Practice test
Who is a third-party owner?
A policyowner who is not the insured
Which of the following premium payment modes will incur the lowest overall payment?
Annual
An insurance contract must contain all of the following to be considered legally binding EXCEPT
Beneficiary's consent
Which of the following is NOT true regarding the accumulation period of an annuity?
It would not occur in a deferred annuity.
What is the major difference between a stock company and a mutual company?
Ownership
If a retirement plan or annuity is "qualified," this means
It is approved by the IRS.
In life policies issued in this state, insurers are permitted to charge interest during the policy grace period for the number of days elapsing before the premium is paid. What is the maximum annual interest rate?
8%
Which is true about a spouse term rider?
The rider is usually level term insurance expires at age 65
An applicant for a life agent's license may obtain a temporary license for a maximum period of
6 months. Note: An applicant for a life agent's license may obtain a temporary license for a maximum period of 6 months. If, during the 6-month temporary license period, the applicant passes the license examination, the temporary license and appointment will terminate, and a license will be issued by the department after payment of a modification fee. Only one temporary license may be issued to an applicant.
Which of the following would NOT be a violation of state insurance regulations?
Agent C uses her license to write only business other than controlled. Note:The purpose of a license is to primarily write business other than controlled business.
all of the following are examples of third party ownership of a life insurance policy EXCEPT
An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.
What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy?
It determines who receives policy benefits if the primary beneficiary is deceased. Note: Naming a secondary beneficiary (also referred to as contingent beneficiary) ensures that there is a beneficiary to receive policy proceeds if the primary beneficiary dies before the insured. If there is no secondary beneficiary, the policy benefits will go to the insured's estate.
Which of the following is NOT true regarding a Certificate of Authority?
It is issued to group insurance participants. Note: Before insurers may transact business in a specific state, they must apply for a license or Certificate of Authority from the state department of insurance and meet any financial (capital and surplus) requirements set down by the state.
An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called ?
Paid-up additions. Note: When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.
Which two terms are associated directly with the way an annuity is funded?
Single payment or periodic payments. Note: Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installment varies.
An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term?
The insured may renew the policy for another 10 years, but at a higher premium rate. Note:Policies that are guaranteed renewable and convertible may be renewed, without evidence of insurability, for another like term, or may be converted to permanent insurance, without evidence of insurability.
If a life policy owner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a
guaranteed insurability rider
An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it?
limited-pay life
Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?
premiums aren't tax deductible as a business expense
All other factors being equal, the least expensive first-year premium payment is found in
Annually renewable term
Which statement is NOT true regarding a policy summary?
It must be combined with a sales illustration. Note: The policy summary must be a separate document. It cannot be combined with a sales illustration.
An annuity contract is issued to a senior consumer over age 65. What is the maximum surrender charge for a withdrawal of money allowed on this annuity?
10% Note: An annuity contract issued to a senior consumer age 65 or older may not contain a surrender or deferred sales charge for a withdrawal of money from an annuity exceeding 10% of the amount withdrawn.
within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained ?
3 days
A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?
If the father is disabled for more than 6 months
An insurance producer just sold an insurance policy to his sister. What kind of business is this?
Controlled Note: When producers sell policies on themselves, their family, or their coworkers, this is called controlled business. Controlled business is legal as long as premiums paid on these policies do not exceed the premiums that the producer writes for other business.
According to the entire contract provision, what document must be made part of the insurance policy?
Copy of the original application
Which of the following will NOT be considered unfair discrimination by insurers?
Discriminating in benefits and coverages based on the insured's habits and lifestyle
The requirement that agents not commingle insurance monies with their own funds is known as
Fiduciary responsibility.
Both Universal Life and Variable Universal Life have a ?
Flexible premium. Note: 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.
Both Universal Life and Variable Universal Life have a ?
Flexible premium. Note: While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person.
An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an ?
Interest-sensitive Whole Life. Note: Because the cash values are generated by investments, interest rates will affect the amount of the cash value.
What is the purpose of a conditional receipt?
It is intended to provided coverage on a date prior to the policy issue.
The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called?
Joint and survivor. Note: A joint and survivor option pays while either beneficiary is still living.
What describes the specific information about a policy?
Policy Summary
Any inducement offered to the insured in the sale of an insurance policy that is not specified in the policy is an unlawful practice known as
Rebating
Which of the following types of risk will result in the highest premium?
Substandard risk Note: The "substandard" rating indicates that an individual represents an under-average insurance risk because of physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium if policy is issued.
Which of the following would help prevent a universal life policy from lapsing?
