QBANK LIFE INSURANCE QUIZ 1

B) a person contract *Unlike a property-casualty insurance policy, a life insurance policy is not a personal contract and the owner is not fixed. Instead, a life insurance policy is a valued contract and the owner may be changed by assignment.*

A life insurance policy is all of the following EXCEPT A) a unilateral contract B) a person contract C) a conditional contract D) an aleatory contract

A) joint life *A joint life plan is simply 1 policy covering 2 or more persons. Usually, permanent insurance is written.*

A family in which both parents work and, therefore, are in need of the same amount of coverage, would be a candidate for which of the following plans? A) joint life B) juvenile plan C) family plan D) family maintenance

C) 10% of the taxable amount withdrawn

The penalty for premature withdrawal of funds from a traditional IRA is A) 10% of the account balance B) 5% of the taxable amount withdrawn, or $50, whichever is less C) 10% of the taxable amount withdrawn D) $100

A) the insured's annual income

All of the following are basic premium factors EXCEPT A) the insured's annual income B) the mortality rate C) interest earnings D) the insurer's expenses

D) assigning dividends to pay off a mortgage

All of the following are dividend options EXCEPT A) reduced premiums B) paid-up additions C) accumulate at interest D) assigning dividends to pay off a mortgage

A) the portion of each payment consisting of interest is taxed; the remainder is tax free *The monthly payment to the beneficiary under the fixed-amount option is considered a partially taxable installment (similar to an annuity payment). A fixed, unchanged portion of each payment is considered a return of principal and is therefore not taxed. The balance, however, is taxable as interest income.*

As a beneficiary, Kathryn receives $800 monthly from her deceased spouse's life insurance under a fixed-amount option. Each payment consists partly of principal (proceeds) and partly of interest. How is this income taxed? A) the portion of each payment consisting of interest is taxed; the remainder is tax free B) the portion of each payment consisting of principal is taxed; the remainder is tax free C) each payment is received fully tax free D) each payment is fully taxed

D) $60,000 *When a policyowner stops paying premiums on a whole life policy and exchanges the policy for extended term insurance, a policy's cash surrender value is used to purchase an amount of term insurance equal to the original policy's face amount. The term insurance will last as long as the cash value is sufficient to pay premiums.*

At age 60, David decides to stop paying premiums on his $60,000 whole life policy and exchanges it for extended term insurance. What face value will the term insurance have? A) $45,000 B) $10,000 C) $30,000 D) $60,000

C) theft

If an agent or producer diverts funds belonging to an insurer to her own use, she has committed the illegal act of A) fraud B) commingling C) theft D) embezzlement

C) Mary will pay income tax each year on just a portion of the payments received, and when she has fully recovered her basis, all future payments will be taxable.

Mary, age 70, recently purchased a nonqualified immediate annuity to supplement her retirement income, and through it will receive a lifetime income of $800 per month. Which of the following statements most correctly describes how this income will be taxed? A) Mary will not pay income tax until the sum of payments received equals her basis, at which point all future payments will be fully taxable. B) Mary will pay income tax each year on just a portion of the payments received, and when she has fully recovered her basis, all future payments will not be taxed. C) Mary will pay income tax each year on just a portion of the payments received, and when she has fully recovered her basis, all future payments will be taxable. D) Mary will pay income tax on the full amount received each year until the sum of payments equals the amount she paid for the annuity (her basis), at which point all future payments will not be taxed.

C) the death benefit of $50,000 is not guaranteed *Although the death benefit may fluctuate in response to the cash values, a minimum death benefit, the policy's face amount, is guaranteed.*

Michelle, age 31, just purchased a $50,000 variable life insurance policy. Which of the following statements is NOT correct? A) she directs the insurer as to how her cash values are to be invested B) her premium payments will be fixed and level for the duration of the contract C) the death benefit of $50,000 is not guaranteed D) the cash value growth of her policy will depend on how the investments supporting those values perform

A) to guarantee that his son's college tuition will be covered *Decreasing term insurance is designed to address needs that decrease from year to year.*

Roland is 45 years old and married. He has a 19-year-old son who is in his first year of studies at a local university. He also has an 8-year-old daughter. A decreasing term policy could be recommended for Roland for which of the following reasons? A) to guarantee that his son's college tuition will be covered B) to supplement Roland's retirement income C) to provide a future college education for his daughter D) to provide an emergency source for loans

B) the period that begins when the youngest child is 16 and ends when the surviving parent turns 60 *The blackout period is the period during which no Social Security benefits are payable to a surviving spouse.*

