Extra Insurance ****, Life Insurance Basics, General Insurance Flashcards, Life Insurance Exam
If the only difference in life insurance premiums for men and women is based on the fact that women are expected to live longer, then the premium for men's life insurance should be: A. lower. B. same. C. higher. D. double.
higher Yes, it's higher because the policy, in effect, won't last as long and therefore, needs a little more premium to balance the scale.
full medical exam occurs when applicants request
higher amounts of coverage.
higher frequencey equals
higher premium
higher frequency
higher premium
The higher the risk the...
higher the premium
Fred owns a small hardware store and is covered under a business overhead expense policy. If he becomes disabled, he can expect all the following expenses to be covered EXCEPT A. his employees' salaries B. his salary C. utility bills D. property and liability insurance premiums
his salary Yes, the BOE policy can cover for anything, except the owners salary
underwriter decides:
if something is insurance or not and what premium to charge
Suicide Clause
if the insured commits suicide within two years after the policy is issued, the company will only prem paid by the insured
Vesting for the employee from the employee's contribution will occur: A. in 5 years. B. in 7 years. C. immediately. D. when they terminate employment.
immediately Right. Here's the story that you wouldn't get if you only had sheets of questions and the right answers: Everyone who pays into a company retirement plan is immediately "vested" with their own money. Really, the term vesting should not be used with the employee's investment, but it is likely to be on the state exam... just like this question. Vesting only applies to the amount of money the company puts in!
Policy maturity
in life policies, the time when the face value is paid out
The amount is tax-deductible to the employer
income taxable to the employee
Domestic Insurer
incorporated in this state
When someone other than the insured is the owner of a life insurance policy, the owner may do all of the following without the insured's consent except: A. surrender the policy for its cash value. B. increase the amount of insurance. C. make a policy loan. D. change the beneficiary.
increase the amount of insurance. No they can't. That makes this the right answer.
Return of Premium
increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid
physical hazards
individual characteristics that increase the chances of the cause of loss
Physical hazards
individual characteristics that increase the chances of the cause of loss (ex.):-physical condition -past medical history -condition at birth, ex. blindess
Physical hazards
individual hazards that increase the chances of the cause of loss
Agent/Producerr
individual licensed to sell, solicit/ negotiate insurance contracts on behalf of the principal or insurer.
Preferred risks are
individuals who meet certain requirements and qualify for lower premiums than the standard risk.
An insurance applicant is the key source underwriters use for
information
Consumer report
information collected from employment records, credit reports, and public sources
Agents are required to disclose to a prospect facts about
information collection practices
To determine the length of extended term, or new death benefit
insuerers use a table of guaranteed values
Only pure risks are
insurable
Pure risk is
insurable
When the insured is not the owner of the policy, it is necessary for the owner to have A. a mutual understanding with the insured B. insurable interest with the insured C. a reasonable expectation of a need for an insurance policy D. signed a waiver with the insurance company
insurable interest with the insured Yes. Anytime one person buys a policy on another person, it is critical that there be insurable interest between the two parties: family or financial... a valid reason.
Whom does an insurance agent represent?
insurance company
Underwriting
insurance company determines whether or not a particular applicant is insurable, and if so what premium to charge.
Broker
insurance producer not appointed by an insurer and is set up to represent the cilent
To make sure replacement is appropriate, and in policyowner's interests,
insurance producers and companies must take special underwriting measures to help policyowners make informed decisions.
An agent represents the insurer, not the
insured
Policyowner must have insurable interest in life of
insured
Utmost Good Faith
insured is expected to provide accurate information. Honesty -No concealment, misrepresentation, fraud
Any ambiguities in the contract will be settled in favor of the
insured.
Indemnity means
insureds cannot recover more than their loss
Any knowledge of the agent is presumed to be knowledge of the
insurer
agents represent
insurer
The cost of an insured's loss is transferred over to the
insurer and spread among other insured.
If the agent is working with the conditions of their contract,
insurer is fully reponsible.
Randomly selected exposure
insurer must have a fair proportion of both good and poor risks
Settlement Options: Interest Income Only
insurer pays stated amount of interest to beneficiary in regular intervals
A trusteeship group insurance policy A. covers all full-time employees of a single employer B. insures the debtors of one creditor C. covers students participating in sports D. insures employees of two or more employers
insures employees of two or more employers Yes, two or more employers. Something like a multiple employer trust, and there is where the word trusteeship comes from.
Adverse Selection
insuring of risks that are more prone to losses than the average risk
Fraud
intentional misrepresentation of a material fact, made with intent to deceive: an act of deceit or cheating
Concealment
intentional withholding of information of a material fact that is crucial in making an underwriting decision
The life insurance Waiver of Premium: A. has a normal waiting period of 31 days. B. is not effective if the disability is covered by Workers Compensation. C. covers accidental disability on the first day. D. is an option that may be rated or denied.
is an option that may be rated or denied. Yes, this is true. And it does normally go away as an option at around the age of 60 or 65.
The termination clause in a group life plan states that the employee: A. can convert if they convert to a lesser face amount. B. if death occurs, there is no liability immediately after termination. C. the insurer will pay 1/2 of the face amount if death occurs within 31 days. D. is guaranteed at least 31 days of protection.
is guaranteed at least 31 days of protection. Yes, 31 days. Any conversion needs to be within that time.
Replacing Insurer
is the company that issues the new policy
Underwriting
is the risk selection and classification process
All the below are true about an endowment policy except: A. it is a form of whole life insurance. B. it has a high premium cost per dollar of face value. C. it is an Insured Savings Plan. D. the cash value and the face value are equal at the endowment date.
it is a form of whole life insurance. Right. It endows at 65 rather than 95 or later.
If an insured changes his payment plan from monthly to annually, what happens to the total premium?
it will decrease
All the following are available settlement options except: A. life income without a refund. B. lump sum distribution of the face value. C. life income with 10 years certain. D. joint and survivor.
joint and survivor. That's right. This one is not used.... probably because settlement option is a result of someone dying and now we don't have need (we'll assume) for a settlement involving two people in this circumstance. This is the name of an annuity.
knowledge of agents
knowledge of the insurer
Insurance is also based on spreading risk and the law of
large numbers
USA Patriot Act
law passed due to 9/11 attacks; sought to prevent further terrorist attacks by allowing greater government access to electronic communications and other information; criticized by some as violating civil liberties
The moral hazard is characterized by: A. physical condition. B. health. C. laws and rules. D. occupation.
laws and rules Yes, following the laws and rules of our society are moral things. In fact, it's a major portion of the moral category. I say laws and rules: the laws are obvious, the rules are more murky. In the book, drug addiction is mentioned... it has to do with laws. Alcoholism is also mentioned... it's more of a rule of our society.
Bequests
leaving funds to the insured's church, school, or a charity
Agent/Producer
legal representative of an insurance company -agents + brokers. -agents=agents of the insurer
Most business assignments of life insurance policies are made in order to protect the: A. insured's insurability. B. lender's financial interest in the insured. C. beneficiary from the claims of creditors. D. insurance company from fraudulent claims
lender's financial interest in the insured. Yes. It's the lender (the lending company) who is concerned about getting repaid if the borrower dies before the loan is paid off.
Incresing term
level premiums and a death benefit that increases each year over the duration of the policy term.
All of the following types of life insurance provide a suitable base for a retirement plan except: A. straight life. B. level term. C. variable life. D. limited pay whole life.
level term. This is the only choice that doesn't have cash value, and is temporary in nature.
Violating the Fair Credit Reporting Act
liable in the amount equal to the loss to the consumer, and any attorney fees incurred in the process -pentalty up to 2500$
Universal life has flexible premium adjustable
life
Survivor Protection
life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death
Variable Life Insurance
life insurance in which the benefits are a function of the returns being generated on the investments selected by the policyholder
permanent life insurance
life insurance that provides a death benefit plus a savings plan and lasts for the policyholder's lifetime
Group Life Insurance
life insurance that provides a master policy for a group; each eligible group member receives a certificate of insurance
Life income with period certain guarantees
lifetime income and a installment period(smaller installments)
expense
loading charge
Insurance companies are classified according to
location of incorporation
With a universal life policy, reserves are usually invested in: A. places wherever the insured wants. B. long term securities. C. medium and short term government securities. D. both long & short term to get best return.
long term securities Yes... Long term securities because of the requirements of the reserve system.... stable and conservative investments.
Definite and measurable
loss specific as to cause, time, place, and amount
As the number of people in a risk pool increases, future..
losses become more predictable.
insurer's responsility to
make sure all marketing is truthful.
Revocable Beneficiary
may be changed at any time without the beneficiary's consent or knowledge
Medical Information Bureau
membership corporation owned by member insurance companies.
It is illegal for insurance producers to
mess with premiums collected from the applicants with their personal funds.
purpose regulating life and annuity marketing practices to establish
minimum standards of conduct for insurers + agents
purpose of regulating life and annuity marketing practices is to establish
minimum standards of conduct for insurers. -make sure life insurance/annuities are deceptive.
omission
misrepresents the benefits, advantages, conditions, or terms of an insurance policy.
The type of hazard that arises from an attitude or state of mind that causes indifference to loss is called: A. morale. B. moral. C. physical. D. material.
morale Yes, attitude is morale. Moral is legal areas. Physical is health and other visible attributes.
Level Term
most common used for life situations like a parent with a young kids.
All electricians in Austin are eligible for group life. This type of group is called a(an): A. individual employer group B. multiple employer trust C. labor union group D. debtor/creditor group
multiple employer trust This type of group is a collection of employers. Its name is a "multiple employer trust." Something to notice here is that they aren't getting a group together to buy insurance (as in fictitious group). They were already qualified as individual employers and now are getting together to get a better price. There is another possibility but the answer isn't present. That is an MEWA also known as a multiple employer welfare arrangement, and it is for unions.
Both the agent and the proposed insured
must sign the application.
A wage increase in the amount of insurance premium on a
new life insurance policy on the employee
Term insurance has
no cash value
No premium
no coverage
Incontestability does not apply to
nonpayment of premiums or misstatements of age, gender, or identity
Legal Purpose
not against public policy
Implied authority
not expressed/written in contract -have in order to transact the business of insurance for the principal. -not every detail of agent authority can be spelled out in contract.
speculative
not insurable
Speculative
not insurable because it involves a chance of gain
premiums + policy loans are
not tax deductible
policy dividends + death benefit
not taxable
implied
not written into the contract, but is assumed
Insurance underwriting is the process of all the following except: A. selection of risks B. rating of risks C. notifying of risks D. classifying of risks
notifying of risks Right. The underwriters don't do any notifying of risks. They select the risks (the insureds), they rate the risks (the risks of the insured), and they classify risks so as to be able to establish rates for their insureds.
Representations are statements believed to be true to the best
of one's knowledge.
Industrial life insurance permits conversion: A. before age 31 B. of two or more policies into a single ordinary policy C. to annual renewable term D. Only after purchasing a whole life product
of two or more policies into a single ordinary policy Yes, that is a requirement of industrial policies.... if the policies total more than $3000 face value, the industrial insurance company is required to convert them into one ordinary life policy if requested by the policy holder.
Decreasing Term
often used to protect mortgages or loans
The Insured can reasonably expect coverage based
on the agent's words and actions
producers report allows producer to communicate with underwriter and provide information
on the applicant that may assist in the underwriting process.
Before a policy is issued all questions
on the application must be answered.
Adhesion
one party prepares the contract, the other party must accept it as is
unilateral
one-sided promise
Unilateral
only one of the parties to the contract is legally bound to do anything
Adhesion
only one party(insurer) prepares a contract, the other party (insured) accepts it as it is.
Insurers protect themselves against adverse selection by refusing
or restricting coverage for bad risks or by charging a higher rate.
Mutual Companies
owned by the policyowners and issue participating policies.
Insurance would be unenforceable and considered a wager if the following does not have an insurable interest: A. insured B. beneficiary C. agent D. owner
owner Right. It's the owner. The wager concept settles with the owner. Did the owner not have an insurable interest at the time of the inception of the policy? Then it's not a valid contract. It's a void contract.
Guaranteed Insurability Rider
owner can purch additional life insurance at specified intervals in the future w/o having to provide evidence of insurability (btwn ages 25-40)
Universal Life allows
owner to adjust the premium up or down, or even skip paying the premium. -Good fit for people with variable or commission-based incomes.
The owner has the right to assign
ownership to someone else
Utmost good faith
parties rely on each other for information
If the insured overstated his age and the error is discovered after the insured's death, the insurance company will: A. refuse to pay the death claim. B. refund all past premiums paid with any accumulated interest. C. pay the face amount of the policy with a deduction for the amount of the underpayment premium. D. pay an amount equivalent to that which the premium would have purchased at the correct age.
pay an amount equivalent to that which the premium would have purchased at the correct age. This is exactly what the company does. Truth of age discrepancies and errors in statement of sex.... because women live longer, they are charged a lower premium. If either of these are discovered after a death, the company adjusts the proceeds to make the amount what it should have been given that they were paying too much or too little premium. The company makes the math work correctly.
Settlement Options: Fixed Amount
pay out a fixed amount over time until both principal + interest have been completely paid
Settlement Options: Fixed Period
pay principal + guaranteed interest to beneficiary over a certain stated period of time
Education Funds
paying for children's education expenses so they can remain in school, or for a surviving spouse who may need additional education or training in order to re-enter the job market
Debt cancellation
paying off debts of the insured such as home mortgage, or auto loans
Lump-sum
payment of the entire benefit in one sum
payment to the agents
payment to the insurer
Accidental Death Benefit Rider
pays extra benefit if insured dies from an accident; insured must die 90 days after accident
policyowner
pays premium to insurance company
Hazards give rise to a
peril
The annuity option which will not cover life's contingencies is called: A. straight life. B. cash refund. C. life 10 year certain. D. period certain.
period certain Yes. The period-certain option is different than the life-with-period-certain. It is the only annuity where an option OTHER than a lifetime based option is used. The "period certain" by itself is only valid for the PERIOD of time mentioned... not the lifetime of the annuitant.
Insured
person covered by the insurance policy; may or may not be the policy owner
self-insuring
person develops formal program evaluating and funding its losses as alternative to purchase of insurance.
Lapse
policy termination due to nonpayment of premium
participating (mutual) life insurance
policy that distributes its dividends to policyowners by cash payments, reduced premiums, units of paid up insurance, a savings program,
insurable interest must exist between
policyowner + insured at time of application
Grace period protects
policyowner against unintentional policy lapse
Ownership Rightss
policyowner exclsively has the ownership rights
Under a variable annuity policy, a paid-up deferred variable annuity will be issued when the: A. loan provision is exercised. B. value of the VA fund decreases 10%. C. annuitant dies in the first year of payout period. D. premium payments are discontinued.
premium payments are discontinued. Yes. When the premium payments stop, the owner of the annuity is entitled to a deferred paid-up annuity -- something similar to the non-forfeiture arrangement in life insurance. The owner cannot lose his/her money. He/she can take the cash OR keep the annuity which is deferred because they don't wish to start the payout yet, and paid-up because they aren't going to contribute any more money to it.
Whenever the agent collects premiums, the agent must issue a
premium receipt
Whenever the agent collects premiums, the agent must issue a
premium receipt.
Suicide - policy issued first 2 years
premiums refuneded no death benefit
Contract of Adhesion
prepared by one of parties(insurer) and accepted or rejected by other party(insured)
Illustrations
presentation or depiction of nonguaranteed elements of a life insurance policy
Interest
primary factor in lowering the premium rate.
Life income pays in guaranteed installments as long as the recipient lives
prinicipal is forfeited upon death
hazard increases
probability of a loss
SAR rules state
procedures + plans must be in place and designed to identify activity that one would deem suspicious of money laundering, terrorist financing.
The operating objective of a stock insurance company is: A. profit for stockholders. B. profit for policyholders. C. lowest net premium. D. lowest gross premium.
profit for stockholders Yes. Here's why. All corporations have that as their objective. If they are a publicly held corporation, it is the corporate objective. The same is true with a stock life insurance company.
Insurer's Consideration
promise to pay for losses: -insured consideration = premium and statements on the application.
Consideration - when the insurance company
promises to pay a claim
The purpose of the grace period is to: A. protect the insurance company against adverse selection. B. protect the policy holder against unintentional lapses. C. permit the beneficiary to establish an insurable interest. D. permit the insurance company to determine the cause of death.
protect the policy holder against unintentional lapses. Exactly. The policyowner is given the chance to get back in the good "graces" with the insurance company.
Key Person Insurance
protects against the loss of a key employee or key executive by making the business the beneficiary if a key person dies. The business is the owner, premium payor, and beneficiary.
Other (Additional) Insured Term Rider
provides convertible term insurance for spouse/immediate family member/business associate
Buyer's Guide
provides general information about the types of life insurance policies available, in language that can be understood by the average person.
Level term insurance is the most common type of temporary protection
purchased
insurers will only insure
pure risks
When a plan meets requirements for the federal government in order to receive favorable tax treatment it is called a _________ plan. A. non-qualified B. qualified C. section 192 D income valuation
qualified Yes... Favorable tax treatment means (1) tax deferred and (2) tax deductible. As an example, an annuity is tax deferred, but it is not a qualified plan (unless it is used IN a qualified plan which would then allow it to be (1) tax deferred AND (2) tax deductible). Make sense? One thing that changes life slightly is the Roth IRA. The Roth is a qualified plan, but it is not tax deductible. BUT, the interest which grows inside the plan is not taxed later! You need to be aware that this one product is different and violates some of the rules (like those above) just because of the way it functions. Treat the Roth IRA differently.
If a proposed insured has a hazardous occupation, the insurance company would probably: A. rate the insured and charge an extra premium. B. forward the information to the M.I.B. C. remove the family plan benefit. D. reduce the dividends.
rate the insured and charge an extra premium. That's it.
mortality
ratio of the number of deaths in a specific population
beneficiary
receives federal income tax-free benefit upon insured's death
Sliding consists of all of the following activities EXCEPT A. telling an applicant that certain ancillary coverage is required by law when it is not B. advising a client that certain ancillary coverage is included at no additional charge when such a charge is required C. charging an applicant for ancillary coverage over the cost of the coverage applied for without the applicant's consent D. recommending that a client take cash values from a policy to make other investments.
recommending that a client take cash values from a policy to make other investments. This is correct because the other three are definitions of sliding
Mode
refers to the frequency the policyowner pays the premium
To protect themselves from adverse selection insurance companies have an option too..
refuse/restrict coverage for bad risks/ charge them to higher rate for insurance coverage.
indemnity
reimbursement -purpose of insurance is to restore, but not to let an insured or beneficiary profit from loss.
exclusive/captive agent
represent only one company + compensated by commissions.
Statements made on applications are considered: A. warranties B. representations C. questionable D. unreliable
representations Yes, representations mean that the clients are doing the best they can in answering the questions. Insurance companies go with representations and then do their checking with the MIB and other sources.
Life Insurance Disclosure Model Regulation
require insurers to delivery to purchases of life insurance information that will improve their ability to select most appropriate plan of life insurance.
A 30 year limited pay whole life policy: A. requires payment for 30 yrs and then endows. B. is impossible because companies do not not sell 30 pay policies. C. requires 30 years to complete payment & endows at age 100. D. is not a good buy because of the high payments.
requires 30 years to complete payment & endows at age 100. That's it. 30 years to pay... and it endows when ALL (according to the exam) policies endow at 100.
