AR Life Insurance Exam Study Guide

An annuity contract which was converted from a life insurance contract.

A Modified Endowment Contract (MEC) is best described

group policy

A business will typically use which type of life insurance to cover their employees?

universal life

A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called:

universal life

A life insurance policy that is subject to a contract interest rate is referred to as:

variable whole life

A life insurance policy which contains cash values that vary according to its investment performance of stocks is called:

Joint

A life insurance policy written on one contract for two people in which it is payable upon the first death:

guaranteed insurability rider

A life insurance rider that allows an individual to purchase insurance as they grow older, regardless of insurability, is called a(n):

universal life

A partial surrender is allowed in which of the following life policies?

A self-funded plan

A plan in which an employer pays insurance benefits from a fund derived from the employer's current revenue is called:

Adjustable life

A policyowner may change two policy features on what type of life insurance?

Errors and Omissions

A professional liability for which producers can be sued for mistakes of putting a policy into effect is called:

without producing proof of insurability

A renewable Term Life insurance policy allows the policyowner the right to renew the policy

variable life insurance

A securities license is required for a life insurance producer to sell:

A nonforfeiture provision in a whole life policy that uses cash value to purchase term insurance equal to the existing amount of life insurance is called the extended term option.

A whole life policy option where extended term insurance is selected is called a(n):

Reinsurance

ABC Insurance Company Transfers part of their risk to XYZ Insurance Company. This situation is called:

"at the time of application" According to life insurance in contract law, a person most likely will h an insurable interest in insuring a person's life if at the time of application

According to life insurance contract law, insurable interest exists

"promises made." Without good faith, it would be difficult to reach agreement. Without agreement, there would be no valid contract.

According to the principle of Utmost Good Faith, the insured will answer questions on the application to the best of their knowledge and pay the required premium, while the insurer will deal fairly with the insured and it's

Claim forms

All of the following are elements of an insurance policy EXCEPT

fixed surrender value

All of these are characteristics of a universal life insurance policy EXCEPT:

Disability

All of these are standard exclusions found in a life insurance policy EXCEPT

A nonforfeiture option can be used to increase the death benefit. Adjustable Life Policy: The policy's premium can be increased or decreased, The policy's death benefit can be increased or decreased, The policy's protection period can be modified.

All of these are valid options for an Adjustable Life Policy EXCEPT:

accumulates without insurance

All of these are valid policy dividend options for a life insurance policyowner EXCEPT

• Policyowner can take out a policy loan up to the face amount • When a whole life policy is surrendered, income taxes may be owed • Coverage is normally temporary • The death benefit is not affected by outstanding loans CORRECT: When a whole life policy is surrendered, income taxes may be owed

All of these statements concerning whole life insurance are false EXCEPT

insured

Ambiguities in an insurance policy are always resolved in favor of the

Rider

An endorsement found in an insurance plan which modifies the provisions of the policy is called a(n):

grace period

An insurer will accept a premium from the insured and continue the coverage in full force as though it was NOT late during which time period?

liquidity

An insurer's ability to make unpredictable payouts to its policy owners is called:

"Partial Surrender" A partial surrender allows the interest-sensitive life policyholder to withdraw the policy's cash value interest-free.

An interest-sensitive life insurance policyowner may be able to withdraw the policy's cash value interest free. The provision that allows this is called:

Tom. * Insurable interest only has to exist at the time of the application, not at the time of the claim. Being there was no change in beneficiary prior to Bob's death, Tom will stil receive the policy proceeds.

Bob and Tom start a business. Since each partner contributes an important element to the success of the business, they decide to take life insurance policies out on each other, and name each other as beneficiaries. Eventually, they retire and dissolve the business. Bob dies 12 months later. The policies continue in force with no change. Both partners are still married at the time of Bob's death. In this situation, who will receive Bob's policy proceeds?

provide coverage for a home mortgage

Decreasing term life insurance is often used to:

"Exist For profit". Fraternal Benefit Societies are not-for-profit entities which exist for the benefit of its members

Fraternal Benefit Society has each of the following characteristics EXCEPT:

the policy would be payable, minus the premium amount

If an insured dies during the grace period with no premiums paid

A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age.

If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies?

Statements made in the application and the premium.

In an insurance contract, the applicant's "consideration" is the:

consideration

In an insurance contract, the element that shows each party is giving something of value is called:

contain an offer and acceptance

In order for a contract to be valid, it must:

"Declarations" Essentially, the insurance declaration page is like a quick guide to the insurance policy, providing all of the basic information the policyholder needs to know.

In what part of an insurance policy are policy benefits

hedge against inflation

Index whole life insurance contains a securities component that acts as a(n):

Business owner and business client

Insurable interest does NOT occur in which of the following relationships

concealment

Intentional withholding of material facts that would affect an insurance policy's validity is called a(n):

child term rider

Jonas is a whole life insurance policyowner and would like to add coverage for his two children. Which of the following products would allow him to accomplish this?

A fine of $10,000 or up to one year in jail is the penalty for any person who obtains information about a client without having a legitimate reason to receive.

Karen is a producer who has obtained personal information about a client without having a legitimate reason to do so. Under the McCarran-Ferguson Act, what is the minimum penalty for this?

there must be legal reasoning for entering into a contract

Legal purpose is a term used in contract law meaning

"There must be a legal reason for entering into the contract." In contract law, legal purpose refers to the fact that the reasons for entering into a contract must be legal.