With regard to a breadwinner's death, the blackout period generally can be defied as A) the period from the surviving spouse's retirement to his death B) the period that begins when the youngest child is 16 and ends when the surviving parent turns 60 C) a time when life insurance is rarely needed D) the period during which the children are living at home and are dependent

B) a Medical Information Bureau report *A Medical Information Bureau (MIB) report would contain insurer underwriting information from any insurer to whom the applicant has previously submitted an application. Physicians would not have access to this information.*

An attending physician's statement (APS) requested by the underwriting department will normally contain all of the following applicant information EXCEPT A) copies of the applicant's medical records with the physician B) a Medical Information Bureau report C) the applicant's medical history and treatment as known the the physician D) the applicant's current medical condition as known to the physician

A) policyholders may participate in dividends

Concerning mutual insurers, which of the following statements is CORRECT? A) policyholders may participate in dividends B) in a mutual company, there are stockholders C) in a mutual company, there are shareholders D) mutual companies are sometimes referred to as nonparticipating companies

D) the policy has been legally delivered to the applicant

Coverage for a health insurance policy will take effect just as if the policy had already been issued if all of the following conditions have been met EXCEPT A) the applicant satisfies all of the condition of the conditional receipt B) the initial premium was paid with the health application C) the policy is eventually issued as applied for D) the policy has been legally delivered to the applicant

A) 1-12 months

Group life insurance policies include a probationary period requiring new employees to wait a certain time before they can enroll in the plan. How long is the typical range for these probationary periods? A) 1-12 months B) 10-25 days C) 30-45 days D) 18-24 months

A) accumulation units

Premiums paid into a variable annuity, after deduction for expenses, are applied regularly to purchase A) accumulation units B) variable units C) stock units D) annuity units

D) mortgage payoff *Selena's primary concern is that her children will be able to stay in their own home, so her reason for purchasing life insurance is to pay off the mortgage on her home.*

Selena is a single parent paying for her home. She is concerned about where her children will live if she suddenly dies. Her primary reason for purchasing life insurance is A) liquidity B) cash accumulation C) estate creation D) mortgage payoff

B) certificates of insurance

The individuals who are insured under a group life contract are given which of the following as evidence of their coverage? A) the insurance policy B) certificates of insurance C) a replacement notice D) certificates of authority

B) the insured died last, unless the primary beneficiary lives beyond a stipulated period

Under a common disaster clause in a life insurance policy, it is assumed that A) the contingent beneficiary is entitled to the policy proceeds B) the insured died last, unless the primary beneficiary lives beyond a stipulated period C) the insured and primary beneficiary died simultaneously D) the primary beneficiary died last, unless the insured lives beyond a stipulated period

A) registration with the National Association of Insurance and Financial Advisors

Which of the following would NOT be required of a producer who wants to sell variable annuities? A) registration with the National Association of Insurance and Financial Advisors B) successfully passing the required exams C) registration with FINRA D) having a valid producer life insurance license and completing the state variable annuity certification, if required

B) because the investor, who is named as the beneficiary, does not have an insurable interest in the insured

Why do most states ban STOLI transactions? A) because the investor is not a domestic insurer B) because the investor, who is named as the beneficiary, does not have an insurable interest in the insured C) because they are not a profitable line of business for insurance companies D) because the premiums on the policy are too high

D) Cybil can convert the policy to an individual policy *Cybil can't do anything because she doesn't own the policy.*

Cybil is insured under a key-person life insurance policy owned by Delta Corporation and then quits her job. Which of the following statements is NOT correct? A) Delta can keep the policy in force B) Delta can assign the policy C) Delta can surrender the policy for cash D) Cybil can convert the policy to an individual policy

C) providing funds to pay off an outstanding loan at a reasonable premium *Decreasing term insurance is often used to provide funds to pay off an outstanding loan in the event the insured dies before the loan has been fully repaid.*

Of the following, which best describes a need that decreasing term insurance is often used to meet? A) providing funds to pay off an outstanding loan at a high premium B) providing funds for final expenses at a reasonable premium C) providing funds to pay off an outstanding loan at a reasonable premium D) providing long-term coverage at a reasonable premium

D) the gross premium *The gross premium is determined by adding the net single premium to the expense factor. Policyowners pay the gross premium on life insurance policies.*

Regular notices sent to policyowners for payment of their life insurance policy premiums reflect A) the net level premium B) the gross single premium C) the net single premium D) the gross premium

B) the person who pays the premium dies or becomes disabled before the insured child reaches a certain age

The payor benefit typically waives premiums on a juvenile policy if A) the policy is converted before the insured reaches a specified age B) the person who pays the premium dies or becomes disabled before the insured child reaches a certain age C) the insured child dies before reaching a specified age, usually 21 or 25 D) the insured child becomes disabled