Target Premium
The premiums paid by the employer in a business life insurance policy are ?
Tax deductible by the employer.
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. Note: 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.
All of the following are requirements for life insurance illustrations EXCEPT
They must be part of the contract.
Under what circumstances can an agent's appointment be transferred to another person?
Under no circumstances
Under what circumstances can an agent's appointment be transferred to another person?
Under no circumstances Note: Any issued appointment is valid only for the person named and is not transferable to another person.
An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy?
$9,800
Which of the following is another term for the accumulation period of an annuity?
Pay-in period Note: 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.
To sell variable life insurance policies an agent must receive all of the following except:
SEC Registration
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then?
The benefit is received tax free. Note: Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.
If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE?
The policy will be interpreted as if the insurer waived its right to have an answer on the application. Note: Any unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage later because of unanswered questions.
When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments?
Spendthrift provision
Which of the following is NOT true of life settlements?
The seller must be terminally ill.
Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application?
Return the application to the applicant for completion
Which of the following reports will provide the underwriter with the information about an insurance applicant's credit ?
Consumer Report
Contracts that are prepared by one party and submitted to the other party on a "take it or leave it" basis are classified as
Contracts of adhesion.
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
Why is an equity indexed annuity considered to be a fixed annuity?
It has a guaranteed minimum interest rate. Note: While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.
Which of the following is true of a children's rider added to an insured's permanent life insurance policy?
It is TERM coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age.
Which of the following will be included in a policy summary?
Premium amounts and surrender values
The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called?
Waiver of premium.
What percentage of a company's employees must take part in a noncontributory group life plan?
100%
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
Regulations for annuity recommendations would apply when a consumer is at least what age?
65 years old
The term "illustration" in a life insurance policy refers to
A presentation of nonguaranteed elements of a policy.
Which of the following authorities grants and revokes licenses?
Department of Financial Services
When doing business in this state, an insurance company that is formed under the laws of another state is known as which type of insurer?
Foreign
The automatic premium loan provision is activated at the end of the?
Grace period. Note:Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.
A return of premium life insurance policy is written as what type of term coverage?
Increasing
All advertisements are the responsibility of the?
Insurer Note: The insurer whose policies are advertised is responsible for all its advertisements, regardless of who wrote, created, presented, or distributed them.
When replacing life insurance, the duties of the replacing insurance company include all of the following EXCEPT
Maintaining a copy of the Notice Regarding Replacement and all sales proposals used for at least 5 years.
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
Single Premium Whole Life
Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option?
Size of each installment Note: The size of each installment determines the length of time that benefits are received under the Fixed Amount settlement option. It logically follows that larger installments translate into shorter benefit periods.
Alpha return
refers to the return attributed to a given money manager's investment skill.
When would a 20-pay whole life policy endow?
when the insured reaches age 100
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?
Adhesion Note: 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.
To legally transact insurance in this state, an insurer must obtain which of the following?
Certificate of Authority
Which of the following must an insurer obtain in order to transact insurance within a given state?
Certificate of authority
Which of the following terms describes making false statements about the financial condition of any insurer that are intended to injure any person engaged in the business of insurance?
Defamation Note: Defamation is making statements that are false as to the financial condition of any insurer and which are calculated to injure any person engaged in the business of insurance.
Which of the following best describes an insurance company that has been formed under the laws of this state?
Domestic
If a change needs to be made to the application for insurance, the agent may do all of the following except ?
Erase the incorrect answer & record the correct answer.e
Which of the following activities would be sufficient violation to warrant rejection, revocation, or suspension of an insurance agent's license?
Forgery
What is the purpose of a free-look period in insurance policies?
It allows the insured to reject the policy with a full refund. Note: The free-look provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium.
an applicant who receives a preferred risk classification qualifies for
Lower premiums than a person who receives standard risk
What is the other term for the cash payment settlement option?
Lump sum
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the?
Other-insured rider. Note: The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.
A participating insurance policy may do which of the following?
Pay dividends to the policyowner
If the policy owner, the insured and the beneficiary under a life insurance policy are three different people, who had the ownership rights?
Policy owner
Who might receive dividends from a mutual insurer?
Policyholders Note: A mutual insurer has no stock, and is owned by the policyholders. Since they may receive a dividend (not guaranteed), such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable
The insurer discovered that on of the applicants for life insurance missed a couple of questions on the application. What should the insurer do with the application?
Return to the applicant for completion
Equity indexed annuities?
Seek higher returns
Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles?
Standard risk is representative of the majority of people. Note: Standard risks are representative of the majority of people in their age and with similar lifestyles. They are the average risk.