Reinstatement Purpose
restore a lapsed policy
Paramedical Exam
results give current health status
Reinstatement Advantage
retain all the values established at issue age
Self insuring is an example of risk: A. reduction. B. retention. C. avoidance. D. transference.
retention Yes -- self insuring is the same as retaining all the risk yourself.
Increasing Term
return of premium policy
Millicent wants to name her husband as the beneficiary of her life policy; however, she wishes to retain all of the rights of ownership. Millicent should have her husband named as: A. irrevocable beneficiary B. revocable beneficiary C. secondary beneficiary D. tertiary beneficiary
revocable beneficiary Yes, and she would be able to change the beneficiary statement or anything else which has to do with the rights of ownership.
Life Insurance risks
risk of dying too soon creates an estate pays a death benefit at death
Which of the following best describes self insurance? A. risk avoidance B. risk retention C. risk reduction D. risk transference
risk retention Keeping all the financial responsibility to yourself in case something happens is called self insuring. The person with the risk has chosen not to transfer any of the risk to an insurance company.
A life insurance agent is often referred to as a field underwriter primarily because he/she is generally the one who: A. completes the medical section of the application. B. secures information from the MIB. C. obtains the credit reports. D. sees the applicant.
sees the applicant. Yes... the agents are usually the only people who "see" the clients. Because of that, since the agent IS the company, it is important to see the significance of the agent as the field underwriter.
All of the following activities could result in the suspension of an agent's license EXCEPT: A. misrepresenting the financial condition of an insurance company. B. selling any replacement policy that causes an insured to lapse an existing policy. C. obtaining a license for the sole purpose of handling controlled business. D. demonstrating incompetency to transact business as an insurance agent.
selling any replacement policy that causes an insured to lapse an existing policy. Yes, this is the correct answer. This also has to do with the replacement rule which is a requirement when replacing a policy. However, this procedure is perfectly legal.
illegal to advertise association protection when
selling insurance products
Mortality tables
show statistical averages or possibility of death at a certain age - helps determing premium
investigative consumer report
similiar to consumer report, but additional information is obtained through an investigation and interviews with associates, friends, or neighbors of the consumer (insured)
Individual Life Insurance is written on a
single life
Pure risk
situations can only result in loss + no change -no opportunity for $ gain -ONLY TYPE OF RISK THAT INSURANCE COMPANIES WILL ACCEPT.
Insurable Interest
something of value that, if lost, would cause you financial harm
To qualify for federal tax purposes, a defined benefit plan must meet all of the following basic requirements except to provide: A. a systematic payment of benefits. B. specific contribution percentages. C. definitely determinable benefits. D. primarily retirement benefits.
specific contribution percentages. The employer is contributing to a defined benefit plan.
when coverage begins policy delivery without a premium
statement of good health + premium is a effective date
conditional receipt
states that coverage will be effective either on the date of application or the date of the medical exam, whichever occurs last, as long as the policy is issued as applied for
Disclosure Authorization Notice
states the insurers practice regarding the collection of personal information
When the insured submits payment to agent, equals to
submitting a payment to the insurer.
Settlement options - Cash Payment
sunny's husband recently passed away. Settlement options for his life insurance policy are: -cash payment(lump sum) -not taxable to the beneficary
Insurance contracts are offered on
take-it-or-leave-it basis.
Costs Associated with Death(postmortem)
taking into account the final medical expenses of the insured, funeral expenses and day-to-day expenses
Executive Bonuses are
tax-deductible to the employer + income taxable to the employee
Rollover
tax-free distribution of cash from one retirement plan to another
Direct Transfer
tax-free transfer of funds from one retirement program to a traditional IRA or a transfer of interest in a traditional IRA from one trustee directly to another
-excess cash value + interest on dividends
taxable
term
temporary
A company that automatically gives coverage upon receipt of an application, the premium, and completed medical exam has given: A. conditional receipt B. temporary insurance agreement C. preliminary term for interim coverage D. an unscheduled receipt
temporary insurance agreement This is correct because of the word "automatically" and because there was no statement that it was conditioned upon the applicant proving insurable. Because of that, it has to be a temporary insurance agreement, also known as a binding receipt. Coverage is guaranteed even if the applicant proves to be uninsurable until the company formally rejects the application or offers another policy.
Term Life Insurance
temporary life insurance provided for a specific period of time
moral hazards
tendencies toward increased risk
Moral hazards
tendencies towards increased risk. (ex.):lie on application for insurance, or fraudulent claims against insurer.
Adverse Selection
tendency of individuals with higher probability of loss to purchase insurance more than those who present a lower risk
Term Insurance Basics
term=temporary -least expensive -No cash value(pure protection) -NO loans -matures at death
The State Guaranty Association guarantees A. that a policy will be issued B. that a claim will be paid if an insurer becomes insolvent C. that dividends will be paid D. the rate of return on a policy
that a claim will be paid if an insurer becomes insolvent Yes, this is what you might say is the third level of protection for clients. One is spreading the risk out amongst all the policyholders in their company. To wear their company is contracting with a reinsurance company which is taking part of the risk. Number three is the guaranty association.
Risk is the chance
that a loss will occur
The Fair Credit Reporting Act provides: A. that the applicant for insurance be informed that a consumer report may be requested. B. protection to debtors against harassment by lending institutions in the event of default. C. for the availability of credit life insurance on a fair and impartial basis. D. the funding for a national clearinghouse of credit information for life insurance company underwriting operations.
that the applicant for insurance be informed that a consumer report may be requested. True. That's how it works.
All of the following apply under the federal ERISA law EXCEPT A. the Florida law on retirement plans supersedes ERISA B. qualified pension plans receive favorable tax treatment C. fiduciary responsibility is required D. funding, participation, and vesting are addressed
the Florida law on retirement plans supersedes ERISA Yes, Florida law does not supersede ERISA. Therefore this is the correct answer. There will be many questions in the Florida exam like this one using the words EXCEPT or NOT. Always watch out for those.
If the initial premium is not paid with the application
the agent will be required to collect the premium at the time of policy delivery.
Face amount
the amount of benefit stated in the life insurance policy
Death Benefit
the amount paid upon the death of the insured in a life insurance policy
Level benefit payment amount
the annuitant knows the exact amount of each payment received from the annuity during the annuity period. Inflation causes eroded purchase power
The benefit paying period of an annuity is called: A. the accumulation period. B. the retroactive period. C. the circumvention period. D. the annuity period.
the annuity period. Right. It's the annuity period... when the annuitant receives periodic payments for the rest of his/her life.
Protection against the unintentional lapse of a policy may be afforded by: A. the nonforfeiture values. B. the premium paying provision. C. the automatic premium loan provision. D. the guaranteed renewable provision of all term policies.
the automatic premium loan provision. Yes. This provision makes it possible to take the premium from the existing cash value of the policy until the insured can be located. Thus, the policy won't lapse.
Under Social Security, a covered worker's P.I.A. is: A. an amount equal to the workers retirement benefit at age 62. B. the benefit at the full retirement age. C. is not used as a base to calculate other benefit levels. D. is equal to a percentage of the insureds death benefit.
the benefit at the full retirement age. Right... which could be 67 or as much as 70.
Universal Life insured may skip a payment as long as...
the cash value exceeds the premium
Universal life is the only type to also allow the beneficiary to receive the death benefit AND...
the cash value.
The guaranteed insurability rider provides coverage when: A. the client wishes to add his spouse to his policy at a later date. B. the client wishes to add coverage of set amounts at later set intervals. C. the spouse and children want to increase the coverage on the disabled worker. D. the agent would like to increase the insured's coverage to increase his commission.
the client wishes to add coverage of set amounts at later set intervals. Yes, it's providing the opportunity to purchase more insurance later without proving insurable.
A "joint and survivor" annuity may have all the following characteristics except: A. a predictable monthly income for life for two people based upon an interest rate in effect at the time it is annuitized. B. a variable monthly lifetime income for two people based upon the performance of the annuities mutual funds. C. the company cannot use the sex of the individuals as a payout factor. D. the payout may be reduced to the survivor to allow more income while both are alive.
the company cannot use the sex of the individuals as a payout factor. False statement. Yes they can. Here's why: the actuarial tables say women live longer than men. That makes the payout different. Take note of the other answers on this question which are all true... and the preceding question which is very similar to this one but worded a little differently.
Regarding Worker's Compensation laws, which of the following is true: A. If a worker is killed in an industrial accident, there are no current benefits B. the company is always considered at fault C. the worker is always considered at fault D. the worker can sue the company
the company is always considered at fault Yes, this is true. No matter what, the company is considered at fault.
Insurer(principal)
the company who issues an insurance policy
In order to avoid adverse selection
the company will discriminate in favor of good risks vs. poor risks.
The insuring clause includes all the following except: A. the name of the insured. B. the face amount of the policy. C. the name of the insurer. D. the contingent beneficiary.
the contingent beneficiary. Right, the beneficiary information goes in the beneficiary clause. Amazing.
The primary distinction between the insurability and approval types of conditional receipts is when A. the applicant pays the initial premium B. the coverage goes into effect C. the medical exam is given D. the applicant proves insurable
the coverage goes into effect Yes, the insurability receipt which is really the common one of these two, the conditional coverage goes into effect at the time of the paramedic exam, or at the time of application, whichever is later. The approval receipt does not go into effect until the company approves it!
A family maintenance policy pays income benefits for a set number of years beginning: A. the date the insured dies. B. the date the spouse dies. C. a specific period of time after the date of policy issue. D. at policy issue.
the date the insured dies. Yes... a family maintenance policy is permanent insurance plus level term and that's the important part. Level term is used here to have a set sum of proceeds available for the same length of time, since the value of the proceeds does not change, no matter when the insured dies. It is in force until the end of the period of temporary coverage. Until that time, the full amount in proceeds is available at the death of the insured.
Paid-Up Additions
the dividend is used to purchase a small amount of paid-up whole life insurance
Liquidity
the ease with which an asset can be converted into cash
Term insurance provides
the greatest amount of coverage for the lowest premium
adhesion
"take it or leave it"
When retiring at age 62 and taking the Social Security retirement benefit, an individual could lose: A. $1 for every $3 earned B. $1 for every $2 earned C. $1 for every $5 earned D. Nothing
$1 for every $2 earned Yes, a retiree who takes the Social Security benefit earlier than 65 is subject to this problem. For every two dollars they earn above the annual limit, they can lose $1 of retirement benefits. Then it gets a little more complicated when the person is in the same year as their full retirement. This is a new change and is now correctly stated in the current edition. If the person retires at full retirement age and then takes the benefit, there is no longer a penalty.
An annuity is purchased for $10,000, the expected return is $20,000 what amount is taxable if it pays $300 month? A. Zero B. $100 C. $150 D. $300
$150 Yes, and it is done by the exclusion ratio which states: divide the after tax money going in by the expected return. That gives the fraction of each payment which excludes taxes. In this case, the number is 1/2 of each payment that is taxable so you don't get to see what would happen if perhaps the expected return was $40,000. Then we would be excluding 1/4 of each payment. Try the math.
Mr. Ed cashes in his policy. He had paid $6,000 in premium and received $9,400 in cash surrender. How much is taxable? A. 0 B. $6,000 C. $7,200 D. $3,400
$3,400 It is the difference between the principal and the total value. Subtract the two. The remainder is taxable at the ordinary income rate.
If an insured wants to convert several industrial life policies to a single ordinary life policy, the combined face value of the industrial life policies must be A. $10,000 B. $30,000 C. $3000 D. $1000
$3000 Yes, $3,000 or more.
Mr Rogers has a $150,000 policy, his wife is 50% beneficiary and 2 children are beneficiaries at 25% each. Before dying he takes a $30,000 loan, what does wife get upon his death? A. $150,000 B. $75,000 C. $60,000 D. $25,000
$60,000 Yes, $150,000 minus the $30,000 loan equals $120,000. Mr. Rogers' wife would receive half of that figure.
Mr. Rogers has a $150,000 policy, his wife is 50% beneficiary and 2 children are beneficiaries at 25% each. Before dying he takes a $30,000 loan, what does wife get upon his death? A. $150,000 B. $75,000 C. $60,000 D. $25,000
$60,000 Yes, this is right. $150,000 less the $30,000 loan makes $120,000 divided up as per the percentages mentioned for his wife and children. Note that the question assumes that the loan is against the policy. The state is no better in making clear questions. There will be plenty of questions when you wish they would have covered some of the little details better. To make matters worse, it also doesn't tell you that there is enough in the cash value to be able to make the $30,000 loan. Just assume the loan is against the policy because it is a life insurance test.
Negative Information
*Delinquencies, Late Payment, Insolvency, or any form of Default*
Business Uses of Life Insurance
*buy sell funding (cross purchase, entity purchase) *key person *executive bonus *deferred compensation
Dividend Options (CARPPO)
- Cash - Accumulate at interest - Reduce next premium amount - Paid up additions - attained age - Paid up policy - One year term insurance - attained age
Classes of Life Insurance Policies
- Individual vs. Group - Term vs. Permanent - Participating vs. Non-participating - Fixed vs. Variable - Industrial & Home Service
Variable Annuities
- Payments fluctuate according to the value of an account invested primarily in common stocks - provides conservative to aggressive investments that are not guaranteed
Accidental Death Rider
- Pays a multiple of face amount (2x or 3x) - Death must occur within 90 days of accident -principal sum(face amount) for accidental death -capital sum(% of face amount for dismemberment.)
Classifications of Risks
- Preferred Risk - Standard Risk - Substandard Risk - Rejection
Policy Summary
- Specific information about policy being issued - usually provided prior to or at policy delivery
Disability Riders
- Waiver of premium - Waiver of cost of insurance (universal life) - Disability income rider - Payor rider
Legal Interpretations Affecting Contracts
- ambiguity in a contract of adhesion - reasonable expectation - indemnity - utmost good faith - representations/misrepresentations - warranties - concealment - fraud - waiver and estoppel
Buyers Guide
- generic information about insurance policies - helps compare policies - usually provided at the time of application
Return of Premium Rider
- increasing term insurance rider; pays an additional db that equals amt of prems paid
Irrevocable beneficiary
- may only be changed with the beneficiary's consent - has a vested interest in the policy - must give consent for policy loans or assignment
Automatic Premium Loans (APL)
- prevents unintentional lapse - automatically taken from cash value due at the end of grace period - will be deducted from death benefit if not repaid - insurer honors immediately
Annuity Basics
- protects annuitants against outliving their money -provides income for a specified period of time or for life -pays until death of the annuitant (in most cases)
Life Income
-"straight life" option -Pays until recipent death -Amount of payment based on recipient life expectany at time of insured's death -the only payment method where recipient could receive more than death benefit.
Independent Agency System/American Agency System
-1 Independent agent represents several companies -non-exclusive -Commissions on personal sales -Business renewal with any company
Exclusive Agency System/Captive Agents
-1 agent represents 1 company -Commissions on personal sales -Renewals can only be placed with the appointing insurer.
increase death benefit
-AD&D double/triple indemnity -guaranteed insurability additonal coverage -return of premium original face amount+ premiums
Guides to insurance companies' financial integrity are published regularly by these rating services
-AM Best -Fitch -Standard and Poor's -Moody -Weiss
Warranites
-Absolutely true statements -breach of warranties can void the policy
Contract Characteristics
-Adhesion -Aleatory -Conditional -Personal -Unilateral
Types of Insurers - Authority
-Admitted/authorized -nonadmitted/unauthorized
If the owner is different, then three signatures are needed:
-Agent -Policyowner(wife) -Proposed insured(husband)
Elements of a Legal Contract
-Agreement: Offer and acceptance -Consideration: Premiums and representations on the part of the insured. -Competent Parties: legal age, sound mental capacity and not under the influence of drugs or alochol Legal Purpose: not against public policy
Insurance Contract
-Aleatory -personal -adhesion -unilateral -conditional
Absolute Assignment
-All rights are assigned to the new owner -Insurable interest is not requiried
Reinstatement
-Apply within the maximum time limit -provide proof of insurability -pay all back premiums plus interest -repay outstanding loans plus interest
Authorized/Admitted
-Approved by Department of Insurance -Has a Certificate of Authority
Managerial System
-Branch manager(supervises agents) -Salaried -Agents can be insurer's employees + independent contractor
Dividend Options
-Cash payment -available in participating policies -not guaranteed -return of excess premiums: not taxable
Group Life Insurance Conversion Privilege
-Certificate holders/dependents must have right to convert to an indiv policy -new policy must be perm insurance and provide same coverage amt -No proof of insurability required
Notifications to the Department
-Change of address -Reporting of Actions
Elements of a Legal Contract (CLOAC)
-Consideration -Legal Purpose -Offer -Acceptance -Competent Parties
Buy-Sell Agreement Examples
-Cross purhase -entity purchase
Types of Insurers - Domicile
-Domestic -Foreign -Alien
Domicile
-Domestic- incorporated in this state -Foreign -incorporated in another state of territory -Alien- incorporated in another country
Company Domicile and Authorization
-Domicile -Authorized/Admitted -Unauthorized/Nonadmitted
Accelerated Living Benefit Rider
-Early payment of partial death benefit -For terminal illness that will result in insureds death within 2 years -usually added at no cost -Reduces the death benefit by the amount paid to the insured
Traditional IRA
-Earned income, regardless of age -Contributions: pretax/aftertax -may/may not be deductable -Withdrawals -59 -72 rule -10% penalty if early
Types of Agents
-Exclusive/captive agents -Independent agents
Agents Responsibility
-Explain the policy benefits + provisions -Explain any changes or amendments -Obtain insured's signature acknowledging amendments
What two parts make a life insurance application
-General Information -Medical Information
Part of the application
-General Information -Medical Information -Agent's report
General Agency System
-General agent-entrepreneur represents 1 company -Exclusive -Compensation and commissions -Appoints subagents
Classification of Insurers: Private v. Gov't
-Gov't includes SS, military life insurance, residual market insurance -Subsidize insurance programs to cover for catastrophic risk
Rules for using these souces fall under
-HIPAA -Fair Credit Reporting Act
Continuing Education Requirements
-How many hours must licensees complete? -Are there ethics requirements? -How long is a licensing period?
Annuity Payout Options: Life with Refund
-If annuitant dies and total pmts received are less than amt paid for annuity, difference is paid to beneficiary in a lump sum or installment plan
Values Included in Insured's Estate
-Incidents of ownership -Estate as beneficiary -Transfer of ownership
Types of Term Policies
-Increasing Term -Level Term -Decreasing Term
Beneficiaries
-Individuals -classes -minors -estates -trusts
Consideration
-Insurance company promises to pay a claim -policy owner/insured statements on an application w/ premium payment both bring value to each other.
Joint Life
-Insured 2 or more -Premium based on joint average age -Death benefit upon FIRST death
Primary and Contingent Beneficary
-Insured to primiary beneficary: 1st claim on death benefit if the insured dies -Insured to contingent beneficary:2nd claim on death beneift if the primary beneficary dies before the insured
Incontestability - First two years
-Insurer can deny a claim due to material misrepresentations on the application
Disclosure Authorization Notice
-Insurer's practices for collecting information -Must be in plain language -Must be approved by the Department for insurance
Adverse Selection
-Insuring of risks that are more prone to losses than the average risk
Income Taxation of Modified Endowment Contracts (MECs)
-Interest on cash values tax exempt -withdrawals/loans not taxed
Types of Term Insurance types
-Level -Increasing -Decreasing
Whole Life Insurance
-Level/constant premium -Fixed premium schedule -Fixed db (contains cash value and insurance protection elements) -Cash value
Intentional Misrepresentation
-Lying
What all can void a contract?
