Variable Product Exam Questions
The originating company that procures insurance on itself from another insurer is called the? The other insurer is called the?
Ceding insurer Assuming insurer or reinsurer
Aleatory =
Unequal values
Insured's statements on the application are?
representations
How often must registered persons completed the firm element of their continuing education? A) Annually B) Every 2 years C) Every 3 years D) Every 5 years
A) Annually
What type of premium do both Universal Life and Variable Universal Life policies have? A) Flexible B) Graded C) Level fixed D) Increasing
A) Flexible
The separate account must be registered under the?
Securities Act of 1933
An immediate annuity is also referred to as?
Single Premium Immediate Annuity (SPIA)
Often the Guaranteed Living Benefit Rider can be exercised after a certain time period, e.g., ____ years and there is usually a fee for the rider than can range from _____% to _____% of the contract value annually
10 .25% to 1%
The commissioner has determined that a producer is ineligible for appointment by an insurer. The commissioner must notify the insurer within? A) 5 days B) 10 days C) 14 days D) 20 days
A) 5 days
Within how many days does a licensee have to inform the Commissioner of a change of address? A) 15 B) 30 C) 45 D) 60
B) 30
If an insurer terminates a producer's appointment, the Commissioner must be notified within how many days? A) 3 days B) 30 days C) 10 days D) 7 days
B) 30 days
FINRA bylaw that is concerned with the settlement of disputes is the? A) Code of Procedure B) Code of Arbitration C) Uniform Practice Code D) Rules of Fair Practice
B) Code of Arbitration
All of the following are examples of risk retention EXCEPT A) Self Insurance B) Premiums C) Deductibles D) Copayments
B) Premiums
a life insurance policy will be considered a modified endowment contract if the amount of premium paid exceeds the amount that would have provided paid up insurance in how many years? A) 3 years B) 5 years C) 7 years D) The life of the policy
C) 7 years
Which of the following is known as the paper act? A) The Fair Credit Reporting Act B) The Trust Indenture Act C) The Securities Act of 1933 D) The Securities Act of 1934
C) The Securities Act of 1933
The securities in the separate account of a variable annuity are substantially equity investments because? A) The yield on equity is usually higher than the yield on bonds B) Equity provides limited liability to shareholders C) The value of equity investments is easy to calculate D) Equity investment values tend to reflect increases or decreases in the cost of living
D) Equity investment values tend to reflect increases or decreases in the cost of living Equity investments tend to reflect the changes in cost of living, which gives the investor some protection against inflation. For this reason, separate accounts are invested substantially in equity
What method do insurers use to protect themselves against catastrophic losses? A) Indemnity B) Pro rata liability C) Risk Management D) Reinsurance
D) Reinsurance
How often is the value of the portfolio of the separate account is calculated?
Daily at the close of the NYSE
A _____ insurer is an insurance company that is incorporated in the state is conducts business
Domestic
_____ is a unit of measure used to determine rates charged for insurance coverage
Exposure
with fixed annuities, the annuitant knows the exact amount of each payment received from the annuity during the annuity period. This is called ______________
Level benefit payment amount
What type of retirement plan does an employee establish and maintain a retirement account to which the employer contributes?
SEPs
What retirement plan is available to small businesses that employ no more than 100 employees who received at least $5,000 in compensation from the employer during the previous year?
SIMPLE Plans
In a _____ contract only one of the parties to the contract is legally bound to do anything
Unilateral
The principal of _____ ____ ____ implies that there will be no fraud, misrepresentation, or concealment between the parties
Utmost good faith
Insurance is a transfer of?
Risk of loss
Retirement annuities may offer a _____ _____ ____ ____ option to the annuitant
Guaranteed Minimum Withdrawal Benefit (GMWB)
What annuities are fixed annuities that invest on a relatively aggressive basis to aim for higher returns?