B) fixed premiums

Variable universal life policies provide all of the following EXCEPT A) a flexible premium capability B) fixed premiums C) cash values D) a death benefit

D) A person in a position of trust and confidence who handles the affairs and funds of others

What is the definition of a fiduciary? A) An insurance agent who sells policies worth more than $1 million in death benefits B) A person who determines policy rates at an insurance company C) An institution that handles trust accounts for the wealthy D) A person in a position of trust and confidence who handles the affairs and funds of others

B) the producer should provide an agent's report to the insurer explaining what she observed

When meeting with an applicant for health insurance, an insurance producer notices a pack of cigarettes in the applicant's shirt pocket, even though the applicant says he has been a nonsmoker for 10 years. Which of the following statements best describes the producer's responsibility? A) the producer should insist that the applicant change his response to the question on the application B) the producer should provide an agent's report to the insurer explaining what she observed C) the producer should ignore the fact, since it is the insurer's responsibility to identify this information D) the producer should change the answer on the application after the appointment

C) a unilateral contract *Insurance contracts are unilateral contracts because only one party - the insurer - makes any kind of enforceable promise.*

Which of the following is a promise in exchange for action? A) a conditional contract B) a contract of adhesion C) a unilateral contract D) an aleatory contract

D) it spreads financial risk over a large group so as to minimize the loss to any one individual *The function of insurance is to safeguard against financial loss by having the losses of a few paid by the contributions of many who are exposed to the same risk.*

Which of the following statements best summarizes the function of insurance? A) it spreads financial risk over a diverse group of people who are exposed to different risks B) it protects against living too long C) it is a form of legalized gambling D) it spreads financial risk over a large group so as to minimize the loss to any one individual

D) a new contest ability period is renewed with a reinstated policy

Which of the following statements pertaining to reinstatement of a life insurance policy is CORRECT? A) reinstatement is only available to policyowners who have intentionally surrendered their life policies B) the insurance company will make all beneficiaries prove insurability before reinstatement C) when reinstating a policy, the insurer will change the premium based on the insured's attained age D) a new contest ability period is renewed with a reinstated policy

D) An insured with a $75,000 life insurance policy issued December 15 commits suicide two years later, on December 24th The beneficiary of the policy will receive a return of the premiums paid for the policy.

Which of the following statements pertaining to the suicide clause in a life insurance policy is NOT correct? A) the suicide clause is designed to protect the insuring company B) the suicide clause stipulates a period of time during which benefits will not be paid if the insured commits suicide C) An insured committed suicide on February 1. The insured had a $50,000 life insurance policy, which was issued on January 28 two years previously. The $50,000 death benefit was paid to the beneficiary of the policy. D) An insured with a $75,000 life insurance policy issued December 15 commits suicide two years later, on December 24th The beneficiary of the policy will receive a return of the premiums paid for the policy.

A) during a period of relatively high interest rates the premiums could be increased *Depending on interest rate fluctuation, the insurer reserves the right to increase or decrease the premium within a certain range. During periods of low interest rates, premiums could be increased. During periods of high interest rates, premiums could be reduced.*

Which of the following statements regarding current assumption whole life insurance is NOT correct? A) during a period of relatively high interest rates the premiums could be increased B) premium adjustments are usually made on an annual basis C) it is also known as interest-sensitive whole life D) during a period of relatively high interest rates the premiums could be reduced

B) a representation must be material for the insurer to void the contract * A representation that is determined to be false, but not material, would not void an insurance contract.*

Which of the following statements regarding representation is CORRECT? A) if a representation is false on a material point, the insurer may alter the contract but may not rescind it B) a representation must be material for the insurer to void the contract C) representations are statements that applicants may or may not believe to be true D) a representation is guaranteed to be true

D) variable life

Which of the following types of life insurance requires that the agent be licensed by FINRA before selling the policy? A) universal life B) term life C) adjustable life D) variable life

A) to replace an individual's economic value *human life VALUE --> economic VALUE; individual's annual income x # of years until retirement*

According to the principle of human life value, the purpose of life insurance is A) to replace an individual's economic value B) to determine an individual's eligibility for insurance C) to replace an individual's insurance based on life events D) to determine the amount of insurance an individual needs

B) the insured

An exchange of value, consideration, is necessary to form a valid contract. Whose consideration is it, in a contract for insurance, to make truthful statements on an application? A) the insurer B) the insured C) the beneficiary D) the assignee