-Mateial misrepresentations -Breach of warranties -Concealment -Fraud
Settlement Options
-Methods used to pay the death benefit to the beneficiary -The policyowner may select the option -If no option was chosen by the owner, the beneficiary will be allowed to select an option upon the insured's death.
Misrepresentation is a untrue statement
-Misspeaking -Forgetting
What are the three factors that determine the premium for a particular life insurance policy?
-Mortality -Interest -expense
Group Life Insurance Enrollment Period
-Must sign up with 31 days after enrollment period ends -do not have to provide evidence of insurability -If period expires, but indiv still wants coverage, this now requires underwriting/medical exams
Unauthorized/Nonedited
-No Certificate of Authority -Cannot transact business in this state
Direct Response Marketing System
-No agents -Company advertises directly to consumers (through mail, internet, television, mass marketing.) -Consumers apply directly to the company
Guaranteed Insurability
-No evidence of insurability -additional premium required -purchase additonal coverage at specified future dates/events: -marriage birth of child -
Group Underwriting Considerations
-No medical underwriting -is the group stable? --> employee turnover -are they persistent? --> do they freq change insurers -is the group formed for a purpose other than for obtaining group life insurance?
Fraternal Benefit Society
-Not for profit organization -Not an insurer -Formed to provide insurance benefits for members of an affiliated lodge, religious organization or fraternal organization
Mutual
-Owned by policyowners(policyholders) -Issue participating policies -Pay dividends to policyholders which are a refund of excess premiums
Private insurance companies include:
-Ownership -Authority to transact business -Location -Marketing and distribution systems -Rating(financial strength)
Collateral
-Partial rights transferred, usually to secure a loan. -Once loan is paid off, the rights go back to the original owner
Policy Delivery
-Personal delivery is best -Mail is acceptable -A Delivery receipt is advisable -Once delivery is made, the free-look period begins.
Hazard Examples
-Physical -moral Conditions: -Lifestyle -existing health/ or participating in activities where higher chances of loss can occur.
Aleatory - Unequal Exchange
-Premiums -Claims Payout
Reduced Paid-up
-Pros: -continues as permanent insurance -longer coverage -Cons: reduced face amount
Disclosure statement
-Provided to the applicant at the time of application -Basic information about cost and coverage
Misstatement of Age
-Provision that adjusts the amount of insurance to match the amount that the premium would have been purchased had the insured's actual age been known.
Nonforfeiture Options
-Reduced Paid-up Extended Term(automatic) -Cash
Annually Renewable Term
-Renews each year without proof of insurability -Premiums increase due to attained age
Planning Income needs
-Replacing Insured Salary -SSI "Blackout" Period
What are the most common uses of personal life insurance?
-Survivor protection -Estate Creation and Conservation -Cash accumulation
Personal Uses of Life Insurance
-Survivor protection -estate creation -estate conservation -cash accumulation -liquidity
What are the personal uses of life insurance?
-Survivor protection -estate creation + conservation -cash accumulation -liquidity
Taxation of Deferred Annuities
-Tax-deferred accumulation -Withdrawals-gain before the principal(LIFO) -early withdrawals: 10% penalty -cash surrender: taxable interest
Settlement Options
-The principal amount of a life insurance is tax free to the beneficiary -If the beneficiary is receiving the principal plus interest, only the interest is taxable
Policy Backdating
-To lower premium based on insured's age -no more than 6 months -premium must be paid from the effective date to coverage
Long-Term Care Rider
-Usually a separate policy, but can be added as a rider to a life insurance policy -used for early payment part of the face amount to pay for long-term care
Used for home and auto insurance
-VIN number -home address
Statements on the application
-Warranties -Used for Home + Auto Insurance
decrease death benefit
-accelerated(living) benefits face amount-amount paid out
Annuities Phases
-accumulation period -annitization period
Following factors considered in determining rates
-age of the insured -Medical history -Occupation -Sex
Competent Parties
-age: 18 -sound mind(they know what they are doing) -not under the influence of drugs and alcohol
Policy Summary includes
-agents name -agents address -insurer's full name -general name of policy -premium -each rider -living benefits -surrender values
Hearing
-aggrieved party may contest and request a hearing -advance notice of hearing -hearing held promptly -aggreved party has a chance to be heard
Elements of a legal contract
-agreement -consideration -competent parties -legal purpose
Surrenders
-amount that exceeds premiums paid -in universal policies, partial surrenders reduce cash value and death benefit.
Annuities Parties
-annuitant -beneficiary -owner
Fraud
-any misrepresentation of a material fact, made knowingly and with the intent to deceive, an act of deceit or cheating.
Business
-applicant -policyowner -premium payer -beneficiary
Sources to determine the eligibility of the applicant
-application -Agent's Report -Consumer Reports -MIB -Medical Exams -Attending Physician Statement (APS)
Examination of Insurers
-applies to all authorized insurers -insurers pay for the examination
Apparent Authority
-assumption of authority based on the actions, words, deeds of the principal/ circumstances the principal created.
Agent Licensing
-at least 18 years old -pass licensing examination - complete application and pay fees -be of good character
standard Risk
-average exposures -covered at standard rate
Exclusions
-aviation:noncommerical -hazards occupation/hobbies -war/military service
Handling Risk
-avoidance -retention -sharing -reduction -transfer
Buyer's Guide includes
-basic information about similar policies -cost comparison for similar policies
With Variable universal Life insurance, agents must:
-be registered with FINRA -have a securities license -be licnesed by the state to sell life insurance
business relationships
-between business partners -employers may insure employees (group key person) -creditors may insure debtors *employees may not insure their employer
Adjustable Life
-can assume the form of either insurance or permanent insurance
Variable Annuity
-can keep pace with inflation -kept in a separate account; risk born by annuitant -values expressed as accumulation units and turn into annuity units (fixed amt) after annuitization
Legal Purpose
-cannot break the law -cannot be against public policy
Competent Parties
-capable of entering into a contract into eyes of the law. -both parties are of legal age. -mentally competent to understand the contract -not under influence of drugs or alcohol.
Dividend options
-cash payment -reduction of premium -paid-up insurance -one-year term
Amounts available to policyowner
-cash value increases -policy loans -dividends
other penalties
-cease and desist order -established by state laws -imposed based upon hearing outcome -license denial/suspension/revocation
Admitted/authorized
-certifcate of authority -approved to transact insurance in a state.
insurable risks include:
-chance -Definite and measurable -Statistically Predictable -Not Catatrophic -Randomly selected and large loss exposure
Maintaining a License
-continuing education every licensing period -renewal fees -current name and address -reinstatement rules
Department of Insurance Powers and Duties
-control and supervise all insurance business in the state -enforce insurance laws -issue licenses and certificates of authority -approve policy forms -conduct examinations, investigations and hearings -impose penalties
Riders that Cover Additional Insureds
-coverage for one or more family members other than the insured -level term insurance attached to the base policy -usually expires at age 65 for the spouse, or age 18, or 21 for children
Equity-index Annuity
-credited interest is linked to an equity index -guarantees min interest rate -form of fixed annuity, backed by insurer's general account -value is guaranteed, interest pmts fluctuate with index**
Nonresident License
-different home state -licensed to transact in resident and nonresident states
Second option
-draw a line through the error -have the applicant initial the change
Elements of Insurable Risk
-due to chance -definite and measurable -statistically predictable -not catastrophic -randomly selected/large loss exposure
Roth IRA
-earned income, regardless of age -contributions after tax up to a limit -not deductible -Withdrawls -no age 72 rule -earnings tax-free
Group Life Eligible Groups
-employer/employee group -debtor/creditor group -labor union -association
Standard Policy Provisions -common provisions adopted by NAIC:
-entire contract -insuring clause -free look(right to examine) -consideration -owner's rights -assignment -reinstatement -incontestability -misstatement of age + gender -payment of premiums -grace period
HIV Consent- insurer's duties
-establish written policies and procedures for internal dissemination of test results -meet US Department of Health and Human Services protocol for testing -disclose test results based on applicants authorization
Qualified Plan Requirements - Approved by IRS
-exclusively for employees and their beneficiaries -formally written and communicated -cannot discriminate -are permanent -must have a vesting requirement
Agent Authority
-express -implied -apparent
Types of Agent Authority
-express -implied -apparent
Suitability info
-financial situation -tax status -investment objectives -risk tolerance -any other information
IF ACTIVITIES AFFECT INTERSTATE COMMERCE
-fine -imprisioment(10-15 yrs)
Annuity investment options
-fixed -variable -stated interest rate
Annuities are based on how premiums are invested
-fixed annuities -equity-index annuities -variable annuities
Market Value Adjusted Annuity
-form of fixed annuity -guaranteed interest rate if held for fixed number of years
Return of Premium
-form of increasing term upon death, the premium + death benefit are paid to the beneficiary
Accelerated benefits
-full benefits are tax free to terminally ill insured -tax free up to a limit to chronically ill insured -any amount received in excess of this dollar limit must be included in the insured's gross income.
Attending Physician Statement (APS)
-greater risk -need to obtain specific medical information -helps determine likelihood of claims -less expensive than a medical exam
policyowner - cash value increases
-grow tax deferred -amount in excess of cost is taxable as ordinary income
Whole Life:
-guaranteed death benefit and living benefits -cash value with a guaranteed interest rate -cash value in general account
primary criteria
-health -occupation -lifestyle -hobbies -habits
Annuities are based on when income payments begin
-immediate -deferred
Substandard risks
-increased risk of loss -covered at increased rate
Mode of Premium Payment
-insurance rates are based on the assumption that premiums will be paid annually -company has the entire premium to invest for a full year -more frequent premiums incur additonal billing charges
Survivorship life
-insured 2 or more -premium based on joint average age -death benefit upon last death
Annuity Payout Options: Joint-life-and-survivor
-insurer make payments until last survivor of two annuitants dies
terms prohibited in advertisements for life insurance:
-investment -profit -plan -savings
Variable Life:
-investment-based product -cash value in separate accounts -cash value fluctuates with performance of portfolio in which insurer has invested premiums
Stock
-issue nonparticipating policies -owned by stockholders -pay dividends to stockholders
mutual
-issue participating policies -owned by policyowners -pay to policyowners (return of unused premiums)
Temporary
-issued for continuation of existing business -a short period of time -approved by the department -not renewable
Competent parties
-legal age -mentally competent -not under the influence of drugs or alochol
Buy-Sell agreement includes
-legal document created by a lawyer -insurance policies are the funding mechanism
Annuities - Settlement options
-life only -refund life annuity -life with period certain -life with period certain -joint life -joint and survivor -lump-sum -fixed period/fixed amount
Pure Risk
-loss only -no financial gain
Speculative
-loss or gain -financial gain
Use of Annuities
-lump-sum settements -qualified retirement plans -retirement income -education funds
Medical Information Bureau (MIB)
-maintains underwriting info on applicants -all member companies have access -reduces misrepresentation/fraud -can't be sole criteria for underwriting decision
Variable Universal Life has
-many features of whole life -investment component -flexible premium -universal life -variable life
Term Insurance Uses
-maximum protection -lowest cost -increasing term for riders -decreasing term for debts
Unfair trade practices
-misrepresentation -rebating -defamation -false advertising -twisting -unfair discrimination
Three primary factors used in premium determination
-mortality -interest -expense
Transfer
-most effective way to handle risk -loss is brone by another party
Offer and Acceptance
-must be an offer from one party. -other party must accept the offer in exact terms. -the Applicant makes the offer, when submitting application. -Acceptance takes place when insurers underwriter approves the application and issues a policy.
Ownership rights
-name +change the beneficiary -right to the policy cash value, dividends and loans -select settlement options -assign the policy
nonadmitted/unauthorized
-no certifcate of authority -prohibited from transacting insurance in a state.
Insurance Guaranty Association
-nonprofit legal entity -protects insureds against insolvent insurers -funded by member insurers -pays up to specified limits
Medical Information Bureau (MIB)
-nonprofit trade organization comprised of member insurance companies -stores and shares medical information among memeber insusers -helps uncover misrepresentations and prevent concealment -adverse medical information from MIB cannot be sole reason for denial of coverage
Agreement
-offer ---> applicant submits an applicant for insurance -acceptance---> Insurance company issues a policy
argeement
-offer --> application -acceptance--> issued policy
Dividends
-only available on participating policies -Return of unused premium -Several options for paying dividends
Term Insurance
-only offers a db -remains in force for specified period
Policy Loans
-only on policies with cash value -loan amount equal to cash value -reduces the death benefit if not repaid -insurer can defer for up to 6 months.
Stock
-owned by stockholders -Issue nonparticipating policies(nonpar)
Insuring Clause
-parties to the contract -length of coverage -premium to be paid -amount of death benefit
Annuity Payout Options: Life Only
-payments stop when annuitant dies -pays highest monthly income
Accidental Death and Dismemberment Rider
-pays extra benefit if insured dies of accident, but also pays an extra benefit if the insured lives after suffering a severe dismemberment -If policyholder dies, 100% of db passed on to beneficiary (principal sum) -If policyholder lives, but is dismembered, 50% of db is passed on (capital sum)
Annuity Payout Options: Life with Period Certain
-pays income for as long as annuitant lives; and in addition, the annuitant selects a pmt period where payments are guaranteed to be made -If annuitant dies before period ends, pmts made to beneficiary
Annuity Payout Options: Joint Life
-pays income until death of first of two or more annuitants
Cash value insurance
-permanent protection -living benefits -cash value= face amount at insured's age 100(police maturity.)
Whole life insurance
-permanent: age 100 -lifetime protection -has cash value
If the error in age is discovered while the policy is still in force:
-policy can give difference in premiums with interest or have policy reissued for reduced amount -refund is made by paying difference in reserves
Blood relationships
-policyowner's own life -between spouses -between parents and children *distant relatives may not qualify
valid insurable interest must exist between the policy owner and the insured when the policy is insuring any of the following:
-policyowner's own life -the life of a family member -the life of a business partner, key employee, or whom has financial obligation to the policyowner
Unilateral - one-sided promise
-policyowner/insured: pays premium -insurance company:must pay claims for active policies + legally enforceable
Income Taxation of Business Insurance
-premiums are not tax deductible except for executive bonuses (taxable income to employee) -Dbs tax exempt
financial strength of insurance company based:
-prior claims experience -investment earnings -level of reserves
Insurance agents important responsibilities
-proper solicitation of applicants -helping prevent adverse selection -completing the application -obtaining the required signatures -collecting the initial premium and issuing receipt -delivering the policy
Preferred Risk
-reduced risk of loss -covered at reduced rate
Dividend Options has
-reduction of premium payments -accumulation at interest
loss
-reduction of value -basis for a claim
Term Insurance Features
-renewable -convertible
Producer(Agent) License
-represents insurers -appointed to transact on behalf of insurer
Annuities
-risk of living too long liquidates an estate pays an annuity benefit(while living)
Extended Term(Automatic option)
-same face amount -most amount of insurance
Variable Life things
-securities + life license -SEC/FINRA registration -cash value death benefit no guarantees -separate account
Independent agents
-sell insurance products of different companies -work for themselves + other agents. -Independent agent owns the expirations of policies they sell, -has power to place a business with another insurer upon renewal( if for the highest good of the client.)
Disability Riders - Payor benefit
-similar to waiver of premium if the payor(parent or guardian) becomes disabled for at least 6 months' -used in juvenile polcilies
Representations
-statements believed to be true -Insured's statements on the applicant are representations
policyowner/insured has
-statements on application -premium payment
Statements on the application - representations
-statements that are true to the best of one's knowledge. -not guaranteed to be true (best believed to be true.) -insured statements on the application are considered representations
Types of Insusers - Ownership
-stock -mutual
Stock Company
-stockholders who provide capital necessary to establish + operate the insurance comapny
Term Life
-temporary -specific period of time -no cash value
Conditions for Payment for Accelerated(Living) Benefit Rider
-terminal illness -medical condition that requires an extradinary medical intervention -a medical condition that drastically limits the insured's life span -inability to perform activities of daily living -permanent institutionalization/confinement to a long-term care facility
Requiring an HIV test is not considered unfair discrimination as long as the following conditions are met:
-testing is required of all individuals in the same class -proposed insured is not denied coverage solely on the basis of such testing -The tests and testing procedures have been approved by the US FDA
Grace period says, If insured dies during the grace period...
-the death benefit is payable minus any unpaid premium
Key employee is
-the insured -has specialized knowledge, skills, or contracts
Adjustable Life, the policyowner may adjust
-the premium or premium payment period -the face amount -the coverage period -suitable for insureds whose incomes are unpredictable
Variable Life Insurance
-think separate account -permanent policies with insurance and cash value components -tax deferred growth of separate account
declined
-too high a risk -not covered
Exceptions to the 591/2 rule
-total disability -catastrophic medical expenses -down payment on a first home (10,000) -post-secondary education
IRA Early Withdrawls without a 10% penalty
-total disability -catastrophic medical expenses -down payment on a first home (10,000) -post-secondary education
insurance
-transfer of loss -protection
Fixed Annuity
-value will never be less than amt paid for contract -supported by insurer's general account -guaranteed min interest rate
Disability income
-waives the policy premiums and pays a monthly income to the insured -amount paid is based on a percentage of face amount
Group Conversion
-without proof of insurability within a specified period -convert to whole life -at least 5 years under the group plan
All of the following are non-forfeiture options, except: A. cash values B. extended term C. 1 year term D. reduced paid up
1 year term Yes. Because the correct option is "extended term" which lasts a lot longer than 1-year term. The confusion comes in with the 1 year term option on dividend benefits.
What are the five characteristics of an ideally insurable risk?
1)due to chance 2)definite and measurable 3)statistically predictable 4)not catastrophic 5)Coverage cannot be mandatory
All of the following are standard life insurance policy nonforfeiture options EXCEPT A. cash surrender option B. 1-year term insurance option C. extended term insurance option D. reduced paid-up (permanent) insurance option
1-year term insurance option This is the right answer because it is not one of the nonforfeiture options; it is one of the five dividend options, and that makes it a little harder to eliminate.