Which of the following is NOT the consideration in a policy?
The application given to a prospective insured Note:Consideration is something of value that is transferred between the two parties to form a legal contract.
An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?
The insured may choose to convert to term or permanent individual coverage.
All of the following are true regarding the guaranteed insurability rider EXCEPT?
This rider is available to all insureds with no additional premium. Note: The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.
The paid-up addition option uses the dividend
To purchase a smaller amount of the same type of insurance as the original policy.
Which of the following types of insurance policies would perform the function of cash accumulation?
Whole life
which of the following is the best reason to purchase life insurance rather than annuities ?
to create an estate
If a claim is made on a policy during the grace period, an insurer is allowed to deduct the overdue premium and to charge interest. What is the maximum allowed interest rate?
8% Note:The time that may elapse between a premium's due date and its eventual payment is called the grace period. If a claim is made on a policy during one of these grace periods, an insurer may deduct the amount of the premium due and up to 8% of interest per year from the settlement.
In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium ?
It will likely be higher because the applicant is a substandard risk.
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report
Must be informed of the source of the report.
All of the following entities regulate variable life policies EXCEPT?
The Guaranty Association. Note:Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.
Which of the following entities is responsible for agent licensing and administrative supervision?
The Office of Insurance Regulation
Which of the following is NOT true regarding the annuitant?
The annuitant cannot be the same person as the annuity owner. Note:While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person.
Which of the following would qualify as a competent party in an insurance contract?
The applicant has a prior felony conviction. Note: When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-year-old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent.
How will a life insurance beneficiary designation naming a spouse be changed by divorce?
The beneficiary designation will be voided.
If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy?
The death benefit will be smaller.
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT
The interest credited under this option is not taxable since it remains inside the insurance policy.
An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize?
Viatical settlement
An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin?
When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health
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 Note: 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.
Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?
Paid-up option. Note:With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.
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. Note: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.
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
Which of the following best describes fixed-period settlement option?
Both the principal and interest will be liquidated over a selected period of time. Note: 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.
In which of the following cases will the insured be able to receive the full face amount from a whole life policy?
If the insured lives to age 100
Which of the following statements about the reinstatement provision is true?
It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.
An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?
It will increase because the insured will be 5 years older than when the policy was originally purchased
A married couple owns a permanent policy which covers both of their lives and pays the face amount of the policy only upon the death of the first. Which policy is that?
Joint Life Policy
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
Which of the following documents must be provided to the policyowner or applicant during policy replacement?
Notice Regarding Replacement
An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?
The date of medical exam
Which of the following insurance products will be subject to the regulation on life insurance solicitation?
A term life policy
A producer who fails to segregate premium monies from his own personal funds is guilty of
Commingling.
Methods used to pay the death benefits to a beneficiary upon the insured's death are called
Settlement options.
Which of the following types of policies will provide permanent protection? Whole Life
Whole life
All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT?
At distribution, all amounts received by the employee are tax free. Note: Funds in a qualified plan accumulate on a tax-deferred basis; however, at distribution any amount received by the employee will be treated as ordinary income for tax purposes.
Which provision of a life insurance policy states the insure's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?
Insuring Clause
If a life insurer holds the proceeds of any policy it issues, which of the following is true?
The proceeds may be exempt from any creditor's claims against a beneficiary other than the policy owner.
A paid-up nonforfeiture benefit will become effective as specified in the policy, unless the person entitled elects another available option within how many days after the due date of the premium in default?
60
twin brothers are starting a new business. they know it will take years to build the business to the point that they can pay off 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?
Joint life
Variable whole life insurance is based on what type of premium?
Level fixed
Which of the following settlement options in life insurance is know as straight life?
Life Income
What is a definition of a unilateral contract?
One-sided; only one party makes an enforceable promise
The policy owner pays for her life insurance annually. Until now, she has collected a non taxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?
Reduction of premium
Which of the following is NOT one of the three basic types of coverages that are available, based on how the face amount changes during the policy term?
Renewable. Note: 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 level throughout the term of the policy.
What is the advantage of reinstating a policy instead of applying for a new one?
The original age is used for premium determination
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.
In the state of Florida, it is illegal for a licensee's commissions from controlled business to exceed what percentage of the total in a given year?
50%
What is the name of the insured who enters into a viatical settlement?
Viator (the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.)
A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will?
Pay the policy proceeds only if it would have issued the policy.
An insured purchased a life policy in 2010 and died in 2017. the insurance company discovers at that time that the insured had concealed information during the application process. What can they do ?
pay the death benefit