.
d)The policy will terminate when the loan amount with interest equals or exceeds the cash value.
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 way proceeds are split between beneficiaries is decided by which type of policy is chosen. b)Life insurance policies may have only one beneficiary. c)The proceeds will be split evenly between the two beneficiaries. d)The policyowner can specify the way proceeds are split in the policy.
d)The policyowner can specify the way proceeds are split in the policy.
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? a)Joint Life b)Decreasing Term c)Whole Life d)Ordinary Life
a)Joint Life
Which of the following will be included in a policy summary? a)Premium amounts and surrender values b)Copies of illustrations and application c)Comparisons with similar policies d)Primary and secondary beneficiary designations
a)Premium amounts and surrender values
The Ownership provision entitles the policyowner to do all of the following EXCEPT a)Set premium rates .b)Receive a policy loan. c)Assign the policy. d)Designate a beneficiary.
a)Set premium rates
Children's riders attached to whole life policies are usually issued as what type of insurance? a)Term b)Variable life c)Adjustable life d)Whole life
a)Term
What determines the penalty for surrendering a market value adjusted annuity prematurely? a)The current interest rate at the time of surrender b)The flat fee determined by an index of interest gains and the amount of time the annuity would take to mature c)There are no penalties imposed for surrendering annuities prematurely. d)The guaranteed minimum interest rate provided in the contract
a)The current interest rate at the time of surrender
All of the following are characteristics of a group life insurance plan EXCEPT a)There is a requirement to prove insurability on the part of the participants. b)The participants receive a Certificate of Insurance as their proof of insurance. c)A minimum number of participants is required in order to underwrite the plan. d)The cost of the plan is determined by the average age of the group.
a)There is a requirement to prove insurability on the part of the participants.
In a life settlement transaction, how many days does the owner have to terminate the contract after the date it is executed? a)10 days b)15 days c)21 days d)30 days
b)15 days
How long are the free-look periods provided during policy replacement? a)10 days b)20 days c)30 days d)60 days
b)20 days
When J. applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by a)A home office underwriter. b)A paramedic or examining physician at the insurer's expense. c)The agent. d)A physician of the applicant's choice and at his expense.
b)A paramedic or examining physician at the insurer's expense.
An insured receives an annual life insurance dividend check. What term best describes this arrangement? a)Accumulation at Interest b)Cash option c)Reduction of Premium d)Annual Dividend Provision
b)Cash option
A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will a)Automatically pay the policy proceeds .b)Pay the policy proceeds only if it would have issued the policy. c)Pay the policy proceeds up to an established limit. d)Not pay the policy proceeds under any circumstances.
b)Pay the policy proceeds only if it would have issued the policy.
Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? a)Effect of inflation on income over time. b)Predicted needs of the family after the insured's death. c)Insured's current and future income. d)Insured's annual expenses.
b)Predicted needs of the family after the insured's death.
The interest earned on policy dividends is a)Tax deductible. b)40% taxable, similar to a capital gain. c)Taxable. d)Nontaxable.
c)Taxable.
A business entity acting as an insurance producer is required to obtain a)A $10,000 bond prior to transacting insurance business. b)Prior approval from the Department of Commerce. c)60 hours of Continuing Education every 24-month licensing period. d)An insurance producer license.
d)An insurance producer license.
If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered a)A misrepresentation. b)A required statement. c)A legal representation of the Association. d)An unfair trade practice.
d)An unfair trade practice.
Which of the following best describes annually renewable term insurance? a)It requires proof of insurability at each renewal. b)Neither the premium nor the death benefit is affected by the insured's age. c)It provides an annually increasing death benefit. d)It is level term insurance.
d)It is level term insurance.
Which of the following is true about the premium on the children's rider in a life insurance policy? a)It decreases when the oldest child reaches the age of 21. b)It increases when a newborn baby is added to the policy. c)It decreases when an adopted child is added to the policy. d)It remains the same no matter how many children are added to the policy.
d)It remains the same no matter how many children are added to the policy.
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)Limited pay whole life policy b)Modified life insurance policy c)Single premium policy d)Jumping juvenile policy
d)Jumping juvenile policy
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
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean? a)The beneficiary must pay interest to the insurer. b)The beneficiary will receive the lump sum, plus interest. c)The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments. d)The beneficiary will only receive payments of the interest earned on the death benefit.
d)The beneficiary will only receive payments of the interest earned on the death benefit.
Which of the following are generally NOT considered when underwriting group insurance? a)The size of the group b)The insureds' medical history c)The nature of the group d)The group's past claim experience
b)The insureds' medical history
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
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 a)Concealment. b)Unfair claim practice. c)Rebating. d)Misrepresentation.
d)Misrepresentation.
All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT a)It will pay the benefit only for a designated period of time. b)The payments are not guaranteed for life. c)The insurer determines the amount for each payment. d)It is a life contingency option.
d)It is a life contingency option.
Which of the following is TRUE regarding the insurance amount in a credit life policy? a)The amount of coverage can be greater than the amount owed. b)The creditor can only insure the debtor for the amount owed. c)The creditor may insure the debtor for an unlimited amount of coverage. d)Allowable amount of coverage is determined by the State Insurance Commissioner.
b)The creditor can only insure the debtor for the amount owed.
All of the following are marketing arrangements used by insurers EXCEPT a)Reinsurance System. b)General Agency System. c)Direct Response Marketing System. d)Independent Agency System.
a)Reinsurance System.
Which of the following is NOT true regarding Equity Indexed Annuities? a)They earn lower interest rates than fixed annuities. b)The insurance company keeps a percentage of the returns. c)They have guaranteed minimum interest rates. d)They are less risky than variable annuities.
a)They earn lower interest rates than fixed annuities.