Characteristics of Insurance Contracts (12)
1. Adhesion 2. Aleatory 3. Utmost Good Faith, Reasonable Expectation 4. Unilateral 5. Personal 6. Conditional 7. Indemnity 8. Representations, misrepresentations, warranties 9. Concealment 10. Fraud 11. Fraud and False Statements 12. Waiver and Estoppel
Types of Flexible Life Insurance (3)
1. Adjustable Life: can change face value/db, prem, length of coverage w/o having to change policies 2. Universal Life: premiums are flexible, accumulate interest for cash value; can also inc/dec db 3. Equity-indexed Universal Life: tie accumulation values to stock market index with a min guaranteed interest rate
Underwriting Sources of Information (7)
1. Application 2. Medical exams 3. Attending physician statement 4. AIDS testing 5. MIB 6. Consumer reports 7. Investigative consumer reports
Classification of Insurers: Authorized v. Unauthorized
1. Authorized: company is licensed (has Cert of Authority) to sell insurance in that state 2. Unauthorized: sell certain types of insurance (surplus) w/o having license
Business Uses of Life Insurance
1. Buy-Sell Funding (business continuity plans) 2. Key Person 3. Executive Bonuses (pay employee's prems) 4. Deferred Compensation Plans
Elements of Insurable Risk (CANHAM)
1. Calculable (based on prior loss stats) 2. Affordable (for avg consumer) 3. Non-catastrophic (no widespread loss events) 4. Homogeneous (similar indiv risks) 5. Accidental 6. Measurable ($ amt)
Policy Dividend Options (6)
1. Cash 2. Accumulation of Interest 3. Reduced Premium 4. Paid Up Additions 5. Paid Up Insurance 6. One-year Term Insurance
Nonforefeiture Options (3)
1. Cash Surrender 2. Reduced Paid-up Insurance (buy term policy of lesser value) 3. Extended Term Insurance (buy term policy of equal value)
Types of Whole Life Insurance (7)
1. Continuous Premium: constant prems each year 2. Limited-payment: lifetime pmts paid in a shorter period of time 3. Single Premium Whole Life: one pmt made at time of purch 4. Modified Premium Whole Life: lower prems during first 3-5 years, then inc to a level amt 5. Graded Premium Life: even lower initial prem, then inc to a level amt 6. Indeterminate Premium: provides for adjustable prems 7. Interest-sensitive/Current Assumption Whole Life: insurer makes inv with a % of each prem (int rate not fixed, assuming mkt risk)
Temporary Annuity Payout Options (2)
1. Designated Period 2. Designated Amount
Classification of Insurers: Domestic, Foreign, and Alien
1. Domestic: insurer located in state where they are incorporated 2. Foreign: insurer sells in states other than where they are incorporated 3. Insurer formed under laws of country outside of US
Types of Group Life Insurance
1. Employer group plans 2. Multiple Employer Trusts (METs) - Taft Hartley Trust 3. Labor Unions 4. Association Group Plans 5. Group Credit Life Insurance
Agent Authority
1. Express 2. Implied: not written, but actions agent normally do to sell insurance 3. Apparent: actions by agent that a reasonable person would assume as authority
Annuity Products (4)
1. Fixed 2. Variable 3. Equity-indexed 4. Market Value Adjusted
Underwriting Application Parts (3)
1. General Information 2. Health Information 3. Producer's Report
Types of Agents (4)
1. Independent Insurance Agents (represent the insured of several companies) 2. Exclusive/captive Agents (represent 1 insurer) 3. General Agents/Managing General Agents: hire/train/supervise other agents 4. Direct-writing Companies: no independent agents, they all work for the insurer
Settlement Options (8)
1. Interest income option 2. Fixed period option 3. Fixed amount option 4. Life income option 5. Life only/straight life option 6. Life with period certain 7. Life with refund 8. Joint-and-Survivor Life
Specialized Insurance Policies (3)
1. Joint Life: covers two or more lives with db paid when first dies 2. Survivorship: covers two indivs and db is paid when last insured dies 3. Juvenile: coverage on life of child/minor that locks in low prem for life. Adjust db when child turns 18 or 21
Types of Term Insurance (4)
1. Level Term: db = face amount, premium is level 2. Decreasing Term: db dec over time 3. Increasing Term: db increases over time 4. Return of Premium Term: will return all/part of prem paid for policy if insured is alive at end of term
Qualified Transactions for a 1035 Exchange
1. Life insurance --> life insurance 2. Annuity --> annuity 3. Life insurance --> annuity
Types of Qualified Plans (7)
1. Pension Plans 2. Profit-sharing Plans 3. Keogh Plans 4. 401(k) Plans 5. 403(b) plans 6. SEP 7. SIMPLE
Income Taxation of Individual Life Insurance
1. Premiums: not tax-deductible 2. Cash value: interest earnings are tax-deferred 3. Full surrenders: gains are taxed-deferred 4. Withdrawals/partial surrenders: taxed on FIFO basis 5. Policy loans: not taxable to policyowner, interest paid on loans is not tax-deductible 6. Dividends: not-taxable, but reduce cost basis 7. DB: not taxable if paid in lump sum; if paid over time, original db is not taxable, but interest earned is 8 Accelerated DBs: written cert from doctor required 24 months before, they are tax exempt
Income Taxation of Annuities
1. Premiums: not tax-deductible unless it is held in a qualified retirement plan 2. Accumulations: interest is tax-deferred 3. Withdrawals: LIFO taxations, 10% penalty 4. Annuity payments: based on exclusion ratio (ratio btwn cost basis/taxable value) 5. Distributions at Death: -Lump sum: gain is taxable -5-year withdrawal: gain is taxable -Annuity payout: exclusion ratio -Spousal option: transferred to spouse tax free
Income Taxation of Group Life Insurance
1. Prems paid by employer: tax-deductible to business 2. Prems paid by employee: not tax-deductible 3. Dbs are tax exempt
Methods of Handling Risk (STARR)
1. Sharing (each member of group pays portion of loss) 2. Transfer (spreading risk among customers) 3. Avoidance (not engaging in certain activity) 4. Reduction (lessening chance) 5. Retention (indiv pays for loss)
Types of Insurers (7)
1. Stock insurer 2. Mutual insurer 3. Fraternal benefit societies 4. Reciprocal insurers 5. Risk retention groups 6. Lloyd's Associations 7. Self-insurers
When life insurance coverage does not apply
1. Suicide 2. Aviation (except commercial) 3. War/Military Service 4. Hazardous Occupation or Hobby
Purpose of Retention
1. To reduce expenses and improve cash flow 2. To increase control of claim reserving and claims settlements 3. To fund for losses that cannot be insured
Types of Variable Life Insurance (2)
1. Variable Life: whole life w/ separate account (db inc/dec based on inv performance); guaranteed min db 2. Variable Universal Life: universal life w/ separate account; no min guaranteed db
Amounts Available to Policyowner
1. dividends 2. cash value accumulations 3. policy loans 4. surrenders 5. accelerated benefits
Purchase of Life Insurance
1. policy owner - pays premium 2. insurer - pays claim 3. beneficiary - tax free death benefit
Personal Uses of Life Insurance (6)
1. survivor protection 2. mortgage payoff 3. estate creation 4. estate conservation 5. liquidity 6. cash accumulation
Taxation of Traditional IRAs
1. tax deductible contributions for the year of contribution 2. contributions must be made in cash. 3. excess contributions taxed at 6% 4. tax-deferred earnings until withdrawn 5. distribution from IRA is subject to taxation in the year of withdrawal. 6. Subject to 10% penalty if before 59.5
Minimum two signatures are required:
1.Agent 2.Proposed insured buying insurance on self
Elements of a Legal Contract
1.Agreement- Offer + acceptance 2.Consideration 3.Competent parties 4.Legal purpose
Methods of Handling Risk
1.Avoidance 2.Retention
Agent's Authority
1.Express 2.Implied 3.Apparent
Determining Amount of Personal Life Insurance
1.Human Life Value Approach 2.Needs Approach
insurable interest when policy ensures
1.Policyowner's life 2.Life of a family member 3.Life of business party
Type of Risks
1.Pure risk 2.Speculative Risk
Agent Responsibilities
1.Solicitation and Sales Presentations 2.Underwriting 3.Premium Determination 4.Policy Issue and Delivery
Types of Insurers
1.Stock Companies 2.Mutual Companies 3.Fraternal Benefit Society
Personal Uses of Life Insurance
1.Survivor Protection 2.Estate Creation and Conservation 3.Cash Accumulation 4.Liquidity
Arthur Murray owns a 30-Pay Life policy that he purchased at the age of 30. The cash value will equal the face amount of the policy when he reaches the age of: A. 60 B. 65 C. 70 D. 100
100 Right. Remember 100. Don't ask anyone in your office about this. The policies endow at 100. I'm telling you that.
Annual payment - 100$ the total will be
100$
When a variable annuity purchaser reaches retirement, what percent of the total value of all accumulation units credited to her account is converted to annuity units? A. 25% B. 50% C. 100% D. 200%
100% Yes... This is a little bit of a strange question, just to get you thinking. All that happens when an annuity goes from the accumulation period to the annuity period is that 100% of the accumulation units get converted to annuity units.
warranty
100% true statement -validity of the insurance policy depends.
semiannual - 51 payment its total is
102$
quarterly - 26$ -total is
104$
monthly -9$ the total will be
108$
"Preliminary term for interim coverage" policies have a maximum benefit period of ________ ? A. 20 years B. 60 days C. 11 months D. 12 months
11 months Here's what you need to know. There are two kinds of situations which are close to each other and sound similar. This is one, and the answer is 11 months maximum time, without specifying any $$$ amount. The other is called a temporary insurance agreement within the category of binding receipts. The limits of a temporary insurance agreement are $100,000 coverage for no longer than 60 days. Keep the two straight.
Under a partnership cross-purchase plan, when there are 4 partners, how many policies are needed? A. 4 B. 12 C. 16 D. 20
12 Yes... each of the partners buy one policy on every other partner but does not buy one on themselves. (Number of partners) times (number of other partners not counting themselves). 4 x 3 = 12.
An agent who holds a life insurance license and a securities license is required to wait how many days after giving a notice (proposal) to the policyowner that a replacement of cash value is taking place? A. 10 days B. 15 days C. 20 days D. 30 days
15 days Right. It's 15 days. See the information regarding the Dually Licensed Life Agent's rule.
A life insurance policy becomes incontestable, even in cases of fraud after? A. 1 years B. 2 years C. 3 years D. Any time
2 years Yes, it's two. Incontestable means the company isn't going to contest it. There are still some things which make it VOID, but that is another subject. Void means that the policy never occurred because it was flawed from the very beginning. One of the main ingredients wasn't present.
Which one of the following is the policy that is paid up early and endows at age 100? A. Modified B. Universal C. 20-pay life D. Endowment at 50
20-pay life Right. The premiums are only paid for 20 years and then it sits... and endows at 100. Attention: you will note the use of the age 100 here and throughout the rest of the test. Don't talk to the people at your office on this one. Just go with 100.
An annuitant receives $1200 a month, the value of each annuity unit is $6, How many annuity units did he receive? A. 20 B. 200 C. 2,000 D. 7,200
200 Yep. That's right. 1200 divided by 6 = 200. You can also check your math by doing the problem backwards (which may be easier to understand). 200 units at $6 apiece makes a total of $1200 dollars.
Zoltan accumulated $60,000 in his annuity. He is receiving $600/month, each unit is worth $3.00. How many units does he receive each month? A. 20 B. 200 C. 2,000 D. 20,000
200 Yes. $600 divided by 3.00 = 200 units. The words "each month" are important here because then we don't need to use the $60,000 figure.
What are the number of employees needed by a corporation to set up a group variable annuity? A. 25 B. 50 C. 75 D. 100
25 This is an unusual product which is not listed as a security and thus doesn't require a securities license to sell it. Just a life/annuity license.
Under a Simplified Employee Pension Plan or SEP, the maximum contribution that can be made on an employee's behalf is: A. $25,000 B. $30,000 C. 25% up to a maximum cap. D. 15% up to $35,000 whichever is less
25% up to a maximum cap. Yes. Don't talk to financial planners or brokers about this one. Remember it the way it is shown here and not more complicated than this. As you know, my recommendation is to keep from talking to experienced people in the field about any of these things. They want to help you, but they don't know and don't remember the differences between the book and the way it functions in their world. Many times, the actual story is more complicated and you don't need to hear it. Don't bring it up. FYI - These are the current rates (which is all you need to know for the exam.) There will be an increase via a Cost of Living Adjustment (COLA) in later years. Just so you know.
consumer must be advised in writing about the report within
3 days of request
A fully insured worker covered under Social Security needs how many quarters of reported income? A. 10 B. 30 C. 40 D. 60
40 Yes.... 40 quarters. Let me point out one other thing. I used the word "reported" here because it is correct. You may see "earned" as well. The exam assumes earned income is reported. You and I know that isn't the case.... my youngest client was a 14 year old baby sitter who had an earned income but was not reporting it. The reason I bring this up is that on the state test, when it says "earned" ... you are to assume they mean "reported" ... ok?
Which of following is an example of a corporate retirement plan? A. 401(k) B. 403(b) C. IRA D. TDA
401(k) Right. This is the correct answer, but the 403(b) one is close because it hinges on the use of the word "corporate." Corporate usually means a for-profit company. It is certainly possible to have a not-for-profit company which qualifies for a 403(b). When you see "corporate," think "for-profit."
Which of the following retirement plans involves a "matching element"? A. I.R.A. B. 403(b) C. Keogh D. 401(k)
401(k) That's it. It's a sharing of profits in a way. The 401(k) is usually the only one of the choices with a "matching element". There is another possibility; it's a SIMPLE plan, but that probably won't be one of the choices on your exam
Maximum amount of insurance for dependents can be what percent of an employee's coverage. A. 10% B. 50% C. 75% D. 100%
50%
An annuity owner receives $1000.00 a month, and value of each annuity unit is $2. How many units did he receive monthly? A. 50 B. 500 C. 5,000 D. 50,000
500 Right... $1000 divided by $2 = 500 units.
A tax penalty is imposed if a healthy person takes receipt of his Traditional IRA funds before age: A. 59 1/2 B. 62 C. 70 1/2 D. 65
59 1/2 Right. The window starts at 59 1/2 to begin receiving benefits. It doesn't have to begin then, but it can. It can begin earlier without penalty if there is a good qualified excuse. It must begin by April 1st of the year following the year he/she turns 70 1/2.
At what age can Traditional IRA owners begin to receive payments and not incur negative tax consequences? A. 50 1/2 B. 59 1/2 C. 65 D. Anytime
59 1/2 Yep, this is it. 59 and 1/2 is correct. No more penalty. Yes, there are some other considerations. Just remember 59 and 1/2 and let it go at that.
At what age can a person start to collect from his Traditional IRA without penalty? A. 59 1/2 B. 70 1/2 C. 65 D. Anytime
59 1/2 Yes. 59 1/2. Unless he has a good excuse.
How soon must the cash surrender values become available to the insured? A. Immediately B. 1-year C. 3-years D. 6 months
6 months 6 months is right.... we're talking about cash "surrender" values ... the policy is being cashed in! Companies have six months in which to come up with the money! Also true when a claim is turned in! 6 months. I left this vague because, unfortunately, you will have some like this on the state test and you really have to examine the question to make it to the right answer. Now go look at answer c.
Under the waiver of premium, if the company agrees that the insured is totally disabled the waiting period is how long? A. 6-weeks B. 9-weeks C. 6 months D. 60-days
6 months 6-months is correct. A lot of times you may see 90 days or 6 months. This question is designed to make it a little harder for you.... it would have been easy to have one of the answers be "90 days or six months" which is correct. The state test is not quite so helpful, so I'm not either. None of the other answers are 90 days or for that matter, aren't even in the range of 90 days to 6 months. Now remember, I told you to imagine that the person writing the test is an 8th grader who reads well. In this case, the 8th grader saw two dates with an "or" between them, and used one of them.
How long can companies postpone payment of cash surrender values? A. 60 days B. 6 months C. 1 year D. Forever
6 months Yes. It's 6 months. The companies have that right. Surprise.
Insurer can delay payment of a cash surrender for: A. 90 days B. 6 months C. 6 months to 1 year D. Must pay immediately
6 months Yes... This is a different version of an earlier question. Same answer.
Disability Riders - waiver of monthly deductions
6-month waiting period -pays deduction and NOT the full premium -usually used in universal life and variable universal life
A Temporary Insurance Agreement can be written for a period of up to: A. 10 days B. 30 days C. 60 days D. 11 months
60 days 60 days, and up to $ 100,000 of coverage. This is also known as a Binding Receipt. Notice the difference between this and "Preliminary Term for Interim Coverage."
The rule of constructive receipt allows for how many days to make a determination? A. 10 days B. 31 days C. 45 days D. 60 days
60 days Right. The endowment contract endows. The owner has 60 days in which to do something with it... set it into a payout mode like an immediate annuity... or settle up with the IRS for all taxes due
Gretta purchased a fixed annuity for $15,000 that has an expected return of $20,000. It will have an exclusion ratio of: A. 25% B. 50% C. 75% D. 100%
75% The $15,000 she put in (cost basis) divided by the expected return of $20,000 is .75 or 75%.
What does the State Guarantee Association guarantee? A. That a policy will be issued to an applicant if they don't otherwise qualify for a policy. B. That dividends will be paid each year by mutual companies. C. The rate of return in a policy will be no less than 4%. D. A claim will be paid if the insurance company becomes insolvent.
A claim will be paid if the insurance company becomes insolvent. This is the third level of protection for a policy owner. 1) Spreading out the risk with all the other policy owners. 2) Reinsurance companies taking part of the risk and spreading it out through the industry. 3) State Guarantee Association.
Universal Life
A combination of a flexible premium and adjustable life insurance.
Reinsurance
A contract under which one insurance company (the reinsurer) indemnifies another insurance company for part or all of its liabilities.
Annuity Nonforfeiture
A deferred annuity has a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization. However, a 10% penalty will be applied for early withdrawals
Premature Annuity Distribution (59-1/2 Rule)
A distribution from an IRA is subject to income taxation in the year the withdrawal is made. In case of an early distribution (prior to age 59 1/2) a 10% penalty will also apply.
Which group is not eligible to purchase group life? A. Debtor group B. Trustee group C. Labor union D. A family group
A family group Family groups are not included as a "natural" group. They are not permitted to buy insurance for their family members. That would be known as a fictitious group.
How are interest rates for a whole life policy's cash values determined? A. A formula determined by the company B. Current market interest rate C. Moody's corporate bond index D. Set by insurance commissioner
A formula determined by the company This is right. The company makes the determination. Often the board of directors. They decide based on all factors.
An individual accidental death and dismemberment policy will pay benefits if an insured dies from: A. A heart attack while exercising B. A head injury resulting from an auto accident C. A catastrophic illness D. An occupational disease
A head injury resulting from an auto accident True... but a little misleading. The head injury has nothing to do with it. It was a death due to an auto accident.
Which of the following promises full income for the lifetime of two annuitants? A. A double life annuity B. A life with period certain annuity C. A joint and full survivor annuity D. A joint and 2/3 survivor annuity
A joint and full survivor annuity Yes, these are the right words as used to describe a joint annuity for two people.
Buy-Sell Agreement
A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. -Business continuation agreement
Buy-Sell Agreement
A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. -business continuation agreement
Estoppel
A legal process that can be used to prevent a party to a contract from re-asserting a right or privilege after that right or privilege has been waived.
Variable Life
A life insurance policy where the insured determines how to invest the dollars that accumulate in cash value
Chance
A loss that is outside the insured's control
Definite and measurable Loss
A loss that is specific as to the cause, time, place and amount. An insurer must be able to determine how much the benefit will be and when it becomes payable.
Sharing
A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss who share the losses that occur within that group.
An individual requests a quote for an identical amount of insurance in four different policies. Which of the following would usually have the higher initial premium? A. A nonparticipating Whole Life Policy B. A participating Whole Life Policy C. A One Year Renewable and Convertible policy D. A ten year term policy
A participating Whole Life Policy Yes. This would be the most expensive from an initial premium standpoint. However, because it is a PAR policy, that means that dividends may reduce it to below another of the options.... later.
