State Exam Practice Test #1

Within what time period after completing prelicensing education must an applicant file a certificate of education completion with the Commissioner? A) 30 days B) 90 days C) 12 months D) 2 years

12 months The applicant must file a certificate of completion of the prelicensing courses taken to prove that the courses were not taken more than 12 months before the Commissioner received the application.

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 paramedic or examining physician at the insurer's expense. B) The agent. C) A physician of the applicant's choice and at his expense. D) A home office underwriter.

A paramedic or examining physician at the insurer's expense. The applicant may be allowed to select the physician or paramedic facility to perform the examination. The insurer pays the cost of such an examination.

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)Settlement option. B) Nontaxable exchange. C) Nonforfeiture option. D) Rollover.

A) Settlement Option A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.

Which of the following is NOT the consideration in a policy? A) The application given to a prospective insured B) Something of value exchanged between parties C) The premium amount paid at the time of application D) The promise to pay covered losses

A) The application given to a prospective insured Consideration is something of value that is transferred between the two parties to form a legal contract.

When an insurer begins underwriting procedures for an applicant, what will be the main source for its underwriting information? A) Interviews b) State records c) Medical records d) Application

Application

What is the major difference between a stock company and a mutual company? A) Types of policies issued B) Ownership C) Amount of benefits D) Number of producers

B) OWNERSHIP Mutual companies are owned by policyholders, while stock companies are owned by stockholders.

IN TERMS OF SOCIAL SECURITY, WHAT IS THE NAME FOR THE TIME PERIOD AFTER THE YOUNGEST CHILD OF THE FAMILY TURNS 16 AND BEFORE THE SURVIVING SPOUSE MAY START RECIEVING RETIREMENT BENFITS : A) black out period b) nonpayment interval c) benefit reduction d) accumulation period

Black out period

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 nonforfeiture option has the highest amount of insurance protection? a) decreasing paid 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.

A banker is ready to close on a customer's loan. The bank is prepared to offer the loan but only if the customer purchases an insurance policy from the bank in the amount of the loan. This is an example of: A) Defamation. B) Twisting. C) Coercion D) Loading

Coercion * illegal

How much is an agent's appointment fee? A) $500 B) $1 C)$100 D)$ 5

D) $5

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.

An insurer devises an intimidation strategy in order to corner a large portion of the insurance market. Which of the following best describes this practice? A) A legal advertising strategy B) Unfair Discrimination C) Defamation D) Illegal

D) illegal It is illegal to participate in any boycott coercion or intimidation that is intended to restrict fair trade or create a monopoly.

An employee will be taxed on the cost of group life insurance paid by the employer if the amount of coverage exceeds a) $10,000. b) $15,000. c) $25,000. d) $50,000

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

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

Option b

During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal? A) Nontaxable principal may be withdrawn first, but the 10% penalty will be imposed if under age 59 ½. B) Both interest and principal are taxed; no other penalties are imposed. C) Neither interest nor principal is taxed, but penalties may be imposed. D) Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½.

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½. When money is withdrawn from the annuity during the accumulation phase, the amounts are taxed on a last in first out basis (LIFO). Therefore, all withdrawals will be taxable until the owner's cost basis is reached.

If a licensee does not earn 24 hours of Continuing Education by the license review date, the license will be suspended for up to how many days? A) 30 days B) 60 days C) 90 days D) 120 days

90 days

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 Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? A) It is reduced to the amount of what the cash value would buy as a single premium. B) It is increased when extra premiums are paid. C) It decreases over the term of the policy. D) It remains the same as the original policy, regardless of any differences in value.

A) It is reduced to the amount of what the cash value would buy as a single premium. In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become: a) larger b) more active c) older d) smaller

A) Larger according to the law of large numbers the larger a group becomes the easier it is to predict certain types of losses and set appropriate premiums.

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? A) Universal Life - Option A B) Universal Life - Option B C) Equity Indexed Universal Life D) Variable Universal Life

A) Universal Life -Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

In this state, a temporary license may be issued for any of the following reasons EXCEPT: A) A producer's retirement. B) The death of a producer. C) A producer's disability. D) A producer's time in the military service.

A) a producers retirement

Which of the following is NOT true regarding an annuity certain? A) It is a short-term annuity. B) Benefits stop at the annuitant's death. C) It will pay until a fixed amount is liquidated. D) There are no life contingencies.

B) Benefits stop at the annuitants death Annuities Certain are short-term annuities which limit the amount paid to a certain fixed period or until a certain fixed amount is liquidated. There are no life contingencies.

Which of the following is NOT an example of a valid insurable interest? A) Child in parents' lives B) Debtor in the life of the creditor C) Business partners in each other's lives D) Employer in key employee's life

B) Debtor in the life of the creditor. The three recognized areas in which insurable interest exists are as follows: a policyowner insuring their own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to the policyowner. A debtor does not have an insurable interest in the creditor.

A man wants to buy a life insurance policy in which he can count on guaranteed minimum benefits. Which type should he buy? A) Solid B) Fixed C) Level D) Variable

B) Fixed Fixed life insurance policies offer minimum guaranteed or fixed benefits stated in the contract. The other type of policy, variable life, varies in its cash value because its value is based on the stocks that support it.