Indexed (or equity indexed) annuities
Variable life insurance separate accounts must be registered under the? A) Maloney Act of 1938 B) Securities Act of 1933 C) Secure Act of 2019 D) Investment Company Act of 1940
B) Securities Act of 1933 Separate accounts must be registered under the Securities Act of 1933 which regulates investments and securities trading. For variable annuities, separate accounts must be registered under the Investment Company Act of 1940
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 A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender
Qualified retirement plans have the following characteristics:
Designed for the exclusive benefit of the employees and their beneficiaries Are formally written and communicated to the employees Use a benefit or contribution formula that does not discriminate in favor of the prohibited group Are not geared exclusively to the prohibited group Are permanent Are approved by the IRS Have a vesting requirement
The Commissioner may waive prelicensing requirements or examinations for someone who has been a licensed insurance producer? A) In the last 5 years B) Any time in the past C) In the preceding 12 months D) In the preceding 2 years
C) In the preceding 12 months
Variable Whole Life insurance is based on what type of premium? A) Flexible B) Graded C) Level fixed D) Increasing
C) Level fixed
Agents of sell only variable life insurance and annuities in this state are required to pass all of the following exams EXCEPT? A) Series 6 or 7 B) Variable Life and Annuities Producer C) Life Insurance Producer D) SIE
C) Life Insurance Producer The state of Michigan no longer requires for applicants to hold a basic life insurance license when seeking a variable annuity life of authority.
Which of the following are the 2 components of continuing education for registered persons? A) General knowledge and FINRA rules B) Insurance and securities C) Regulatory and firm D) Mandatory and optional
C) Regulatory and firm
S set up an individual retirement account that her employer is now contributing to. Her employer's contributions are not included in her gross income. What kind of retirement plan does S have? A) HR-10 (Keogh) B) SIMPLE C) SEP D) 401(k)
C) SEP A SEP is a type of qualified plan suited for the small employer. In a SEP an employee established and maintains an individual retirement account to which the employer contributes. Employer contributions are not included in the employee's gross income
Which of the following individuals could qualify for a temporary insurance license? A) A retired producer B) An employee of a deceased producer C) The designee of a producer that is called to active service with the Nacy D) A deceased producer's brother who is employed by the Department of Insurance
C) The designee of a producer that is called to active service with the Nacy The Commissioner may furnish a temporary license to a designee of a producer who has been called to active service with the US Armed Forces
J transferred his life insurance policy to his son two years before his death. Which of the following is true? A) The unpaid premiums on the policy will be deducted from J's taxable estate. B) Because the policy has been transferred, it will not be included in J's taxable estate. C) The entire face value of the policy will be included in J's taxable estate D) The interest portion of the policy will be included in J's taxable estate.
C) The entire face value of the policy will be included in J's taxable estate If a policyowner transfers or gives away a life insurance policy within 3 years prior to his/her death, the entire face amount of the policy will be included in his or her taxable estate
If the annuitant dies before the annuity start date, which of the following is true? A) The interest will not be tax deferred B) The interest is nontaxable C) The interest is tax free if the beneficiary is a spouse D) The interest is taxable
D) The interest is taxable If the contract holder dies before the annuity starting date, the contract's interest becomes taxable. If the beneficiary of the annuity is a spouse, the tax can continue to be deferred
A ____ refers to the location where an insurer is incorporated
Domicile
Insurable risks involve the following 5 characteristics:
Due to Chance Definite and measurable Statistically predicable Not catastrophic Randomly selected and large loss exposure
Traditional IRAs and Roth IRAs are for individuals with?
Earned income
What is a legal process that can be used to prevent a party to a contract from reasserting a right or privilege after the right or privilege as been waived?
Estoppel
Dividing the total investment by the total amount that is expected to be paid out over the life of the contract equals the?
Exclusion ratio
What authority is the authority a principal intends to grant to an agent by means of the agents contract?
Express
What are the 3 types of agent authority?
Express Implied Apparent
Defined as the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril
Loss
What describes the way companies and producers should conduct their business?
Market Conduct
What annuity is a single premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specified maturity period, anywhere from 3 to 10 years?
Market Value Adjusted Annuity (MVA) or Modified Guaranteed Annuity (MGA)
A Market Value or Market Value Adjusted annuity (MVA) is also known as a?
Modified Guaranteed Annuity (MGA)
The cash value of a variable life policy must be calculated at least?
Monthly
What indicates the number of individuals within a specified group, starting at a certain age, who are expected to be alive at a succeeding age?
Mortality Tables
Defined as the causes of loss insured against in an insurance policy?
Perils
The financial strength of an insurance company is based on?
Prior claims experience Investment earnings Level of reserves Management
What 2 things to separate accounts provide?
Professional management Diversification
Means that a person is engaged in an occupation requiring an advanced level of training, knowledge or skill
Professionalism
The main use of annuities is to?
Provide retirement income
What type if rusk do insurance insure against?