Paid-Up Insurance
A policy on which all premiums have been paid but which has not matured due either to death or endowment.
replacement
A practice of terminating an existing policy or letting it lapse, and obtaining a new one.
Attending Physician Statement
A report ordered by the insurance company and completed by a physician, hospital or medical facility who has treated, or who is currently treating, a person seeking insurance.
Attending Physician statement
A report ordered by the insurance company and completed by a physician, hospital or medical facility who has treated, or who is currently treating, a person seeking insurance.
A deferred compensation plan is which of the following? A. Tax free B. A salary reduction C. Employer motivated D. A non-descriminatory plan
A salary reduction Right. If you got this answer first, you deserve a gold star. Heck, I'll give you a gold star if this was even your third choice. This is a tough question with powerful answers. I'm quite pleased with my question! Here's why: You need to see that an employee is not receiving all of their salary at the time... some is deferred to the future, and therefore, in effect, their salary is reduced from what it would have been... but they will get it later. Less taxes now. The next thing: it is a descriminatory plan! Wow. I thought companies couldn't have those. Yes, they can... but because of that, it can't be a "qualified" plan like the others we know about - 401(k), 403(b), Keogh, SEPs... which have added tax advantages. Deferred compensation plans are used to reward high level employees. They are employee motivated... for the benefit of the employee.
Take Away
A secretary at an insurance office does not need a license if not selling insurance
Medical Information Bureau (MIB)
A service organization that collects medical data on life and health insurance applicants for member insurance companies.
retirement fund
A source of retirement income
Exposure
A unit of measure used to determine rates charged for insurance coverage.
Accidental death or double indemnity provisions will usually pay an additional amount equal to the face amount if the insured dies from? A. Sickness B. Illness C. Accident D. All of the above
Accident Right. If a person dies as a result of an accident, the face value is doubled as in "double indemnity."
Ordinary Life policies must include the following provisions except: A. Entire contract Clause (Application included). B. Consideration Clause. C. Suicide Clause. D. Accidental death rider
Accidental death rider It's a rider. It is optional. Make sure you look at the other answers to this question because they are all true.... particularly, answer A.
From the annuity contract issue to the start of payments is called: A. Annuity period B. Accumulation period C. Pay-in period D. Pay-out period
Accumulation period Accumulation period... building the "estate" in the annuity.
Annuity unity
Accumulation units are converted to this after annuitization
Fair Credit Reporting Act
Act that protects privacy of background information and ensures that information supplied is accurate.
Term Riders
Additional amounts of temporary insurance at a lower cost than whole life.
Advantages and Disadvantages of Flexible Life Insurance
Advantages: flexible prems, death benefit options, cash value Disadvantages: more complex
Advantages and Disadvantages of Term Insurance
Advantages: lower prems, least expensive but most comprehensive Disadvantages: lasts only for term, prems inc as insured gets older
Advantages and Disadvantages of Whole Life Insurance
Advantages: permanent coverage, guaranteed level prems, does not expire, cash value accumulates Disadvantages: higher initial prems than term, prems not flexible, db cannot be inc, no control over cash value if invested
Advantages and Disadvantages of Variable Life Insurance
Advantages: potential for higher returns, keep pace with inflation, tax-deferred distributions Disadvantages: no guaranteed rate of return, complicated, highly regulated
When risks with higher probability of loss are seeking insurance more often than other risks, this is known as what?
Adverse selection
If an agent knows the client did not include in an application certain information about an illness that the client sustained, what should the agent do? A. This is not the agent's responsibility. B. Nothing and hope nothing happens for 2 years. C. Nothing at all. The company will catch the error from the MIB report. D. Advise the client the beneficiary may not have valid claim later on.
Advise the client the beneficiary may not have valid claim later on. Yes, the client needs to know that if the information is not valid, the claim can be rejected.
Incontestability Provision
After an insurance policy has been in effect for 2 years, company cannot claim that a statement in app was meant to defraud insurer
All of the following can be used to determine group benefits, except: A. Earnings B. Employment position C. Age D. Flat benefit
Age
When is the latest one may start saving in a Traditional IRA? A. Age 59 1/2 B. Age 65 C. April 1st following the year of age 70 1/2 D. Age 70 1/2
Age 70 1/2 Yes, start one. When is the latest you can start a Roth? No limit!
All of the following are annuity benefit factors except: A. Age of beneficiary B. Age of annuitant C. Amount of proceeds D. Interest rate
Age of beneficiary Right. We don't care how old the beneficiary is because that doesn't work into the calculation.
Evaluation of suitability info is based on
Age, income, financial situation and experience, needs and objectives, intended use of annuity, risk tolerance, and tax status
Which of the following is not party to an insurance contract? A. Agent B. Insurer C. Insured D. Owner
Agent Right. Think about it this way. If you sell a policy to a client in Tampa, and later they move to Chicago (now why would somebody do that?), you as the agent can continue to make contact but you aren't required to. The owner and insured and the company continue a life-long connection. Also in this sense, the agent IS the company while making the original contract -- remember agent responsibilities and authority.
According to the Law of Agency, a principal is represented by whom?
Agent or producer
This part of the application provides information about an applicant such as financial condition, character, purpose of sale, and how long the agent has known the applicant. A. Agent's report B. Special questionnaire C. Part II of application D. Inspection report
Agent's report Right. This is a little bit confusing because you will also find in the inspection report, information about the financial condition and character of the applicant. What gives this one away is the purpose of sale and how long the agent has known the applicant. You can't find those two things anywhere else. This is also known as Part III on the application.
What is found in part III of the application? A. Medical information B. Background information C. Agent's report D. None of the above
Agent's report Yes... Part III is the agent's report. Knowledge of the agent is knowledge of the principal (the company) so anything the agent wishes to comment upon goes here.
Agent Appointment
Agents may hold more than one appointment
What are the four elements of an insurance contract?
Agreement(offer + acceptance) -consideration -competent parties -legal purpose
Which concept refers to the fact that the value given by the two parties is unequal? A. Contract of adhesion B. Conditional contract C. Contract of good health D. Aleatory contract
Aleatory contract Yes... aleatory means that there is risk on both parties... it is probably never going to be fair to both at the same time. That's why we distribute the risk over large groups of insureds ... thus balancing the scale when we look at the total picture.
The replacement rule applies to which of the following situations in which new life insurance is purchased? I. Existing insurance is lapsed, forfeited, surrendered II. Existing insurance is converted using the non-forfeiture options of either paid-up extended term III. Cash values subjected to extensive borrowing IV. The policy is continued at a lower face amount A. I and II B. All C. I, II, and IV D. I, III, and IV
All All of these occurrences are considered replacement! All of them cause an altering of the policy.
Other uses of life insurance can include? I. Investment II. Charitable contributions III. Provide gifts to minors IV. Investment management A. I, II and III B. I and IV only C. III and IV D. All
All Right. All of the choices. If you had trouble with I. (investment), remember that permanent life insurance is not necessarily considered an investment. It is a vehicle for making life insurance function throughout a person's lifetime. However, some of the choices of permanent life have an "investment" aspect to them... particularly the ones which have the name "variable" in them.
The policyowner has only a limited period of time after discontinuing premiums in which to reinstate a lapsed policy. Other requirements that may be requested are: I. Pay all back premiums II. Pay interest on past-due premium III. Prove insurability IV. Pay any outstanding loans back A. I, II and III B. I and II C. I, II and IV D. All four
All four True, all four conditions may be required.
Who must be a member of insurance guaranty associations?
All insurers authorized to write insurance within a state
The federal government contributes funds to which of the following programs? A. Social security B. Medicare C. Medicaid D. All of the above
All of the above Yes, all three are funded in part by the federal government.
Which exclusion(s) would be found in life insurance policies? A. Suicide B. War C. Hazardous occupation or hobbies D. All of the above
All of the above Yes, it's all three.
Alphonse is the owner of a business, he has a group insurance plan with ABC Insurance Company. He is going to let the coverage terminate. Which of the following is correct? A. Alphonse must notify his employees B. ABC must notify all the certificate holders C. Neither party is obligated to do anything D. Employees are guaranteed permanent coverage
Alphonse must notify his employees The insurance company should advise the employees but what happens is the insurance company notifies the employer who then turns around and notifies the employees.
A man stated he was age 43 at the time of application. He died 6 years later, at the time of death the company found out he was 47 at issue. What is the insurance company's obligation in regards to paying this claim? A. His beneficiary receives nothing because he lied on the application B. The premiums are refunded C. The beneficiary gets full death benefit because incontestable period expired D. Amount payable is what premium would have purchased at the correct age
Amount payable is what premium would have purchased at the correct age Yes. That's it. The company just adjusts the benefits to be what the premium should have purchased
Agreement is when
An Agreement is made when one party presents an offer, and another party accepts it.
What is a warranty in an insurance contract?
An absolutely true statement upon which the validity of the insurance contract is based
An insurance company will grant an advance from the face value of a life insurance policy when the policyowner uses which of the following? A. A low-interest dividend loan. B. An accelerated benefits rider. C. A loan from Extended Term insurance. D. The "Fifth Dividend Option"
An accelerated benefits rider. Yes... when an accelerated benefits rider is exercised due to terminal illness, the advance is counted as part of the total face value. A doctor's certification is required that states the insured is terminally ill. At that point, if the rider is in the policy, the company can advance on the face value. An accelerated benefits rider can be on either a term policy or a cash value policy.
What portion, if any, of a fixed dollar life annuity payable to a retired worker is not taxable? A. An amount determined by the tax free ratio B. An amount determined by the taxable ratio C. An amount determined by the exclusion ratio D. No portion is not taxable
An amount determined by the exclusion ratio The after-tax amount going in, divided by the expected return = E.R.
Free Look Period
An amount of time provided to an insured in order to examine the insurance policy.
An agent who writes controlled business must write how much business to the public? A. An equal amount B. More C. Less D. None
An equal amount Equal or half or 50% is correct. That's the rule. It means if you as an agent are selling in a "controlled" environment (you know somebody), at least half of your business has to be from other sources.
The following statements about insurable interest are true except: A. Brothers and sisters have an insurable interest in each other. B. A creditor can have an insurable interest in a debtor limited to the amount of indebtedness. C. An insurable interest must exist between the policyowner and the insured at the time of the claim. D. People are considered to have an insurable interest in themselves.
An insurable interest must exist between the policyowner and the insured at the time of the claim. Not true. Right answer. Insurable interest ONLY has to exist at the time of the application and policy issuance. The words are "at the inception of the policy."
Foreign Insurer
An insurance company that is incorporated in another state.
Alien Insurer
An insurance company that is incorporated outside the United States.
Utmost Good Faith
An obligation to act in complete honesty and to disclose all relevant facts.
For tax purposes which would be considered a key person? A. An officer of the company B. One of five top owners C. Any owner owning more that 10% of the company D. Any employee earning $150,000 annually
An officer of the company This is right because it indicates an active person. An officer of the company is probably in the thick of things compared to the other choices... owners may be active or inactive. And salary is only an indication of how important they are to the company. A person might earn a lot and yet not be as key to the operation on a daily basis as an officer. The answer really is: someone who is making a significant contribution toward the success of the company.
Who would be considered a key person in a company? A. An owner-executive or a highly-skilled employee of the company B. One of five top owners C. The ex-CEO who retired less than 1 year ago D. Any employee earning $150,000 annually
An owner-executive or a highly-skilled employee of the company Yes, this is the definition. It's any person whose contribution to the operation and success of the business is essential.
What type of insurance is most frequently used in group life plans? A. Annual renewable term B. Whole life C. Level term D. Universal life
Annual renewable term Why? Easy. It is the least expensive type of insurance a company could obtain for its people for that year, and also because companies and other groups often budget on an annual basis, this is the least costly. In addition, groups never know how long an employee or member is going to be "staying" with them, and therefore, they don't want to be purchasing insurance based on a longer time period.
Annuity Parties
Annuitant, beneficiary, owner
Who is entitled to a paid up deferred variable annuity? A. Annuitants who do not have sufficient cash amounts in their accounts B. Annuitants who want to start receiving an income C. Annuitants who discontinue premium payments D. A paid up deferred variable annuity is never offered for sale
Annuitants who discontinue premium payments This is just like life insurance cash values.... the clients never forfeit their cash values in an annuity. That means they can have a paid up deferred VA as one of the choices if they wish to stop paying.
Waiver
Annuity contracts provide for a waiver of surrender charges if the annuitant is confined to a long term care facility for at least 30 days
Suitability
Annuity recommendations must be suitable based on information from the applicant
The value of a separate account in an annuity during payout is determined by: A. Annuity units B. Credit units C. Entire stock market D. Value units
Annuity units Yes, annuity units. It's the value of the units that changes as the investment involved experiences market variations.
A Standard Risk applicant is considered covered when: A. the agent completes the application, and the applicant signs it. B. the insurance company mails the policy (which had at least one months premium submitted with the application) for delivery. C. the proposed insured completes the application and submits to a physical with the intent to pay the premium if she is approved. D. the agency manager deposits the initial premium in the bank.
the insurance company mails the policy (which had at least one months premium submitted with the application) for delivery. Yes. Then the client is covered. Before this, the applicant could be conditionally covered with a conditional receipt, but that is only if the applicant checks out completely and the company establishes that the applicant is standard. In this question, we don't know that yet so the coverage is at the time of policy issue when it is mailed. It is the best of the four answers.
Under group life insurance, which of the following statements is NOT correct? A. If cancelled, the members must be notified by their employer or by the insurance company B. There is no minimum group size in Florida. C. A group member can name a beneficiary on a group policy D. Any group of individuals is eligible for group life.
Any group of individuals is eligible for group life. Yes, this is not correct. The group must be a natural group formed for any normal purpose other than getting a group together in order to purchase group insurance. Groups are single-employer, multiple employer, labor unions, trade associations, creditor debtor groups, and fraternal organizations.
Fraud and False Statements- Section 1033
Anyone convicted of a crime involving dishonesty, breach of trust, or a violation of the violent crime control and law enforcement of act 1994 must obtain a 1033 waiver from an insurance regulatory offical to be able to work in the business of insurance -
When an agent is provided materials from his/her company, which category of authority is the one which allows those items to be used? A. Intended B. Implied C. Apparent D. Obvious
Apparent Apparent authority is that which gives the agent the right to do things as a result of material supplied... a price book, brochures, etc.
Which of the following types of agent authority is granted when the company supplies forms and brochures to the agent? A. Express B. Implied C. Apparent D. Direct
Apparent Yes. This is a definition of Apparent Authority... what the company has provided.
A moral hazard would be which of the following? A. Applicant with reckless driving habits B. Applicant flies radio controlled model aircraft C. Applicant has high blood pressure D. Applicant is addicted to drugs
Applicant is addicted to drugs Right. Drugs or alcohol addiction is a Moral hazard.
Subrogation is where: A. one party can technically "go through" another party for their personal benefit B. the insurance company of the insured can "go through" their insured to prosecute the party at fault C. paperwork can be initialized and completed in the company's secure areas in lower office floors D. interrogation can be done subsequently to the discovery of all facts
the insurance company of the insured can "go through" their insured to prosecute the party at fault
Attained age
the insured's age at the time the policy is issued or renewed
On an insured's policy, the spouse is the primary beneficiary and the children are named as contingent beneficiaries. If the insured and spouse are killed simultaneously in an accident, proceeds will be paid to: A. the insured's parents. B. the insured's children. C. the estate of the insured. D. the estate of the insured's spouse.
the insured's children. Yes.... because of the Simultaneous Death Act, the insured died last, and the proceeds go to the secondary, or contingent beneficiaries.
Law of Large Numbers
the larger the number of people with a similar exposure to loss, the more predictable actual losses will be.
The larger the number of people with a similar exposure to loss,
the more predictable actual losses will be.
All of the following are reasons the insurance industry is subject to governmental regulation EXCEPT A. the public trust aspect of the business B. the financial impact of the business on the economy C. the need to monitor the premium payment practices of the public D. the duty to protect the public due to the technical nature of insurance contracts
the need to monitor the premium payment practices of the public Yes, monitoring the premium payment practices of the consumers is not one of the aspects of governmental regulation.
At what age must owners of Traditional IRAs begin to receive payments from their retirement funds? A. 59 1/2 B. 70 1/2 C. April 1 of the year following the year they become 70 1/2 D. None of above
April 1 of the year following the year they become 70 1/2 Yes. Funny, but right. Here is the question which has appeared on the state test: When does the owner of a traditional IRA have to start the pay-out cycle? a). 59 1/2 b). 62 c). 65 d). 70 1/2 What are you going to do? The right answer isn't there (and this has been reported as the way it is on the state exam). I would frown and choose "d" because the right answer isn't one of the choices, and hope there were not any more questions like that. Now here is a little more of an explanation. If you wait until April 1st of the following year to actually start the payout of your IRA, by the end of that same year, you also have to take the distributions from January, February, and March of that same year and the other months in the previous year since you turned 70 1/2. In other words, by the end of the year, you have to take enough from the IRA to make it the same as if you really started at 70 1/2. They let you delay, but you then have to catch up. Mathematically, it might as well be 70 1/2.
Morale hazards
Arise from a state of mind that causes indifference to loss, such as carelessness -actions taken without forethought.
Why were variable annuities developed? A. As a hedge against inflation B. To offer more products C. Generates more income for the insurance company D. None of the above
As a hedge against inflation Yes... it was a group of teachers preparing to retire who caused this product to be "invented."
Estate Creation and Conservation
As a means of creating future wealth for one's descendants, life insurance policies are often used to create a family trust, naming one's estate as a designated beneficiary
What must insurable interest exist in a life insurance policy?
At the time of application
When must insurable interest exist in life insurance?
At the time of application
When must the policy summary for a life insurance policy be delivered to the policy owner?
At the time of policy delivery
Insurable interest must exist at what time? A. At time of application B. At time of delivery C. At time of death D. At all times
At time of application Right. In life insurance, ONLY at the time of application. After that, the game can change and it doesn't make any difference to the company or the policy.
Are underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require?
Attending Physician Statement
If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?
Authorized or admitted
What does liquidity mean in a life insurance policy?
Availability of cash value
Prohibited Information
Bankruptcies more than 10 years ikd, civil suits, records of arrest or convictions of crimes, or any other negative information that is more than 7 years old.
All below are true about juvenile policies except: A. The policy is usually owned by the applying adult. B. The policies may be Ordinary or Industrial types. C. Because of the low premiums, the Insurance Commission recommends large Face Value policies on children. D. A special form of juvenile policy may multiply the face 5 times when the child reaches majority.
Because of the low premiums, the Insurance Commission recommends large Face Value policies on children. False, no they don't.
All the following issues about beneficiaries are true except: A. Secondary Beneficiaries are the same as contingent beneficiaries. B. More than one Primary beneficiary may be named. C. Beneficiaries must always be named as individuals. D. The Insured, if owner, can designate any beneficiary he/she chooses.
Beneficiaries must always be named as individuals. This is definitely not true. Individuals, corporations, charities.... etc. Also, watch out for the first answer. It's true. So, also, are "tertiary" beneficiaries contingent.