Legal purpose is a term used in contract law meaning:

collateral assignment

Ownership of a life insurance policy may be temporarily transferred with a(n)

The policy may be paid up early by using policy dividends

Pat owns a 20-pay life policy with a paid-up dividend option. Which of the following statements is true?

Equity index whole life

Peter has a policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index. What kind of policy is this?

A modified endowment contract (MEC) receives different tax treatment on pre-death distributions than other life policies because it tends to be an investment vehicle.

Pre-death distributions from a modified endowment contract (MC) receive different tax treatment than other life insurance policies because:

universal life

Reggie purchased a life insurance policy with a face amount of $500,000. After 15 years, the cash value has accumulated to $100,000 and the policy's face amount has become $600,000. Which type of life insurance policy is this?

$500,000

Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be

will no longer provide insurance protection

Shawn, Mike, and Dave are brothers who have a $100,000 "first to die" joint life policy covering all three of their lives. If Mike dies first, the policy proceeds

seeks temporary protection and lower premiums

Term insurance is appropriate for someone who:

insurance sales calls

The Do Not Call Registry offers exemptions for calls placed from all of the following EXCEPT:

The primary purpose of the Fair Credit and Reporting Act is to protect consumers with guidelines regarding credit reporting and distribution.

The Fair Credit and Reporting Act's main purpose is to:

Law of Agency

The authority granted to a licensed producer is provided via the:

"Apparent" Apparent authority is the appearance or assumption of authority based on the actions words, or deeds of the producer.

The deeds and actions of a producer indicate what kind of authority?

the right to return the policy for a full refund within a specified number of days

The free-look provision gives the policyowner

"implied" Implied authority is the unwritten authority that is not expressly granted, but which the agent is assumed to have in order to transact the business of the principal.

The power given to an individual producer that is not specifically addressed in his/her contract is considered what type of authority?

lower than the typical whole life policy during the first few years and then higher than typical for the remainder

The premium for a Modified whole life policy is

lower than the typical whole life policy during the first few years and then higher than typical for the remainder

The premium for a Modified whole life policy is:

The shorter the payment period, the higher the premium

The statement which best describes the relationship between the premiums of a whole life policy a the premium payment period is:

The shorter the payment period, the higher the premium

The statement which best describes the relationship between the premiums of a whole life policy and the premium payment period is:

provide evidence of insurability, pay past due premiums

The two major actions required for a policyholder to comply with the Reinstatement Clause are:

survivorship life

The type of policy which pays on the death of the last person is called:

Pre-death distributions will become taxable

Under a Modified Endowment Contract, what are the likely tax consequences?

the terms must be accepted or rejected in full.

Under a contract of adhesion,

The insurer's obligation to pay a death benefit upon an approved death.

Under a life insurance policy, what does the insuring clause state?

Policyowner has the right to select the investment which will provide the greatest return.

Variable life insurance and Universal life insurance are very similar. Which of these features are held exclusively by variable universal life insurance?

Representation

What are an applicant's statements concerning occupation, hobbies, and personal health history regarded as?

the face amount

What does the word "level" in Level Term describe?

The gap between the total death benefit and the policy's cash value.

What is a corridor in relation to a Universal Life insurance policy?

Period of time after the premium is due but the policy remains in force

What is an insurance policy's grace period?

authority that is not specifically granted to an agent in the agency agreement, but that an agent can reasonably assume to accomplish the day-to-day activities of the job.

What is implied authority defined as?

Determine financial strength of an insurance company.

What is the primary purpose of a rating service company such as A.M Best?

last survivor life insurance

What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death?

participating life insurance policy

What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus?

joint, credit, and group life insurance

What types of life insurance are normally used for key employee indemnification?

Express Authority

When the principle gives the agent authority in writing, it's referred to as:

Legal Purpose

Which contract element is Insurable interested a component of?

A contract that requires certain conditions or acts by the insured individual". An insurance contract is conditional. This means that the insurer's promise to pay benefits depends on the occurrence of an event covered by the contract.

Which of the following BEST describes a conditional insurance contract?

Separate account investments

Which of the following are the premium payments for a Universal life policy NOT used for?

"A paid premium" An example of the insured's consideration is a paid premium.

Which of the following is an example of the insured's consideration?

"Insurable interest" This means that the person acquiring the contract (the applicant) must be subject to loss upon the death, unless, or disability of the person being insured.

Which of the following is present when an applicant stands to lose value if the insured dies?

term

Which of the following policies does NOT build cash value?

Pre-death distributions are typically taxable

Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test?

• Cash surrender • Extended term insurance • Reduced paid-up insurance • Life income annuity CORRECT: Life income annuity

Which of these is NOT considered to be a common life insurance nonforfeiture option?

Interest knly

Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy?

Death benefit

Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)?

family term insurance rider

Which of these riders will pay a death benefit if the insured's spouse dies?

"Whole life policy with premiums paid up after 20 years* A whole life insurance policy where the premiums are paid up after 20 years would be considered a limited pay life insurance policy.

Which of these would be the best example of a limited pay life insurance policy?

A flexible premium schedule

Which policy feature makes a universal life policy different from a whole life policy?

Consideration Clause

Which type of clause describes the following statement: "We have issued the policy in consideration of the representations in your applications and payment of the first-term premium"

Variable universal policy

Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested?

endowment policy

Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive?

When the structure and flexibility of a universal life policy are combined with investment choices, the result is a universal life policy.

Which type of policy combines the flexibility of a universal life policy with investment choices?

insurance carriers

Who is responsible for assembling the policy forms for insureds?

Countersignature

____ is NOT an element of a valid contract.

Of the following dividend options, which of these is taxable?

accumulation at interest