Pure risks
401(k) plans may be arranged as what 3 arrangements?
Pure salary reduction plan Bonus plan Thrift plan
Under 401(k) plans, participants may choose to do one of the following 2 things?
Receive taxable cash compensation Have the money contributed into the 401(k), in cash or deferred arrangement plans (CODA)
Life with guarantee minimum settlement option us also called?
Refund life
____ is a chance that a loss will occur
Risk
What is the planned assumption of risk by an insured through the use of deductibles, co-payments or self insurance?
Risk Retention
A reciprocal insurance exchange is a formal?
Risk sharing arrangement
Federal and state government provide insurance in areas where private insurance is not available, called?
Social insurance programs
The purpose of risk retention is?
1) To reduce expenses and improve cash flow 2) Increase control of claim reserving and claims settlement 3) Fund for losses that cannot be insured
Roth IRAs grow tax free as long as the account is open for at least?
5 years
Annuities are not life insurance but rather a vehicle for what 2 things?
Accumulation of money Liquidation of an estate
____ is a contract that provides income for a specified period of years or for life
Annuity
Which of the following is true regarding a market value adjusted annuity? A) There are no penalties for a premature surrender of the annuity. B) It provides a level benefit payment. C) The owner is guaranteed a fixed interest rate for a specific period of time D) The insurer bears all the market risk of changing interest rates.
C) The owner is guaranteed a fixed interest rate for a specific period of time
Who has regulatory authority over variable annuities/variable investment products?
FINRA State insurance departments
Insurance companies are classified according to ____ ____ ____
Location of Incorporation (Domicile)
____ is the cause of loss
Peril
When an insurer has an automatic reinsurance agreement between itself and the reinsurer in which the reinsurer is bound to accept all risks ceded to it, it is classified as a?
Reinsurance treaty
What are statements believed to be true to the best of one's knowledge but they are not guaranteed to be true?
Representations
What insurance is a level, fixed premium, investment based product?
Variable Life or Variable Whole Life Insurance
What is the voluntary act of relinquishing a legal right, claim or privilege?
Waiver
What is an absolutely true statement upon which the validity of the insurance policy depends?
Warranty
For a SIMPLE plan the employer makes a matching contribution, dollar for dollar up to an amount equal to ___% of the employee's annual compensation
3%
Insurer must provide ___ days' written notice to the policyowner that the policy is going to lapse due to loan and accrued interest exceeds available cash value
30
A tax sheltered annuity (TSA) is also referred to as?
403(b) plans
What is a qualified plan available to employees of certain nonprofit organizations under section 501(c)(3) of the Internal Revenue Code and to employees of public school systems?
403(b) plans or Tax Sheltered Annuity (TSA)
Loans are permitted in certain instances for 401(k) plans up to ____% of the participants vested accrued benefit
50%
Insurance companies may defer a policy loan request for up to ____ months unless the reason for the loan is to pay the policy premium
6
Which of the following statements is an accurate comparison between private and government insurers? A) Private insurers may be authorized to transact insurance by state insurance departments. B) Private insurers may be authorized to transact insurance by state insurance departments. C) Private insurers offer fewer lines of insurance than government insurers. D) Private insurers provide insurance in areas where the government will not
A) Private insurers may be authorized to transact insurance by state insurance departments.
Guides to insurance companies' financial integrity are published regularly by the following 5 independent rating services:
AM Best Fitch S&P Moody's Weiss
Which of the following types of agent authority is also called "perceived authority"? A) Implied B) Fiduciary C) Apparent D) Express
C) Apparent
SIMPLE Plans require all of the following EXCEPT A) No more than 100 employees B) Employees must receive a minimum of $5,000 in annual compensation C) At least 1,000 employees D) No other qualified plan can be used
C) At least 1,000 employees
FINRA bylaws are divided into four major categories. The category which relates to dealings between member firms is the A) Code of Procedure B) Code of Arbitration C) Uniform Practice Code D) Rules of Fair Practice
C) Uniform Practice Code Settlement of securities transactions between member firms is detailed in the Uniform Practice Code.
Regardless of where an insurance company is incorporated it must obtain a _____ _____ ____ before transacting insurance within the state
Certificate of Authority
The binding force in any insurance contract is the?