The uniform simultaneous death act governs situations in which the insured and primary beneficiary dies in the same accident and there is no evidence as to who died first. Under the act, what presumption is made in this case? A. Beneficiary died first B. Insured died first C. Proceeds are paid to estate D. No presumption is made
Beneficiary died first Right. Notice how this is worded differently than the usual way of looking at this situation. Normally, we would say that it is designed so that the insured died last. Here, that isn't one of the answers. Logically, it would be necessary for the beneficiary to die first, thus the insured died last.
Which of the following is considered a service organization? A. Fraternal Benefit Society B. Blue Cross C. Labor unions D. All of the above
Blue Cross Yes, this is right. You need to know that service providers function differently than health insurance companies. Blue Cross is a service organization. You don't need to know much about health insurance and service organizations in the life insurance part, but this is one thing to remember.
FINRA regulates personnel selling variable annuities as: A. Brokers B. Broker/dealers C. Dealers D. Insurance agents
Brokers/dealers Yes, exactly.
Which best describes the difference between General Agents and PPGA's? A. Career GA's primarily recruit & train, PPGA's primarily sell B. Career GA's primarily sell & PPGA's train C. They both primarily sell D. They both primarily recruit & train
Career GA's primarily recruit & train, PPGA's primarily sell Yes, that's true. Often, you will find PPGAs in a small population location or in an office by themselves because they want to function in a small or one person office.
Clife
Cash Payment Life Income Interest Only Fixed-only installments -fixed-amount installments
The main difference between traditional life insurance and variable life is: A. Method of premium payment B. Tax advantages C. Flexibility D. Cash values
Cash values Yes, it's where the cash values are located and how they are controlled. With traditional life insurance, the cash values are with the company general account. With a variable life policy, the cash values are in a "separate account" which requires a securities license to sell.
What must occur before non-forfeiture options can be used? A. Cash values must accumulate B. Five years must pass C. Premium paid in full D. Permission from beneficiary
Cash values must accumulate We have to have some money in the plan before we can use the options. You can't lose (forfeit) something if there is nothing there to lose.
Settlement Options
Cash(automatic) -Life Income -Interest only -Fixed Period -Fixed Amount
perils
Causes of loss, such as fire, wind, or theft.
What document is required for an insurance company to transact insurance?
Certificate of Authority
Employees in group life insurance plans receive which of the following as evidence of their insurance? A. Individual policy B. Copy of the master policy C. A binder D. Certificate of insurance
Certificate of insurance Yes... a certificate to each of the employees.
Insurance involves only: A. Chance of gain B. Chance of loss C. Both chance of loss or gain D. Neither a chance of loss or gain
Chance of loss Right. Insurance only replaces a loss. It is protecting a pure risk. No chance of gain. Not speculative.
Whitmore is 44 years old and decides to start receiving payments from his annuity, how can he avoid paying a penalty for early withdrawal? A. Takes a lump sum B. Chooses an "interest-only" option C. Chooses life income option D. None of the above
Chooses life income option Yes... because once the life income option is chosen, the annuitant can't change the arrangement. It is a contract set, done, period. Therefore, the IRS is going to be receiving the correct percentage of taxes because the annuitant can't stop the process once it has begun.
Violation of Section 1033
Civil penalty up to 50,000
Mr. Roberts assigns a $100,000 policy and has a $50,000 mortgage. Mortgagee and assignee receive a check payable jointly. What type of agreement is this? A. Absolute assignment B. Collateral assignment C. Partial assignment D. Divisible assignment
Collateral assignment The collateral assignment is used when a check is to be paid jointly to both parties. The key word here is "jointly."
An agent who solicits to sell to an individual who has difficulty understanding the agent violates which essential element of the contract? A. Offer & acceptance B. Consideration C. Legal object D. Competent parties
Competent parties Interesting. It is not only if the parties are mentally competent, but it also means that the parties have to understand each other in a competent fashion -- which can include language difficulties, hearing difficulties, vision difficulties, etc.
When a change needs to be made on the application for insurance, which is the best method for correcting the information?
Complete a new application or ask the applicant to initial the correction on the original application
Hazard
Conditions or situations that increase the probability of an insured loss occurring.
Estoppel
Consequence of a waiver
A prospect's statements made in the application for insurance constitute a part of which of the following? A. Consideration. B. Incontestability clause. C. Subrogation clause. D. Coinsurance.
Consideration Yes... the answers in the application plus the initial premium are known as the consideration.
If a company's limit of risk on a single life is $500,000, any application in excess of $500,000 would be: A. Rejected B. Reduced to limited status C. Considered excess D. Sold as 2 policies
Considered excess Yes... And because it is considered excess, it may mean that the company will look elsewhere for another company to join them by providing reinsurance on this particular case. If they don't work with another company, the original company runs the risk that the client will go somewhere else for coverage. Remember the excess or rejected business rule? If a company declines an applicant who is asking for greater coverage than they sell, the agent has the right to find another company, put the application together, send it to the other company, have the policy issued, and get paid for it without having to be appointed by the second company. Excess or rejected business rule. It protects the client.
Endowment proceeds even though left with the company at maturity under an interest only option, will be partially taxable under: A. Transfer note B. Annuity rule C. Cash surrender rule D. Constructive receipt rule
Constructive receipt rule With the constructive receipt rule, the contract owner is said to have received the funds on the date it endows if he/she hasn't made any arrangements (such as buying an annuity) within 60 days after the maturation date. That means taxes are due and payable on the interest at ordinary income rates.
Mr. Whistle buys an immediate annuity at the age of 63. When he turns 65, he decides to stop the annuity, get a refund of the remaining amount, and move to Guatamala. What is the response of the annuity company? A. Send Mr. Whistle a check for the remainder and wish him well B. Continue sending the monthly checks as before C. Notify the IRS that Mr. Whistle is leaving the country with his money. D. Suggest he contact his agent for travel insurance.
Continue sending the monthly checks as before Right. They will explain and be as polite as possible, but they will advise that nothing is going to change. The agreed upon sum will continue to arrive in his mailbox until his death.
Annuity
Contract that provides income for a specified period of years, or for life. Protects against outliving their money. Not life insurance, but a vehicle for accumulation of money and the liquidation of an estate
What provision in industrial life policies allows the insured to exchange several policies for one policy? A. Combination clause B. Spendthrift clause C. Conversion rule D. Guaranteed insurability clause
Conversion rule Yes. Same as a later question except the question is asked from the opposite direction. Either direction can be on the exam. Good practice, yes? Keep going.
Keoghs are similar to what type of retirement plan? A. IRAs B. Corporate plans C. SEPs D. TSAs
Corporate plans Right... like corporate plans. NOTE: they are for non-corporations... un-incorporated businesses. You will see they are "similar" to corporate plans but in fact, are for non-corporations. Good test question because of that. By the way, Keogh plans can be like Defined Contribution plans or Defined Benefit plans.
Estate Taxation of Life Insurance Proceeds
Counted as value in estate if: 1. they are payable to estate 2. deceased possessed incidents of ownership at time of death 3. deceased assigned/transferred ownership of policy to another within 3 years of death
What does the conversion clause provide a terminated employee under a group plan? A. Coverage for 30 days B. Coverage for 31 days C. Coverage for 6 months D. No coverage after termination
Coverage for 31 days Yes, the number is 31 days, NOT 30 or any other number.
In which business plan do the partners agree to buy the interest of the deceased partner? A. Entity B. Cross purchase C. Stock purchase D. Business insurance plan
Cross purchase Yes, the partners agree to buy the "interest" of the deceased partner and fund the whole thing with life insurance policies. Each partner buys a policy on every other partner.
If each partner purchases policies on the other partners, it is what type of plan? A. Entity plan B. Cross purchase plan C. Partnership plan D. Stock redemption plan
Cross purchase plan This is the definition of cross-purchase.
If an insured changes his payment plan from monthly to annually, what happens to the total premium?
Decreases -the insurer would have the entire premium to invest for a full year, they would reduce the premium amount
The form of insurance designed to cover the liability of a borrower with an amortized loan is: A. Increasing Term. B. Level Term. C. Decreasing Term. D. Convertible Term.
Decreasing Term The principal amount of the loan is continually decreasing, so our insurance coverage should also be decreasing.
What type of policy would be best in the situation where the need for protection declines from year to year? A. Modified whole life B. Increasing term C. Decreasing term D. Universal life
Decreasing term Yes, the level of insurance is dropping off as the need for coverage declines.
A family income plan uses which type of insurance for the rider? A. Level term B. Whole life C. Decreasing term D. Paid-up term
Decreasing term Yes.... decreasing term. It is the full amount at the "I for income" date and then it drops from there. The family "maintenance" rider "M for maintenance" the coverage is for the complete term until the end of the maintenance date.
An insurer/ agent is suspected of committing a violation or being involved in an unfair trade practice
Department of Insurance is notified issues a statement of charges
Estate Taxation of Annuities
Depends on when owner/annuitant died: 1. Accumulation Period: entire value is included in estate 2. Annuitization Period: PV of future payments made to beneficiary are included in estate
Which one of following is not characteristic of an annuity? A. To provide against the risk of living too long B. Designed to fully replace income after retirement C. Designed to lessen the depletion of the retirement fund D. To provide an income stream
Designed to fully replace income after retirement Right... the word "fully" is the problem. Annuities are designed to be an additional source of retirement income, but not necessarily fully replace the previous income.
Regarding taxation of life insurance, all are true except: A. Premiums paid by an employer can be deducted by the business B. No current taxation as cash value builds each year C. Policy proceeds owned by decedent are included for estate taxes D. Difference between premiums paid and death benefit are taxed to the spouse under a lump sum settlement
Difference between premiums paid and death benefit are taxed to the spouse under a lump sum settlement This is just not true. It would be if the policy was cashed in... but not when the insured dies!
Per Capita
Divides policy's db equally among surviving members of class (no children of benef)
Insurers are classified according to their domicile. What are the three types of insurers?
Domestic, foreign, and alien
Who regulates retirement plans? A. Insurance director B. State Department of Corrections C. SEC D. ERISA
ERISA Yes, it's a federal act. 1974.
Deferred annuity
Either is purchased with a single lump sum (single premium deferred annuities) or is purchased through periodic payments (flexible premium-deferred annuities). Unique in that it grows tax deferred. The income payments begin sometime after one year from the date of purchase. Often used to accumulate funds for retirement. Owner receives either guaranteed or current interest rate, whichever is higher. If surrendered before 59 1/2, income tax must be paid on the gain and a 10% penalty will be imposed on the taxable portion.
At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?
Either on the date of the application -date of the medical exam
Qualified corporate retirement programs must meet all the requirements below except: A. Must be for the exclusive benefit of employees. B. Life insurance benefits must be incidental to retirement benefits. C. Cannot be discriminatory by sex. D. Employee contributions must be vested after 3 years.
Employee contributions must be vested after 3 years. Employee contributions are ALWAYS immediately vested. Vesting schedules don't apply to the employees' contributions.
Which one is not payable under business overhead expense insurance? A. Mortgage B. Employee salary C. Employer salary D. Leased equipment
Employer salary Right -- you cannot include the salary of the employer. All other salaries are OK and can be included.
Insurance policy rights and benefits always belong to: A. the insured B. the revocable beneficiary. C. the owner. D. all of the above.
the owner Yes... and many times, that will be the insured.... but not always! The person or entity with the rights is the owner. Now, one interesting thing... if there is an irrevocable beneficiary, the owner gives up much of their rights, because they can't change anything that will have an impact on the irrevocable beneficiary.
Samantha bought a policy at age 30 and was told that she had to pay premiums for 20 years. At the end of 20 years she received an amount equal to the face amount. What type of policy is this? A. 20-pay life B. whole life C. Endowment D. Refund annuity
Endowment This is exactly the way an endowment contract works. This is a little bit tricky so let's work through it. Notice that the question says "equal to the face amount." That means this endowment contract has a set face amount but only pays if the owner is living at the end of the endowment period. (Unbelievable, but true.) The endowment contract will have a level term insurance policy attached to it for the same value as the face amount of the endowment. If the owner dies before the end of the endowment period, the insurance policy pays. You need to understand endowment policies. They are seldom sold today, but that doesn't prevent the state from asking lots of questions. I have had students who said they had maybe 10 questions about endowment policies.
A company purchases life insurance on its partners. This is called ______ ? A. stock redemption B. entity type C. Cross purchase D. Partnership
Entity type When the entity (corporation or partnership) buys the policies, the entity only purchases the number of policies as there are numbers of partners. One for each. It is known as entity purchase or entity type as opposed to cross purchase.
Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate.
Estate conservation
Aleatory
Exchange of unequal amounts
Which of the following allows an insurance company to deny coverage if death results from a war? A. Incontestable clause B. Consideration clause C. Accidental death rider D. Exclusion clause
Exclusion clause The exclusion clause excludes certain things from coverage including war in many policies.
A cost involved in determining premium rates is called the loading charge. This is also known as: A. Interest factor B. Mortality factor C. Expense factor D. Presumptive factor
Expense factor The expense factor is one of the "big three" in the MIX formula: mortality, interest, and expenses (X stands for eXpenses).
What is the authority that an insurance company gives to it's agent by means of the agent's contract? A. Express Authority B. Fiduciary Authority C. Apparent Authority D. Implied Authority
Express authority Right... Express Authority is written. It's the written contract between the company and it's agent.
All of the following are dividend options except: A. Cash B. Paid up additions C. 5th dividend option D. Extended term insurance
Extended term insurance Right. This one will throw you! This is not one of the dividend options EVEN THOUGH it looks like it. The problem is the word "extended" ... one of the dividend options is one-year term insurance. That is not the same as extended. To un-confuse yourself, take a look at the three non-forfeiture options. The third one is "extended" term. That's where this comes from.
Unfair Claims Settlement Practices
Failing to approve or deny coverage of a claim within a reasonable period after a proof-of-loss statement has been completed,
Which of the following laws require an insurance company to notify an applicant in writing that an investigative consumer report may be made on him? A. Uniform provisions law B. Freedom of Information act C. Fair Credit Reporting Act D. Medical Information Bureau disclosure act
Fair Credit Reporting Act Yes, the Fair Credit Reporting Act of 1970 which is for the protection and privacy of the applicant/insured.
An agent can sell variable annuities as long as they hold a valid state issued life insurance license. A. True B. False
False It is necessary to also have a Series 6 or Series 7 securities license in order to sell variable annuities. The word "variable" is the key here.
Proceeds paid to a named beneficiary in a lump sum, are subject to federal income tax? A. True B. False
False Not subject to federal income tax if it was an individual policy being purchased with after tax dollars. The proceeds may be subject to state income tax.
Under a group permanent plan, the employer pays for the cash value segment of the policy and the employee purchases the insurance portion. A. True B. False
False Right... the definition in this question is called split-dollar insurance. This is a difficult question, but points out the differences between group permanent and split dollar.
The Fair Credit Reporting Act is a state law that mandates insurers must furnish the name of any reporting agency used if coverage is denied. A. True B. False
False Yep. It's false because the Fair Credit Reporting Act is a federal law. This might strike you as an unfair question... except that this review is setup to cause you to think about how the questions are worded and making sure you consider each question carefully.
A waiver of premium rider cannot be added to a term policy. A. True B. False
False Yes, it can. So the statement is false.
Grace Period
the period of time after the premium due date that the policy owner has to pay the premium before the policy lapses
Churning is defined as the practice by which policy values from an existing life insurance policy are used to purchase another policy from a different company where the change is not beneficial for the policy holder. A. True B. False
False Yes, it's false because the words describe twisting. If the new policy is from the same company, it's described as churning.
Which of the following groups would not qualify for a group life policy? A. Employer-employee groups B. Family groups C. Trade unions D. Multiple employer trusts
Family groups Family groups which are established for the purpose of buying life insurance are not valid groups.
The requirement that agents must account for and promptly remit all insurance funds collected is knows as what type of agent responsibility
Fiduciary
A life insurance producer is the company's
Field underwriter
Indexed (or equity indexed) annuities
Fixed annuities that invest on a realtor lying aggressive basis to aim for higher returns. Has a guaranteed minimum interest rate. Less risky than a variable annuity or mutual fund
A money purchase plan provides for A. Fixed contributions/fixed benefits B. Fixed contributions/undefined benefits C. Undefined contributions/undefined benefits D. Undefined contributions/fixed benefits
Fixed contributions/undefined benefits This is a defined contribution plan and therefore, we are defining how much is going into it. We really don't know what the benefits will be later.
Which life insurance proceeds option provides equal payments for a specific time to a named beneficiary? A. Fixed amount B. Fixed period C. Life with period certain D. Installment refund
Fixed period The company will come up with a figure which is consistent each month, and make it last for an exact period of time. Take a look at the other answers on this question if you got this answer correct as the first choice.
Flash Gordon, aged 62 has been paying premiums for many years on his Whole Life policy, which now has a cash value of $19,420. If Flash decided to drop the policy, which of the following would apply? A. Flash would forfeit a major part of the $19,420, to pay for the cost of protection under the policy. B. Flash could elect to surrender his policy for a lump-sum cash payment of $19,420. C. Flash would forfeit the entire $19,420 if the policy is surrendered. D. Flash will have to take a reduced face paid up for life policy.
Flash could elect to surrender his policy for a lump-sum cash payment of $19,420. Notice the wording: "could" elect! It is one of the options. Be careful of the wording.
Which are characteristics of a universal life policy? A. The ability to chose equity investments B. Flexible premium and adjustable investments C. Flexible premium and adjustable benefits D. The guarantees offered on face amount & cash value
Flexible premium and adjustable benefits Both are choices of the policyowner.
Where are franchise life plans commonly used? A. For any group plan B. For groups smaller than the minimum number required by state law to cover a group of persons that does not qualify for true group insurance. C. For ficticious groups D. For fraternal groups
For groups smaller than the minimum number required by state law to cover a group of persons that does not qualify for true group insurance. Yes. There might be a minimum number of people required in a trade association. In that case, this could work for the group. They are called wholesale plans.
Disability Riders: Waiver of Cost of Insurance
For universal life policies, where monthly cost of insurance deductions are suspended instead of waiving prem payment
Which of the following nontax advantages of retirement plans would be of most interest to the employee, but of least interest to the employer? A. Increased productivity B. Good public relations C. Attracting key employees D. Forced savings
Forced savings Right. Although the employer might try to defend this statement and say he cares about forcing his employees to save, it is not as important as the other factors mentioned.
An insurance company is domiciled in California and transacts insurance in Nevada. What is this insurer's classification in Nevada
Foreign
An insurance company that is formed under the laws of another state is known as what type of insurer?
Foreign
A company domiciled (home office) in another state and authorized to do business in this state is a(n) ________ company. A. Alien B. Foreign C. Domestic D. Extra Terrestrial
Foreign Right. Notice the question didn't use a specific state name. It could easily be this way on the state test.
The agent has all of the following types of authority from his agency contract except: A. Expressed authority is what the contract spells out. B. Implied authority is not written but needed to perform as an agent. C. Apparent authority is what the public assures the agent possesses. D. Formal authority to change the policy if it benefits the insured.
Formal authority to change the policy if it benefits the insured. Only the other three answers are correctly granted as authority to the agent.