Which of the following is NOT true regarding a nonqualified retirement plan? A) Earnings grow tax deferred. B) It needs IRS approval. C) Contributions are not currently tax deductible. D) It can discriminate in benefits and selecting participants.

B) It needs IRS approval. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.

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. The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.

All of the following are true regarding rebates EXCEPT: A) Dividends are not considered to be rebates. B) Rebates are allowed if it is in the best interest of the client. C) Rebates are only allowed if specifically stated in the policy. D) Rebating can be anything of monetary value given as an inducement to purchase insurance.

B) Rebates are allowed if it is in the best interest of the client. A rebate is an illegal act which involves returning something of value to the client as an inducement to buy, such as the commission. Rebates are only allowed if specifically stated in the policy. Insurance dividends are not considered rebates as the IRS considers it as a return of overpaid premium.

Which of the following is true regarding a market value adjusted annuity? A) It provides a level benefit payment. B) The owner is guaranteed a fixed interest rate for a specific period of time. C) The insurer bears all the market risk of changing interest rates. D) There are no penalties for a premature surrender of the annuity.

B) The owner is guaranteed a fixed interest rate for a specific period of time. Under a market value adjusted (modified guaranteed annuity, the insurer guarantees a competitive interest rate for a specific period (the longer the period, the better the guaranteed rate). At the end of the period, the owner has the option of taking the accumulated value or reinvesting the values at a new interest rate.

What is the penalty for IRA distributions that are below the required minimum for the year? a) 10% b) 25% c) 50% d) 60%

C) 50% If there are no distributions at the required age, or if the distributions are not large enough, the penalty is 50% of the shortfall from the required annual amount.

Producers are permitted to share or split commissions, providing that: A) The Insurance Department knows of the arrangement. B) There is a written agreement between the producers. C) Both are properly licensed for the line of insurance. D) The insured knows and agrees to the arrangement.

C) Both are properly licensed for the line of insurance. In order for producers to receive commissions from the sale of insurance, they must be properly licensed for that line of insurance.

Mary, who is not licensed as an insurance agent, works part-time in her father's insurance agency. M may perform all of the following duties EXCEPT: A) Assist her father in completing applications for insurance. B) Call prospects and collect expiration dates of their existing policies for her father. C) Collect premium for in-force policies and explain coverages to clients that have existing policies written by her father. D) Make appointments with clients and prospective clients to meet with her father.

C) Collect premiums for in force policies and explain coverages to clients that have existing policy written by her father. In order to collect premiums and explain coverages, a person would need to be licensed.

What insurance concept is associated with the names Weiss and Fitch? A) Types of mutual companies B) Index used by stock companies C) Guides describing company financial integrity D) Policy dividends

C) Guides describing company financial integrity Because an insurance company's strength and stability are two very crucial factors in its sustainability, independent rating services have formed to publish regular updates on the financial integrity of different insurance companies. Weiss and Fitch are two of these services, although there are more.

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? A) Insured's annual expenses. B) Effect of inflation on income over time. C) Predicted needs of the family after the insured's death. D) Insured's current and future income.

C) Predicted needs of the family after the insured's death The Human Life Value Approach to determining the value of an individual's life requires the calculation of probable future earnings of the insured, which involves wages, expenses, inflation, amount of time until retirement, and the time value of money. Predicted needs of the family after the insured's death are used in the needs approach.

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? A) assumed B) expressed C) implied D) apparent

C) implied Implied authority is not written in the agent's contract but is required in order for the agent to conduct business

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A) Consideration B) Legal purpose C) Contract of adhesion D) Acceptance

Consideration Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

An insured receives an annual life insurance dividend check. What term best describes this arrangement? A) Reduction of Premium B) Annual Dividend Provision C) Accumulation at Interest D) Cash option

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

Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid: A) Until the policyowner reaches age 65. B) For at least 20 years. C) Until the policyowner's age 100, when the policy matures. D) For 20 years or until death, whichever occurs first.

D) For 20 years or until death (whichever first )

The Medical Information Bureau (MIB) was created to protect: A) Insurance departments from lawsuits by policyowners. B) Insureds from unreasonable underwriting requirements by the insurance companies. C) Medical examiners that perform insurance physical examinations. D) Insurance companies from adverse selection by high risk persons.

D) Insurance companies for adverse selection by the high risk persons The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Which of the following is a TRUE statement about policy assignment? A) it is the same as a beneficiary designation B) It permits the beneficiary to designate the person to receive the benefits. C) It authorizes an agnet to modify the policy D) It transfers the rights of the ownership form the owner to another person

D) It transfers the rights of the ownership form the owner to another person

It would be considered unfair discrimination to ask an insurance applicant about which of the following and then use that information as a rating factor to determine insurability? A) Age B) Occupation C) Address D) Sexual orientation

It would be considered unfair discrimination to ask an applicant for their sexual orientation, as well as using sexual orientation as a rating factor to determine insurability.

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT: A) Alcohol and tobacco consumption. B) Recent surgeries. C) Other insurance coverages. D) Family health history.

Other insurance coverages

All of the following are examples of risk retention EXCEPT: A) Premiums B) Deductibles C) Copayments D) Self insurance

Premiums Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments or self insurance

The accelerated benefits provision will provide for an early payment of the death benefit when the insured: A)Becomes terminally ill. B)Needs to borrow money. C) Has earned enough credits. D)Becomes disabled.

becomes terminally ill