Consideration
____ is something of value that each party gives to the other
Consideration
The _____ on the part of the insured is the payment of premium and the representations made in the application
Considerations
Under the 401(k) bonus or thrift plan, the employer will contribute? A) All of the money to the plan B) 30% of what the employee contributes C) 75% of what the employee contributes D) An undetermined percentage for each dollar contributed by the employee
D) An undetermined percentage for each dollar contributed by the employee Under the bonus or thrift plan, the employer will contribute certain amount or percentage for each dollar contributed by the employee. There is no specific rule as to how much the employer must contribute
Which of the following features on a variable life insurance policy is guaranteed? A) Issuance of the policy B) Market value of investments C) Cash value accumulation from stocks D) Death benefit up to the policy face value
D) Death benefit up to the policy face value Though the cash value of a variable life insurance policy can increase or decrease due to the performance of stocks, the death benefits must be at least equal to the face value of the policy
The nonforfeiture law stipulates that a deferred annuity must have a _____ ______ ______ that is available if the owner decides to surrender the annuity prior to annuitization
Guaranteed surrender value
The annuity income amount is based upon the following:
The amount of premium paid or cash value accumulated The frequency of the payment The interest rate The annuitant's age and gender
The separate account for a variable annuity must be registered under?
The investment Company Act of 1940
Variable life insurance is sometimes referredto as?
Variable Whole Life Insurance
What qualified retirement plan allows employees to take a reduction in their current salaries by deferring amounts into a retirement plan?
401(k)
Which of the following is a key distinction between variable whole life and variable universal life products? A) Variable whole life has a guaranteed death benefit B) Variable universal life is regulated solely through FINRA C) Variable whole life allows policy loans from the cash value D) Variable universal life has a fixed premium
A) Variable whole life has a guaranteed death benefit
A contract of _____ is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured) on a take it or leave it basis
Adhesion
In life insurance all of the following factors are considered in determining rates:
Age of insured Medical history Occupation Sex
In order for insurance contracts to be legally binding, they must have 4 essential elements:
Agreement (offer and acceptance) Consideration Competent parties Legal Purpose
A ___ insurer is an insurance company that is incorporated outside the US
Alien
What authority is the appearance or the assumption of authority based on the actions, words or deeds of the principal or because of circumstances the principal created?
Apparent or perceived
Which of the following produces evaluations of insurers' financial status often used by state departments of insurance? A) SEC B) AM Best C) NAIC D) Consumer's Guide
B) AM Best AM Best & Company assigns ratings to life, property and casualty insurance companies based upon the financial stability of the insurer.
The _____ on the part of the insurer is the promise to pay in the event of loss
Considerations
When reinsurance is purchased on a specific policy, it is classified as?
Facultative reinsurance
The _____ strength and ____ of an insurance company are 2 vitally important factors to potential insureds
Financial Stability
Variable Universale life insurance has the following features and characteristics:
Flexible premium that can be increased, decreased or skipped as long as their is enough value in the policy to fund the death benefit Increasing and decreasing the amount of insurance Cash withdrawals or policy loans
A ____ insurer is an insurance company that is incorporated in another state then it does business
Foreign
New accumulation units are purchased using ______ pricing in the same manner as mutual fund shares are acquired
Forward
What rider assures that the annuitant will receive at least the amount of money invested or certain amount of income, usually up to the annuity purchase amount, regardless of market conditions?
Guaranteed Living Benefit Rider
A large number of units having the same or similar exposure to loss is known as?
Homogeneous
What authority is authority that is not expressed or written into the contract but which the agent is assumed to have in order to transact the business of insurance for the principal?
Implied
_____ means insureds cannot recover more than their loss
Indemity
What defines the relationship between the principal and the agent/producer?
Law of Agency
An insurance organization typically not regulated as a company by state authorities is a _____ ____ ____, most often addressing a commercial casualty concern
Risk retention group
What retirement plan is a type of qualified plan suited for the small employer or for the self employed?
SEPs (Simplified Employee Pensions)
What type of premium do both Universal Life and Variable Universal Life policies have? A) Decreasing B) Increasing C) Flexible D) Level fixed
C) Flexible Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, as long as there is enough value in the policy to fund the death benefit.
_____ increases the probability of loss
Hazard
The following distributions are considered exceptions to the early distribution rule for qualified plans?
Death of the participant Participant's disability A divorce decree requiring a distribution to a spouse as part of the settlement A series of equal payments over the participants life expectancy A loan from the plan As part of a qualified rollover
Government insurance programs include?
Social Security Medicare Medicaid Federal Crop insurance National Flood insurance