Bail-out provision
Found in some annuity contracts. Allows the contract holder in the event that interest rates drop a specified amount within a specified amount of time, to surrender the contract without charge
Policyowner
the person entitled to exercise the rights and privileges in the policy
A non-profit entity that has a lodge system, includes ritualistic work and maintains a representative form of government is called: A. Stock company B. Mutual company C. Assessment society D. Fraternal benefit society
Fraternal benefit society Right. This is the definition of a fraternal benefit society.
Eduardo gets fired May 16th and dies May 27th. Under his group policy what would the insurer pay? A. Zero B. 1/2 Face Amount C. 2/3 Face Amount D. Full Face Amount
Full Face Amount Eduardo's beneficiaries would receive the full face value because he has coverage for 31 days after leaving his employer.
The primary insurance amount (PIA) is equal to: A. 1/2 worker's retirement at 62 B. 1/2 worker's retirement at 65 C. Full worker's retirement at 62 D. Full worker's retirement at Full-Retirement-Age
Full worker's retirement at Full-Retirement-Age Yes, and you have to wait until Full-Retirement-Age to get the full benefit.
According to the needs approach, when selling insurance which factor is not considered important? A. Education fund B. Final expense fund C. Disability income D. Future income
Future income Yes.... and this is a little misleading perhaps... but it is the best answer. In addition to that, the on-going needs which are considered when looking at the needs approach are called income replacement, not future income.
Universal Life Recap has Guaranteed interest rate in
General Account
Which of the following is a standard provision in all life insurance policies? A. Automatic premium loan B. Guaranteed renewability C. Grace period D. Waiver of premium
Grace period Yes, of the choices given, this is the only one which is going to be in all policies. The others are all frequently used.
Qualification for association group life requires which of the following? A. Group has at least 5 members B. Group members pay part of the premium C. Group is organized to purchase insurance D. Group has been in existence for a certain number of years
Group has been in existence for a certain number of years Yes, and the certain number of years is 2.
Fixed annuity features
Guaranteed minimum rate of interest to be credited to the purchase payments Income (annuity) payments that do not vary from one payment to the next The insurance company guaranteed the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant
Fixed Annuity Features
Guaranteed minimum rate of interest to be credited to the purchase payments Income payments that do not vary Guaranteed specific amount for each payment and the length of the period of payments as determined by the settlement option chosen
Insurance companies are prohibited from advertising
Guaranty Association
Conditions that increase the chance of a loss are known as what?
Hazards
A Roth IRA participant must take distribution by what point in his/her life? A. 59 1/2 B. 65 C. April 1st following the year he/she becomes 70 1/2 D. He/she is not required to take the distribution
He/she is not required to take the distribution Yes. This is correct about the Roth IRA. There is no set time when withdrawal must begin. There's a good reason. It's because there will not be any tax due since it was paid for with after tax dollars originally. No tax due. Thus the IRS doesn't care when or if the funds are withdrawn.
Higher Frequency
Higher Premium
How does the premium mode affect the total premium paid for insurance for the year?
Higher frequency of premium payments will result in higher overall premium
If all else is equal, what characteristics does a participating policy have as compared to a non-par policy? A. Higher premiums B. Lower premiums C. Builds faster cash value D. Does not have cash value
Higher premiums Of the choices given, this one is right. It doesn't explain the real differences, but our instructions are just to answer the questions as stated.
The full value of a life insurance policy goes into effect when A. the application is signed by the applicant and witnessed by the agent B. the conditional receipt goes into effect C. the policy is issued by the company D. the policy is delivered to the client
the policy is issued by the company When the policy is issued by the company, the policy is in full effect.
Mr. Gramercy owns a machine shop and has a group life policy from Hillbilly Insurance to cover his 20 employees. If Mr. Gramercy decides not to renew his policy and stops paying the premiums, which of the following is true? A. Hillbilly Insurance must write a letter to all employees notifying them of the cancellation of the policy. B. Mr. Gramercy must buy another policy to cover the group. C. Hillbilly will notify Mr. Gramercy who must notify his employees of the cancellation of the policy. D. Neither Mr. Gramercy nor Hillbilly Insurance must do anything.
Hillbilly will notify Mr. Gramercy who must notify his employees of the cancellation of the policy. Yes, the insurance company notifies the employer who then notifies all his employees. This can be confusing. The answer the state is looking for is this one... company notifies employer, employer notifies people.
Willis and his wife die in the same accident under the simultaneous death act. His wife is primary beneficiary and his children contingent beneficiaries. Who will the money go to? A. His wife's estate B. Willis' estate C. His children D. Cannot determine with given information
His children No one living on the primary line (Willis died last). The children are the contingent beneficiaries (secondary line). There you go. It's as simple as that.
Arthur has his wife as a primary beneficiary, his children as secondary and his church as tertiary. If neither his wife nor his children survive him, who will get his insurance money when he dies? A. His estate B. His church C. His children's estate D. His wife's estate
His church Yes... no one on the first two lines are still living. Therefore, the proceeds move to the tertiary line: his church.
The estimation of life insurance needed as a dollar valuation by discounting net future earnings at a reasonable rate of interest is known as: A. Human life value approach B. Needs approach C. Dollar valuation D. Income valuation
Human life value approach Right. This question makes it sound a bit complicated, but it is just saying that we will determine the "human Life Value" of how earnings dollars need to be replaced if a death should occur.
Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement and inflation?
Human life value approach -determiend by the loss of income
Group credit life programs include which of the following: I. Premium paid by borrower II. Limit on amount of insurance per borrower III. Benefits paid to borrower's beneficiary A. I & II B. I & III C. II & III D. I, II, & III
I & II Yes, it's limited to the amount that has been borrowed and unlike many regular group policies, the premiums are paid solely by the borrower. The benefits are paid to the holder of the loan. Then the item covered becomes part of the estate of the deceased.
The benefit amount an annuitant receives each month at retirement is determined by: I. Number of annuity units II. Number of accumulation units III. Value of annuity units IV. Value of accumulation units A. I, II, III, IV B. I, III, & IV C. I & III D. All
I & III Yes, it's the "payout" side of the annuity. The number of annuity units and the value of them. Now this is interesting: it really doesn't make any difference whether it is a variable annuity or a fixed one. However, it does work either way....but fixed annuities have a fixed number of units and their value is fixed... so we don't bother talking about it. One other thing about this question is worth pointing out.... answer (a) and (d) are the same. Therefore, neither of them could be right. One other thing. The state has eliminated the questions with roman numerals and then four a through d answers. However, we have them in this review because they cause a different kind of thinking and still work well to help you understand the concepts.
An association must: I. Be a natural group II. Be a ficticious group III. Can be any group if it is large enough IV. Have been in existence for 2 yrs. A. I & III B. I & IV C. II, III, & IV D. I, II, III, IV
I & IV Yes, natural means the group was formed for any reason other than buying insurance... and the association has the unusual requirement of being in existence for longer than 2 years plus, if the policy is contributory: having 100 members or more (which isn't mentioned here but you will find it in another question).
Qualified retirement plans must allow enrollment of all employees: I. Age 21 II. Completed 1 year of service III. Work 10 hours a week throughout the year A. I & III B. I & II C. II & III D. I, II, & III
I and II True. 21 AND having completed 1 year of service. They could start earlier, but they can't wait any longer.
Which retirement plans are deemed qualified? I. Defined contribution plans II. Defined benefit plans III. Defined Premium plans IV. Defined payment plans A. I and III B. II and IV C. I, II, and III D. I and II
I and II Yes -- this is right.
The purpose of an annuity is the systematic distribution of an estate. The manner of distribution is selected by the owner. Which of following are true? I. It may or may not involve "life expectancy" calculations II. The annuity period may also be described as the benefit period III. The age and sex of the annuitant cannot influence the benefits, as that would violate laws IV. The settlement option can be changed within 5 years of annuitizing the annuity
I and II Yes, this is right. Here's the problem. One of the annuities, the last one which is called "period certain" has nothing to do with life expectancy. Darn. The rest of the ones mentioned are lifetime annuities.
Which of the statements comparing participating with nonparticipating policies are true? I. Premiums for nonpar policies are usually lower than for participating policies. II. The general provisions for both policies are the same, except for dividend provisions. III. Dividends from participating policies are treated as taxable income, but dividends from nonpar policies are not. A. I and II B. I and III C. II and III D. I, II, and III
I and II Yes, this is right. Par policy premiums are more because of the opportunity of getting dividends back. Non-par policies don't have dividends, period. Thus III. is wrong. and interestingly enough, all but one answer has III. in it. III. is wrong in two ways. Dividends from par policies are not taxable, and non-par policies don't have dividends or dividend provisions anyway.
The benefit amount an annuitant receives from a variable annuity is determined by: I. Number of annuity units II. Number of accumulation units III. Value of annuity units IV. Value of accumulation units A. I B. I and II C. I and III D. II and IV
I and III Right. Both the number of annuity units and the value of them.
Who regulates variable life insurance? I. Insurance department II. FINRA III. S.E.C IV. ERISA A. I, III, IV B. I, II C. I, III D. All
I and III Two agencies, the State regulates the insurance aspects, and the SEC regulates the securities aspects of the separate account.
In which cases would the purchase of new life insurance be considered replacement? I. When existing life insurance is surrendered II. When existing life insurance is reduced in face amount III. When existing life insurance is continued as extended term A. I only B. II only C. I & II D. I, II, & III
I, II & III Yes, it's all three. Take another look at I. II. and III. Remember.
Which can be written as group insurance? I. Employees of an employer II. Fraternal benefit society III. Family members IV. Labor unions A. I and II B. II, III and IV C. I, II and IV D. All
I, II and IV Right. All but family groups.
Which of the following would have an insurable interest? I. employer II. spouse III. neighbor IV. insured A. I and II only B. I, II and III only C. I, II and IV only D. All
I, II and IV only Right. All but the neighbor.
Which requirements apply to a defined benefit pension plan? I. Definite determinable benefits II. Systematic payment of benefits III. Commence at age 65 IV. Primarily retirement benefits A. I & II B. II & III C. I, II, & IV D. I, III, & IV
I, II, & IV Right. It's I, II and IV. Not age 65.
The SEC permits life insurance companies to sell group variable annuity contracts based on separate accounts without registration as securities, when: I. There are at least 25 employees II. No employee contributions III. Only when it is a Keogh plan IV. Resulted from Administrative Action in 1963/1964 A. I & II B. I, II, IV C. All D. None
I, II, & IV his is a peculiar relaxing of the rules and it is used in non-Keogh plans where there have to be at least 25 employees covered, and the employer does all the contributing. The words which are important in this question are "based on separate accounts." That means group securities, and because of the structure, they are not registered as securities. Keogh plans require registration as securities.
What must be described in the notice sent by a dually licensed agent to the policyholder if the purchase of securities will occur? I. How insurance will be effected II. Why it's advisable III. Policies affected IV. Companies involved A. I & II B. I & IV C. I, III, & IV D. I, II, III, & IV
I, II, III, & IV Right. All of the items mentioned must be in the notice (proposal) to the policyholder.
When determining premium rates, factors to be considered are: I. age & sex of the applicant. II. insurability of applicant if substandard. III. whether it will be participating or nonparticipating. IV. size of policy. A. I & IV B. II, III, & IV C. I, II, & III D. I, II, III, IV
I, II, III, IV Yes, all of the answers are correct. It is a matter of looking at all the important information when computing the premium, all the normal items plus if the applicant has some special problems or factors to consider.
How are pension plans benefits payable? I. Expressed as fixed dollar amount II. Based on a percentage of compensation before retirement III. Based on years of service IV. Based on age A. I, II and III B. I and III C. III and IV D. All
I, II, and III Yes, the first three are correct. Age is not because that's discriminatory, in this case.
Which are the most important aspects of qualified retirement plans to employers? I. Attracting & retaining key employees II. Increased productivity III. Retiring employees humanely IV. Forced savings A. I and II B. I, II, III C. I, II and IV D. All
I, II, and III Yes. All three. Forcing someone to save is not included.
A divorced spouse and her minor children have what rights under a group policy? I. Employer continues to pay the insurance another 90 days II. Spouse has 31 days to convert III. Minor children can convert policies at age 19 or if they are in school full time, as late as 23
II and III Right. II. and III. are correct.
Approaches used in determining the amount of insurance needed by a family include: I. Determine the dollar amount that can be afforded II. Human life value III. Generally determined by applicant IV. Needs approach A. I and II B. II, III and IV C. II and IV D. All
II and IV Right.
A deferred annuity does not pay any benefits until: I. the annuitant reaches age 65. II. a delay of longer than 1 year occurs. A. I only B. II only C. Both D. Neither
II only Yes, the definition of a deferred annuity is one which starts paying out at a point longer than a year from the time it is purchased. Not 1 year, but longer than 1 year! An immediate annuity can start as long as 1 year from time of purchase, not longer than 1 year. This is an easy test question to miss because one would think that an immediate annuity starts "immediately." Nope. 30 days, 3 months, 6 months, or 1 year.
Which of the following are Defined Contribution plans? I. Pension plans II. Profit sharing plans III. Money purchase plans IV. Stock bonus plans A. I and III B. I and II C. II, III and IV D. I only
II, III and IV Yes. Profit sharing plans, money purchase plans and stock bonus plans are all defined contribution plans.
Which of the following are considered in the needs approach? I. Travel expense fund II. Final expense fund III. Disability income IV. Monthly income A. I, III, and IV B. All C. II and III D. II, III, and IV
II, III, and IV Right... These are three of the choices mentioned. Travel expenses are not mentioned... logical, but not mentioned. Therefore, don't assume that is a good answer from your outside information. Also see answer (a).
For a risk to be insurable, it must have: I. A certain loss II. A catastrophic loss III. A definite loss IV. A reasonably predictable loss A. I & II B. II & III C. III & IV D. I, III, & IV
III & IV The word "certain" sounds like a certain probability that something is going to happen. That takes all risk out. Insurance works on risk. If a risk is certain, no insurance company will want it. The way the word "certain" is used is regarding risk, not "certain dollar amount" as in definite. A catastrophic loss can wipe out an insurance company. No company will want to take that chance. Consider Hurricane Andrew in South Florida. This risk has to be definite as far as a number (face amount) is concerned, and it must be reasonably predictable according to random selection of insured people as per the actuarial tables.
The amount an employee can contribute to a SEP is: I. 100% of his/her compensation II. Up to a maximum of $5,500 III. Up to a maximum of 25% of compensation with a maximum cap IV. The lesser of 33.33% of compensation or $15,000 A. I and II B. III only C. II only D. IV only
III only Actually it is 25% of a person's compensation up to a large maximum. Pay close attention to the choices when you take the exam to be sure the answer applies to the question.
Death benefits (annuity)
If an annuitant dies during the accumulation period, the insurer is obligated to return either the cash value or the total premiums paid, whichever is greater. If no beneficiary is named it goes to the estate
Under group life insurance, which of the following statements is CORRECT? A. If cancelled, the members must be notified. B. There must be at least 25 lives in the group. C. A group member cannot name a beneficiary. D. Any group of individuals is eligible for a group life.
If cancelled, the members must be notified. Yes, this is true. Not only that, but you will find that it is okay for an insurance company to notify the members of the group, but that action may be taken by the insurance company notifying the employer, and the employer notifies the members of the group.
Grace Period Provison
If insured does not pay prem on due date, the policy will stay in force before it actually lapses; lasts for up to 31 days
Can an agent write business with a company they are not appointed with? A. Only if business was a line not carried by their company B. It is ok if their company approves C. If it is considered excess or rejected business D. It is ok if the new company approves
If it is considered excess or rejected business Yes. Hang on to your hat on this one. What this question means is that if you try to write business (write an application) on someone and your company will not take the business because of an underwriting requirement of some sort (as an example) or won't sell that much insurance coverage, and yet you know of another company who will at a standard rate, you can write the application for another company and sell the policy, and be paid a commission without ever being appointed by the other company. It's called the "excess or rejected business" rule. Also: the "exchange of business" law.
Disability Riders: Waiver of Premium
If policyholder becomes disabled, this rider will pay the prems. Prems reduced by 80% during any period insured is disabled.
Settlement Options - Interest Only
If the beneficiary selects this option, the money remains with the insurance company to accumulate additional interest over a period of time--pays the beneficiary interest at least annually The beneficiary can change her mind and elect to take the money as cash whenever she desires The interest earned is taxable in the year earned, even if not paid out
Which of the following statements is true about life insurance settlement options? A. They must be pre-selected by the owner for the beneficiary to take advantage of them. B. If not pre-selected by the owner, the only option available to the beneficiary is the life income option. C. If the owner did not specify a settlement option, the beneficiary may still elect any options. D. If the owner specified a life income option the only option available to the beneficiary is the lump-sum settlement.
If the owner did not specify a settlement option, the beneficiary may still elect any options. Exactly. If the beneficiary is setup to receive a lump sum, actually the beneficiary could tell the company he/she wished to receive it in any manner they choose.
Which of the following is provided by the payor (applicant) waiver of premium rider on a policy with a minor child as the insured? A. If the child is disabled 6 months or longer, premiums are waived. B. If the premium payor dies, premiums are waived until the insured child reaches age 25. C. If the minor child dies, the benefit is doubled. D. If the premium payor is unemployed, benefits are waived.
If the premium payor dies, premiums are waived until the insured child reaches age 25. Yes, this is the definition of the payor rider.
An employee's contributions into a qualified retirement will be vested at what point? A. Immediately B. 5 years C. 7 years D. 20 years
Immediately This is almost a trick question. The answer is based on the fact that an employee's contributions always belong to the employee. There is no vesting going on with the employee's part. It's the employer who "vests" their contribution for the purpose of keeping the employee long term. However, this is a real question... and the answer is "immediately."
How soon are employee's contributions to a retirement plan available to employee? A. Immediately B. 2 years C. 7 years D. 1 year
Immediately Yes, the employee's contribution is always their money. Only the company's contribution is what is vested or not vested.
Which category of authority is the one which gives the agent the right to operate in a business manner doing the things typical of any business? A. Expressed B. Apparent C. Implied D. Overt
Implied This is right. Implied authority is given to the agent by implying that he/she can do things of a business nature... print business cards, join a civic business related club, etc.
Investigative consumer inspection report
Includes info about applicants general reputation, personal habits, and mode of living. BASED ON INTERVIEWS WITH APLICANTS ASSOCIATES, FRIENDS, AND NEIGHBORS.
An annuity contract provides? A. Income for life B. Guaranteed death benefit C. Creation of an immediate estate D. None of the above
Income for life Yes. This is the "amazing" thing that makes an annuity different than other investments. All but the last one of the annuities are lifetime annuities. That means those continue until the death of the "annuitant" no matter what their other provisions might be. Don't talk to experienced people in your office about annuities. They will try to be helpful and will tell you about things that aren't on the test and will confuse you when you see the answers at exam time.
An annuity's primary function is to provide what? A. Death protection B. Fixed benefits C. Income for life D. All
Income for life Yes... income for life is exactly what an annuity can do. It is the only vehicle like it based on a person's lifetime. The payment will continue for the life of the annuitant.