D) a reciprocal exchange *A reciprocal exchange is a type of cooperative insurance. Under this form of insurance, each policyowner is insured by all of the others. Each insured is also an insurer, because contracts are exchanged on a reciprocal basis. A reciprocal is managed by an attorney-in-fact.*

An unincorporated group of subscribers who operate through an attorney-in-fact to provide indemnity insurance for each other is called A) a surplus lines insurer B) an unauthorized insurer C) a fraternal benefit society D) a reciprocal exchange

C) implied

Denicia is appointed by an insurance company to transact insurance on its behalf. She collects her clients' premiums and has them sign paperwork. By what authority can she do so? A) fiduciary B) express C) implied D) apparent

D) whole life policy *The cash values of a whole life policy grow steadily, and if Diane lives and premiums are paid to age 100, she will be entitled to the face amount.*

Diane would like to purchase a life insurance policy in which the face amount remains level and the cash value grows each year until she dies (or reaches age 100). Which type of policy should she purchase? A) term policy B) limited-pay life policy C) endowment policy D) whole life policy

D) nothing, because life-only states that when the beneficiary dies, any remaining death benefit is kept by the insurance company * In the life-only settlement option, the beneficiary will receive monthly checks for the rest of her life. If there is any death benefit remaining at the beneficiary's death, the insurance company keeps the balance.*

Susan, the beneficiary on John's $500,000 life policy, chose life-only as her settlement option. Susan received 5 years of settlement checks from the insurance company, totaling $150,000. How much will Susan's beneficiary receive upon her death? A) $350,000 B) $350,000 minus taxes and fees C) Susan's beneficiary will receive checks for the rest of his life D) nothing, because life-only states that when the beneficiary dies, any remaining death benefit is kept by the insurance company

D) nothing *In this case, the insured died after his term policy period had expired. As a result, his beneficiary received nothing.*

When he was 45, Frank purchased a $40,000 5-year level term policy. When he died at age 52, his beneficiary received A) $40,000 B) $20,000 C) the cash value of the policy D) nothing

D) a certificate of authority

The license an insurer usually needs to sell insurance in a state is called A) a certificate of insurance B) a certificate of qualifications C) a certificate of approval D) a certificate of authority

C) installment refund annuity *An installment refund annuity assumes that the total annuity fund will be paid to the annuitant, his beneficiary, or both.*

Which annuity settlement arrangement guarantees to pay at least a minimum amount equal to the original investment? A) pure life annuity B) joint and full survivor annuity C) installment refund annuity D) period certain annuity

D) a producer tells a prospect that the policy has received a certain level of dividends for the past 5 years

Which of the following activities is NOT an example of misrepresentation? A) a producer participates in twisting B) an insurer advertises a life insurance policy as a "retirement savings plan" C) a producer tells a prospect that the insurer has a higher A.M. Best rating than it actually has D) a producer tells a prospect that the policy has received a certain level of dividends for the past 5 years

C) employees of banks and credit unions

Which of the following employees would NOT be eligible for a 403(b) plan? A) employees of a Catholic church B) public school employees C) employees of banks and credit unions D) employees of a hospital

C) the FCRA is a state law that helps to ensure accurate reporting of information about consumers *the FCRA is a federal law, not a state law*

Which of the following statements pertaining to the Fair Credit Reporting Act is NOT correct? A) the FCRA does not apply to insurance companies who use their own staffs to investigate and applicant for insurance B) Peg's application or life insurance is rejected because of an unfavorable consumer report. She has a right to know what information the reporting agency has and can insist that any errors in the data be corrected. C) the FCRA is a state law that helps to ensure accurate reporting of information about consumers D) A life insurance company obtains a consumer report on Burl, an applicant, without advising him of its intended action. The company has violated the FCRA.

B) the cost-of-living adjustment is tied to the GDP *A COL rider is tied to an increase in an inflation index, most commonly the CPI.*

Which of the following statements regarding a cost-of-living rider on a life insurance policy is NOT correct? A) an inflation index determines the amount of inflation adjustment that must be made to the policy up to a maximum percentage increase B) the cost-of-living adjustment is tied to the GDP C) a cost-of-living rider seeks to protect against inflation's erosion of life insurance policy values D) the cost-of-living rider provides increases in insurance without requiring the insured to provide evidence of insurability

A) it is measured in degrees *Exposure is the degree of risk an insurance company is willing to assume and pay out in the event of a loss. Insurance premiums are calculated by multiplying the rate and the number of exposure units.*

Which of the following statements regarding exposure is NOT true? A) it is measured in degrees B) it is used to determine insurance premiums C) it is the risk assumed by the insurer D) it is measured in units