test prep 8
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? a) Paid-up option b) One-year term c) Reduction of premium d) Accumulation at interest
Paid-up option 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.
n order for a life insurance policy with graded death benefits to be issued to an individual over the age of 76, the first year death benefit must be at least what percentage of the total face amount on the policy? a) 50% b) 75% c) 100% d) Graded death benefits cannot be issued to someone over the age of 75
50% If the insured is age 76 or older, the graded death benefit policy cannot be issued unless the policy provides at least 50% of the face amount as a first-year death benefit.
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained? a) 3 days b) 5 days c) 10 days d) 14 days
3 days Investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.
The two types of assignments are a) Complete and partial. b) Complete and proportionate. c) Absolute and collateral. d) Absolute and partial.
Absolute and collateral. Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? a) Paid-up option b) One-year term c) Reduction of premium d) Accumulation at interest
Paid-up option Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium? a) Universal life b) Variable life c) Decreasing term d) Straight whole life
Universal life The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.
What is the name of the insured who enters into a viatical settlement? a) Third party b) Contingent c) Viatical broker d) Viator
Viator Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.
Which of the following is the required number of participants in a contributory group plan? a) 50% b) 75% c) 100% d) 25%
75% Under a contributory group plan, an insurer will require that 75% of eligible employees be included in the plan.
If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be a) Approved. b) Authorized. c) Certified. d) Qualified.
Authorized Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.
Which of the following provisions in group life policies prevents the insurer from denying a claim due to statements on the application after a certain period of time? a) Waiver of premium b) Grace period c) Payment of claims d) Incontestability
Incontestability Incontestability provision prevents an insurer from denying a claim due to statements in the application after the policy has been in force for a period 2 years, except for nonpayment of premium or fraud.
Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option? a) Size of each installment b) Predetermined length of time stated in the contract c) Length of income period d) Amount of interest
Size of each installment 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.
All of the following would be different between qualified and nonqualified retirement plans EXCEPT a) IRS approval requirements b) Taxation on accumulation c) Taxation of withdrawals d) Taxation of contributions
Taxation on accumulation Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.
If an insured continually uses the automatic premium loan option to pay the policy premium, a) The policy will terminate when the cash value is reduced to nothing. b) The face amount of the policy will be reduced by the automatic premium loan amount. c) The cash value will continue to increase. d) The insurer will increase the premium amount.
The policy will terminate when the cash value is reduced to nothing. This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid form the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.
In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? a) Company is the owner, but the executive pays the premium. b) Board of directors is the owner, and the board of directors pays the premium. c) Company is the owner, and the company pays the premium. d) Executive is the owner, and the executive pays the premium.
Executive is the owner, and the executive pays the premium. Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.
A 71 year old female recently purchased a life insurance policy with graded death benefits. If the policy has graded death benefits for three years, which of the following must be true? a) The third year of the policy must have a death benefit equal to 80% of the total face amount. b) The third year of the policy must have a death benefit equal to 65% of the total face amount. c) The third year of the policy must have a death benefit equal to 95% of the total face amount. d) The third year of the policy must have a death benefit equal to 50% of the total face amount.
The third year of the policy must have a death benefit equal to 65% of the total face amount. If the insured is between the ages of 66 and 75, the policy cannot grade the death benefit in excess of 2 years unless the policy provides at least 50% of the face amount as a first-year death benefit. The 2-year period can be extended to 3 years if the death benefit during the third policy year equals or exceeds 65% of the ultimate death benefit.
In order to qualify for conversion from a group life policy that has been terminated to an individual policy of the same coverage, a person must have been insured under the group plan for how many years? a) 1 b) 3 c) 5 d) 10
5 If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage.
An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of a) A STOLI policy. b) A prearranged funeral plan. c) A viatical settlement. d) Third-party ownership.
A STOLI policy. Stranger-originated life insurance (STOLI) policies are usually purchased by people who have no relationship with the insured with the intention of selling them for life settlements.
Insurance companies may be classified according to the legal form of their ownership. The type of company organized to return any surplus money to their policyholders is a) A stock company. b) A mutual insurer. c) A reciprocal company. d) A fraternal insurer.
A mutual insurer. Mutual companies are owned and controlled by their policyholders. Any surplus money is returned to the policyholders as dividends.
Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance? a) Disclosure rule b) Replacement rule c) Reinstatement rule d) Conversion rule
Replacement rule Anytime a new policy is issued that replaces or modifies existing insurance, a replacement form must be submitted to the ceding company.
All other factors being equal, the least expensive first-year premium payment is found in a) Annually Renewable Term. b) Increasing Term. c) Decreasing Term. d) Level Term.