When must an IRA be completely distributed when a beneficiary is not named? a)Due date of the deceased owner's final tax return including extensions. b)December 31 of the year that contains the fifth anniversary of the owner's death. c)Due date of beneficiary's tax return including extensions. d)December 31 of the year following the year of the owner's death.
b)December 31 of the year that contains the fifth anniversary of the owner's death.
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? a)Company is the owner, and the company pays the premium. b)Executive is the owner, and the executive pays the premium. c)Company is the owner, but the executive pays the premium. d)Board of directors is the owner, and the board of directors pays the premium.
b)Executive is the owner, and the executive pays the premium.
Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled? a)Waiver of Premium b)Payor Benefit c)Jumping Juvenile d)Juvenile Premium Provision
b)Payor Benefit
Which type of retirement account does not require the owner to start taking distributions at age 73? a)Traditional IRA b)Roth IRA c)Nonqualified IRA d)Standard IRA
b)Roth IRA
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a a)Rollover. b)Settlement option. c)Nontaxable exchange. d)Nonforfeiture option.
b)Settlement option.
In a group life insurance policy, the employer may select all of the following EXCEPT a)The premium payor. b)The beneficiary. c)The type of insurance. d)The amount of insurance.
b)The beneficiary.
An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible? a)The insured can transfer the policy to his friend and then notify the insurer of the change. b)The insured will need a written consent of the insurer. c)It is impossible to transfer a policy. d)The insured would have to surrender his policy to the insurer, and his friend could then ask to buy it.
b)The insured will need a written consent of the insurer.
If during the underwriting process an insurer obtains personal information about an applicant from the applicant, when must the insurer provide notice of its information practices? a)At the time of application b)At the time the insurer first collects the information c)At the time of policy delivery d)Never, since the information was obtained from the applicant
c)At the time of policy delivery
Which of the following is NOT an example of a valid insurable interest? a)Employer in key employee's life b)Child in parents' lives c)Debtor in the life of the creditor d)Business partners in each other's lives
c)Debtor in the life of the creditor
If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined? a)It is a flat fee determined by the annuity owner when the annuity is purchased. b)It will increase as the accumulation period increases. c)It is a percentage of the cash value and decreases over time. d)It is always 7% of the cash value.
c)It is a percentage of the cash value and decreases over time.
An applicant wants to buy a policy that has a cash value element. Which type should she buy? a)Investment b)Term c)Permanent d)Stock
c)Permanent
A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability? a)Her parents' federal income tax receipts b)Medical exam and parents' medical history c)Proof of insurability is not required. d)Medical exam
c)Proof of insurability is not required.
Annuities can be used to fund which of the following? a)Group life insurance b)Estate creation c)Retirement plans d)Variable life insurance
c)Retirement plans
In a fixed annuity, which of the following is true regarding the guaranteed interest rate on the investment? a)The annuitant will receive the lower of either the guaranteed minimum rate or current rate. b)The annuitant will only receive the guaranteed minimum specified in the contract. c)The annuitant will receive the higher of either the guaranteed minimum rate or current rate. d)The annuitant will always receive the current interest rate.
c)The annuitant will receive the higher of either the guaranteed minimum rate or current rate.
Which of the following is NOT the consideration in a policy? a)The premium amount paid at the time of application b)The promise to pay covered losses c)The application given to a prospective insured d)Something of value exchanged between parties
c)The application given to a prospective insured
If the annuitant dies during the accumulation period, who will receive the annuity benefits? a)The insurance company b)The annuitant's estate c)The beneficiary d)The annuity owner
c)The beneficiary
In a life settlement contract, whom does the life settlement broker represent?a)The beneficiary b)The life settlement intermediary c)The owner d)The insurer
c)The owner
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT a)The employer pays a bonus to a selected employee to fund the policy .b)It is considered a nonqualified employee benefit. c)The policy is owned by the company. d)Any type of insurance policy may be used.
c)The policy is owned by the company.
Under an extended term nonforfeiture option, the policy cash value is converted to a)A lower face amount than the whole life policy. b)A higher face amount than the whole life policy. c)The same face amount as in the whole life policy. d)The face amount equal to the cash value.
c)The same face amount as in the whole life policy.
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 total benefit, with the final 1/3 payable when the first beneficiary dies. b)One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. c)The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. d)The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time.
c)The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT a)The premium. b)The amount of insurance. c)The type of investment. d)The length of coverage.
c)The type of investment.
The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called a)Waiver of cost of insurance .b)Payor benefit. c)Waiver of premium. d)Guaranteed insurability.
c)Waiver of premium.
When is the earliest a policy may go into effect? a)When the insurer approves the application b)After the underwriter reviews the policy c)When the application is signed and a check is given to the agent d)When the first premium is paid and the policy has been delivered
c)When the application is signed and a check is given to the agent
What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary? a)Income tax on distributions plus 10% penalty. b)Capital gains tax on distributions and no penalty. c)Capital gains tax on distributions plus 10% penalty. d)Income tax on distributions and no penalty.
d)Income tax on distributions and no penalty.
An insured purchased a life policy in 2010 and died in 2020. The insurance company discovers at that time that the insured had misstated information about her insurance history on the application. What will the insurer do? a)Refuse to pay the death benefit because of the misstatement on the application b)Pay a decreased death benefit c)Sue for the right to not pay the death benefit d)Pay the death benefit
d)Pay the death benefit
When an individual purchases insurance, what risk management technique is he or she practicing? a)Avoidance b)Sharing c)Retention d)Transfer
d)Transfer