Annually Renewable Term. Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.
The Director can revoke an insurance producer license for any of the following causes, EXCEPT a) Violation of any insurance law in another state. b) Licensee fails to comply with an administrative or court order imposing a child support obligation. c) Licensee providing materially incorrect or untrue information in the license application. d) Licensee is charged with bank robbery.
Licensee is charged with bank robbery. Being charged with a felony is not sufficient grounds for revocation of a license; however, conviction of a felony is grounds.
Which of the following is NOT true of life settlements? a) The seller must be terminally ill. b) They could be used for a key person coverage. c) They could be sold for an amount greater than the current cash value. d) They involve insurance policies with large face amounts.
The seller must be terminally ill. With Life Settlements, unlike with viatical settlements, the seller does not need to be terminally ill. They usually involve life insurance policies with a face amount of $250,000 or more, "key-person" coverage, corporate owned policies, or policies representing excess coverage that is no longer needed, and could be sold for an amount greater than the current cash value.
No insurance policy form can be issued, delivered, or used in this state unless it has been a) Reviewed by the Department and approved by the Governor. b) Developed by the Director. c) Filed with and approved by the Guaranty Association. d) Approved by the Department of Insurance.
Approved by the Department of Insurance. Prior to the use of any policy or contract form, rider, or endorsement, insurers must submit the forms and all changes to the Department of Insurance and have the forms approved by the Director.
The type of insurance sold to a debtor and designed to pay the amount due on a loan if the debtor dies before the loan is repaid is called a) Credit health. b) Decreasing whole life. c) Multiple Protection insurance. d) Credit life.
Credit life. Credit life is most often sold by lenders and is term insurance written with a face amount and term that is matched to the amount and length of the loan period. Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor.
An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do? a) Pay nothing; there was a misrepresentation on the application b) Pay the full death benefit and refund excess premium c) Pay a reduced death benefit d) Pay the full death benefit
Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex and identity.
Which of the following may NOT be included in an insurance company's advertisement? a) Some of the company policies may have limitations and exclusions. b) Policies may include conditions under which the insurer may require evidence of insurability. c) Policies may include illustrations of nonguaranteed benefits. d) Policies issued by the company are protected by the state Guaranty Association.
Policies issued by the company are protected by the state Guaranty Association. It is an unfair trade practice for insurers to advertise that their policies are guaranteed by the existence of a Guaranty Association.
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? a) The Guaranty Association b) Consumer Privacy Act c) The Fair Credit Reporting Act d) Unfair Trade Practices Law
The Fair Credit Reporting Act The purpose of the Fair Credit Reporting Act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers.
What must contain a notice of the graded death benefit in a life insurance policy with graded death benefits? a) The policy's exclusions section b) The policy application c) The policy underwriting explanation d) The policy's provisions section
The policy application The policy application must contain a notice of the graded death benefit.
An insured has a life insurance policy with graded death benefits. In the first year of the policy, the death benefit is less than 50% of the face amount on the policy. What amount must the policy contain in accidental death benefits during the graded death benefit period? a) Half the face amount of the policy b) The same amount as the general death benefits c) There is no requirement d) Full face amount of the policy
full face amount of the policy Life insurance policies with graded death benefits must provide accidental death benefits in an amount of at least the face amount of the policy during the graded death benefit period (this requirement only applies to policies that provide less than 50% of the face amount as a first-year death benefit).
In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? a) They provide additional information from an outside source about a particular risk. b) They provide information about a customer's character and reputation. c) The customer has no knowledge of this action. d) The customer's associates, friends, and neighbors provide the report's data.
The customer's associates, friends, and neighbors provide the report's data. 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.
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? a) Dividend Accumulation option b) Paid-up option c) Accumulation at Interest d) Paid-up additions
Paid-up option 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.
All of the following are true regarding a decreasing term policy EXCEPT a) The death benefit is $0 at the end of the policy term. b) The contract pays only in the event of death during the term and there is no cash value. c) The face amount steadily declines throughout the duration of the contract. d) The payable premium amount steadily declines throughout the duration of the contract.
The payable premium amount steadily declines throughout the duration of the contract. Premiums remain level with a decreasing term policy; only the face amount decreases.
In Missouri, it is illegal to receive a commission from the sale of insurance UNLESS a) The insured gives written consent allowing the commission to be split. b) The payor and payee both hold valid insurance producer licenses. c) The payee holds a valid insurance producer license. d) The payor holds a valid insurance producer license.
The payee holds a valid insurance producer license. Insurers do not maintain producer licenses; however, they may only pay commissions to licensed producers.