If insured purchases a 10-year plan and dies after 6 years, how will a family income plan pay compared to a family maintenance plan? A. Income plan will pay 10-years and maintenance will pay 10-years B. Income plan will pay 6-years and maintenance will pay 10-years C. Income plan will pay 10-years and maintenance, will pay 4-years D. Income plan will pay 4-years and maintenance will pay 10-years
Income plan will pay 4-years and maintenance will pay 10-years Yes. Now let's get into this family maintenance and family income stuff. You need to understand that the family income policy provides cash for family income only until age 50 of the insured. Then the money stops because the quantity of proceeds in a decreasing term policy continues to drop. The family maintenance is intended to provide "maintenance funds" for a 20 year (we'll say) period of time from WHENEVER the insured dies within the window until age 50. Then that option expires. If the insured dies at 49, the money is designed to last for 20 more years from that point. Make sense? Two ways of addressing a somewhat similar problem.
Insurance is based on the principle of
Indemnity
A split dollar insurance plan pertains to: A. Health insurance B. Life and health C. Individual life insurance D. Group life insurance
Individual life insurance Yes. It is an individually purchased life insurance product which is paid for by the company and by the employee at the same time. The employer pays for the cash value portion and the employee pays for the cost of the term part of the insurance... the mortality charges. Split dollar is a method rather than a reason for buying life insurance.
IRA Rollovers
Individuals can move their IRA investments from one plan provider to another (e.g. Fidelity to Wells Fargo). This is referred to as a rollover and must be completed within 60 days to avoid potential tax liabilities and early withdrawal penalties.
Life insurance that is characterized by comparatively small issue amounts, and frequent premium payments is called: A. Ordinary life B. Temporary life C. Industrial life D. Permanent life
Industrial life Yes, Industrial insurance -- also known as debit insurance. Also known as home-service insurance.
Where would information about a prospective insured's lifestyle be found? A. MIB report B. Inspection report C. Credit report D. Medical report
Inspection report Yes...and not in the credit report either even though that was not one of the answers provided for your choice. Inspection report is correct. Inspection reports are "mode of living, finances, ..." which means salary, assets, liabilities, but not credit.
Which of the following is CORRECT about the replacement rule? A. The replacement rule applies only to health insurance policies. B. The agent has 90 days from the effective date to deliver a buyer's guide. C. Instructions regarding the rule are available from appointed life insurers. D. Up to 30 days is allowed for a full refund of premium.
Instructions regarding the rule are available from appointed life insurers. Yes, this sounds a little vague, but it is a true statement. Remember it for the state test.
Pure Risk
Insurable because it involves a chance of loss only
In order for one person to insure the life of another, what must exist at the time of application? A. Financial stability of the insured B. Insurable interest C. A business relationship D. A family relationship
Insurable interest Yes, it is a requirement to have insurable interest at the time of policy inception. That means a family relationship or a financial relationship between the owner, the insured, and between the insured and the beneficiary. Note that it says "one person insuring the life of another." That means the owner and the insured person are two different people. When they are the same person, we don't have a need to test for insurable interest.
What two elements are necessary for a life insurance contract to have a legal purpose?
Insurable interest and consent
What do individuals use to transfer their risk of loss to a larger group?
Insurance
in Group life insureds receive the certificates of
Insurance
Sales personnel selling whole life are regulated as: A. Insurance agents B. Security broker/dealers C. Underwriters D. Actuaries
Insurance agents Right. We are agents. That is not the same as "salesperson".... there is added responsibility to an agent as per the agent's authority: expressed, implied, and apparent.
Marketing (Distribution) Systems
Insurance companies market their products by using producers (independent agents, captive agents, general agents, or direct-writing companies) or by mass marketing (direct response, franchise, or vending machine sales).
Foreign Insurer
Insurance company that is incorporated in another state Ex. District of Columbia, or a territorial possession. -American Samoa -Guam -Northern Mariana Islands -Puerto Rico -US Virgin Islands -a company
Domestic Insurer
Insurance company that is incorporated in this state. -company "chartered" in Pennsylvania would be considered a PA domestic company.
Alien Insurer
Insurance company that is incorporated outside the united states.
Law of Large Numbers
Insurance is spreading risk among a large pool of people with similar exposure to loss.
Stop-loss coverage
Insurance policy that protects employers with partially self-funded insurance plans by limiting individual and group-wide claims.
whole life insurance
Insurance that is kept in force for a person's entire life and pays a benefit upon the person's death, whenever that may be.
When the initial premium accompanies the application, who makes the offer? A. Beneficiary B. Insured C. Insurer D. Agent
Insured This isn't the best answer, but the best answer isn't here. What is that? The policy owner/applicant. The insured is the next best answer. Think these things through like this. It would have been easy for me to put applicant/owner, or owner/insured as one of the answers but you won't think as much as on this one. The state does the same thing in their exams. The person making the application is known as the "insured" even though the contract/policy hasn't been completed yet. The box on the form says "Insured" and that's where their name goes.
Insurance transfers the risk of loss from an individual to an
Insurer
When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?
Insurer
Large Exposure
Insurer must be able to predict losses based on law of large numbers
What entities make up the Medical Information Bureau?
Insurers
Statistically predictable
Insurers must be able to estimate the average frequency and severity of future losses and set appropriate premium rates.
All of the following are true about the Fair Credit Reporting Act except: A. Insurers must identify the source of information only B. Enacted in 1970 C. It is a federal law D. Insurers must divulge the reason they decline someone
Insurers must divulge the reason they decline someone Right. Here's what happens: when someone is declined because of the Fair Credit Reporting Act, the insurance company is required to let the proposed insured know who gave them the report which caused the company to deny them coverage, but they cannot tell the proposed insured what was in the report.
Not catastrophic
Insurers need to be reasonably certain their losses will not exceed specific limits.
"Subject to the provisions on the following pages of this contract, the insurance company will pay the death benefit to the named beneficiary. The death benefit will be paid on receipt of due proof of death of the insured and surrender of this policy." The provision quoted above is an example of: A. Consideration clause B. Insuring clause C. Entire contract provision D. An owner's rights provision
Insuring clause Yes it is. A good example. What the company is going to do for the client.
Which is found on the front page of all insurance policies? A. Consideration clause B. Suicide clause C. Insuring clause D. Incontestable clause
Insuring clause Yes, this is the clause where the company states what they are going to do and the particulars, when there is a claim.... information like the amount of proceeds and how the proceeds are going to be handled. Now here is a bit more information: in the Life portion of the book, the answer is - it's found on the cover of the policy. In the health portion of the book, the answer is - it's found on the first page. Same thing.
What are the three main instances when insurable interest exists in life insurance?
Insuring your own life, the life of a family member, -life of business partners or someone who has financial obligation to the policyowner
What type of report provides information about the applicant's hobbies, habits and financial status?
Investigative consumer report
Speculative Risk
Involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risks are not insurable.
Which beneficiary designation is the one that can only be changed with the written consent of the beneficiary? A. Payor beneficiary B. Revocable beneficiary C. Irrevocable beneficiary D. Restricted beneficiary
Irrevocable beneficiary Yes, when anything that happens with the policy would alter how the beneficiary will be paid, or when, or how much.
The incontestable clause is two years from what point in time? A. Application date B. Issue date C. Claim date D. Delivery date
Issue date Right. When the policy is issued, the 2 year contestability starts. At the end of that time, it moves into the "incontestability" period.
insurance company
Issues policy to policyowner Pays benefit to beneficiary
What is the function of a ceding company? A. An agricultural seed distribution company. B. It is an insurance company that is taking part of the risk of another insurance company. C. It is an insurance company that is assigning a portion of their risk to a reinsurance company. D. none of the above
It is an insurance company that is assigning a portion of their risk to a reinsurance company. Yes. Correct. The ceding company assigns a portion of their risk to the reinsurer. The reinsurance company is taking part of their risk for a share in the premium.
After a group life master policy has been issued, what action may the insurer take on future policy anniversaries? A. It may cancel the insurance of any group members who have become seriously ill or impaired. B. It may adjust the premium to bring it in line with current mortality and operating expenses. C. It cannot make any changes in the contract or in the enrollees. D. It may refuse to insure covered members with excessive claims.
It may adjust the premium to bring it in line with current mortality and operating expenses. The company may adjust the premium, and they often do, at anniversary time on a group policy.
Which statement about group life insurance is not true? A. It is provided under a master contract for members of qualified groups B. It is generally written as an annual renewable term plan without requiring medical exams C. It may be written as a family plan policy D. It's cost may be paid by an organization, by it's members, or shared between organization & members
It may be written as a family plan policy Family plan policies are for individual families, not group plans.
Which is true concerning a variable life insurance policy? A. It provides a guaranteed minimum death benefit. B. Benefits vary and are linked to the Dow-Jones stock averages. C. It has a guaranteed minimum cash value. D. Premiums and benefits are both variable.
It provides a guaranteed minimum death benefit. Yes... this is the peculiar feature of a variable life policy and a very good state exam question because of that. Since the policyowner has the choice on where the cash values are invested, the company makes no guarantees on the cash value. None. The SEC is watching to make sure how the investment is handled is exactly how the company said it would be handled, but the SEC doesn't care one way or the other as to how well the "investment" portion does. So.... the company says "as long as the policy owner pays the premium (which isn't flexible or variable) the company will guarantee the face value!
Which of the following statements about the reinstatement provision is true? A. It provides for reinstatement of a policy regardless of the insured's health. B. It guarantees the reinstatement of a policy that has been surrendered for cash. C. It require the policyowner to pay all premiums that are in arrears in order for the policy to be reinstated. D. It permits reinstatement within 10 years after a policy has lapsed.
It requires the policyowner to pay all premiums that are in arrears in order for the policy to be reinstated. Yes, it gives the policy owner a chance to restart the policy. This is similar to question 164 above. The reinstatement provision may also require that interest be added to the past due premiums.
All of the statements about the automatic premium loan provision of a whole life policy are true except: A. It uses cash values if premiums are missed B. It prevents the inadvertent lapse of the policy C. Its use causes dividends to be withheld D. Its use preserves insurability
Its use causes dividends to be withheld It does not cause dividends to be withheld. That answer might sound good but it isn't true. Therefore, it is right because it's the exception.
Julio wants income for life. At his death, he wants his wife Maria to continue to receive income for the rest of her life; he chooses a: A. straight life annuity. B. installment refund annuity. C. life with period certain annuity. D. Joint & survivor annuity.
Joint & survivor annuity This is the one. It is specifically related to the lives of two annuitants and will continue to pay until the death of the 2nd annuitant.
Martha wants to receive income for life. At her death she wants her daughter to continue to receive the income for her life. Martha chooses: A. Joint life B. Period certain C. Joint and last survivor D. Amount certain
Joint and last survivor Yes... The Joint and Full Survivor, Joint and 2/3 Survivor and Joint and 1/2 Survivor allow a continued income for the lives of two people. In this case, the 2nd person is another annuitant, not a beneficiary. Notice that the answer actually said, Joint and LAST Survivor. You may see it mentioned that way as well. Joint and last survivor includes FULL, 2/3 and 1/2.
Jose works for a large city as a firefighter and Mable, his wife, is a secretary for a small new car dealer. Which one is likely not to be covered under social security? A. Mable B. Jose C. Both would be covered D. Neither would be covered
Jose It's Jose. Many cities, governmental agencies, etc., have their own retirement system and don't connect with social security. Not true of small businesses, which are going to be required to be in the social security system.
Disability Riders: Payor Benefit Rider
Juvenile policies; if parents become disabled, prems for juvenile policy waived until child reaches 18 or 21
False or fraudulent statements
Knowingly making false oral or written statements pertaining to any aspects of insurance or insurers
Homogeneous
Large number of units having the same/similar exposure to loss
Types of Term Life policies
Level - fixed death benefit, premium fixed until renewal; Decreasing - death benefit decreases over term, premium fixed until renewal; Increasing - death benefit increases over term, premium fixed until renewal.
Mortality tables are used by insurance companies to predict what?
Life Expectancy and the death rates for specific groups of individuals
What type of insurance creates an immediate estate?
Life Insurance
Cash Accumulation
Life insurance may be used to accumulate specific amounts of monies for specific needs with guarantees that the money will be available when needed.
Regarding life insurance and health insurance: A. Life is a valued contract, health a reimbursement contract B. Health is valued, life is reimbursement C. Both are valued and reimbursement D. Neither is valued nor reimbursement
Life is a valued contract, health a reimbursement contract Valued means there was a set value known ahead of time. Reimbursement means the total isn't known ahead of time, but the beneficiary will be reimbursed for his/her expenses. This is the best answer, but you also ought to know that saying "health insurance" is actually not correct. There are several kinds of health insurance which are not reimbursement. Medical expense insurance, which most people on the street think of as health insurance, is reimbursement.
A currently insured worker covered under social security is entitled to what? A. Disability benefits B. Retirement benefits C. Limited death benefits D. All of the above
Limited death benefits Yes, this is an available benefit when currently (not fully) insured.
Tax-Sheltered Annuities
Limited exclusively for employees of religious, charity, or educational groups. • Also called 403(b) plans • Accumulation payments often come from voluntary salary reductions • The annuitant may have an individual account contract
In what respect do limited pay life policies differ from straight whole life policies? A. Limited pay life policies do not give insurance protection to age 100. B. Limited pay life policies endow before age 100. C. Limited pay life policies have a shorter premium-paying period. D. Limited pay life policies can provide protection for a limited time, typically to age 65.
Limited pay life policies have a shorter premium-paying period. Yes... What was that about when babies are young? (Earlier answer)... This is what Limited Pay means. Pay more, for a shorter period of time. All else in the policy works as per normal.
Zeke has decided he needs permanent life insurance but doesn't want to pay premiums for a long period of years. What kind of insurance would be a correct choice? A. Modified whole life B. Universal life C. Limited pay whole life D. Deposit insurance
Limited pay whole life Right.... limited pay whole life has shortened payment periods: to 65, or 20 year, or single premium, etc.
Agnes purchases a round-trip travel accident policy at the airport before leaving on a business trip. Her policy would be which type of insurance? A. Limited risk B. Business overhead expense C. Credit accident and health D. Industrial health
Limited risk Yes, this is true. Limited risk indicates a category, and in this case the categories are aviation, travel-accident, and automobile.
All the following types of insurance companies may be approved to operate in nearly all states except: A. fraternal insurance companies. B. mutual insurance companies. C. Lloyds of London. D. stock insurance companies.
Lloyds of London Why? Because Lloyds of London is NOT an insurance company. This is almost a trick question, but is included to see if I can catch you on this point. If I did, you won't forget it on the state exam!
Insurance is a contract that protects the insured from what?
Loss
The reduction, decrease, or disappearrence of value of the person or property insured in a policy is known as what?
Loss
An immediate annuity is purchased: A. over the years before payout. B. lump sum. C. to begin after the first year. D. must begin the first month.
Lump sum Yes... purchased at one time. Then it is "immediately" turned into the payout side which is called the annuity side. The only way it can start immediately is to purchase it with a lump sum payment. Any other kind of payment would be in "installments" and that would mean the annuity would have to be a deferred one. Here's a catch: the payout doesn't start immediately! It starts one period later. The period is the choice of the annuitant -- how soon is it to start? One month, one quarter, one half year, or one year later. Therefore, the earliest the annuitant would receive the first payment would be one month later; the latest the payment would arrive would be one year later.
Variable annuity options often include all of following except: A. income for life. B. lump sum payout. C. a specified period of time. D. beneficiaries.
Lump sum payout Correct. The advantage of an annuity is it's payout structure over time. Not a lump sum. ONE NOTE: Do not talk to people in your office. This is a good example of differences between exam material and the real world. Just know that the variable annuity options DO NOT include lump sum payout.
A method of marketing group benefits to employers who have a small number of employees is the A. MEWA B. FINRA C. MET D. NAIC
MET Yes, an MET is something you might find at a Chamber of Commerce. Join our chamber and get in on our group plan, a multiple employer trust.
An insurance company has 30 agents that represent the company in its Northwest Region. The agents have their own Satellite office in which they perform the agent duties. Numerous offices have developed marketing campaigns to increase sales. What is the company's duty regarding marketing communications in this example?
Make a file of any marketing materials used with the public
All of the following are purposes of the entire contract provision of an insurance policy except: A. Describes the contract cannot be changed after it has been issued B. Prohibits the insurance agent from altering any of the terms or conditions of the contract C. Protects the insured against any attempts by the insurance company to alter the agreement by referring to other documents, such as the company underwriting manual D. Makes it clear that the contract is a three party agreement among the insured, the insurance company, and the agent.
Makes it clear that the contract is a three party agreement among the insured, the insurance company, and the agent. Nope. It is not a three party agreement. It is a two party agreement. Leave the agent out of this.... he/she is not a party to the contract.
Which of the following mandated once and for all that insurance would be regulated by the states, and made possible the application of anti-trust laws? A. Paul v. Virginia B. McCarran-Ferguson C. Armstrong investigation D. U.S. vs. Southeastern Underwriters
McCarran-Ferguson This is right. 1945.
What is included in Part 2 of a life insurance
Medical information about the insured
The following statement about the M.I.B. (Medical Information Bureau) is true: A. Medical information is received from insurance applications. B. The applicant can call the M.I.B. for a personal report. C. Agents are responsible for getting the report to the applicant. D. The M.I.B. is operated as part of the American Medical Association.
Medical information is received from insurance applications. Yes, this is where they get at lot of their data. Some also comes from health insurance claims.
Which of the following might not be protected under the incontestability clause? A. Concealment B. Fraud C. Misstatement of age D. Material misstatement
Misstatement of age This is not protected. It is adjusted. It doesn't make the policy invalid... the company will make the changes necessary to cause the proceeds to be what they should have been if the right age was known. There is no two year period to move through. It always applies.
All other factors being equal, which premium payment mode will require an overall higher premium: monthly or annual?
Monthly
Which of the following premium modes would result in the highest annual cost for an insurance policy?
Monthly
During the annuity period (payout) on a fixed period annuity, the experience of the company is better than they estimated. What happens to the monthly payout? A. Paid out longer B. Payout stays the same for life C. Monthly amount is increased D. The ages of beneficiaries become part of the calculation
Monthly amount is increased Yes it is. Nice.
An Annuitant receives monthly payments from a variable annuity under a Joint and 2/3 Survivor option. If the primary annuitant dies, what will the surviving annuitant receive? A. Two thirds of the primary annuitant's last check for life. B. Monthly payments for life of a dollar value of two thirds of the annuity units that were previously being distributed. C. Two thirds of the annuity units accumulated by the annuitant. D. A cash distribution of two thirds of the primary annuitant's reserve.
Monthly payments for life of a dollar value of two thirds of the annuity units that were previously being distributed. Yes, 2/3 the value of the units. The number of units remains fixed but their value paid out in this case if 2/3 of the original amount.
An applicant conceals relevant health information on the application. The applicant presents what type of hazard?
Moral
Drug addiction is an example of? A. Moral hazard B. Physical hazard C. Risk avoidance D. Morale hazard
Moral hazard Yes... Drug addiction is a legality issue and that makes it a moral hazard.
A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard
Morale
Both life and health insurance use the same factors determining premiums except: A. Interest factor B. Expense factor C. Morbidity D. Age
Morbidity Morbidity is the word for health insurance like the word mortality in life insurance. Remember this: The big three (mentioned in this question) are MIX. Mortality (or morbidity), interest, and eXpenses. Other factors are present, but remember MIX and you will be in good shape for the test.
The gross premium for a life insurance policy is made up of all the following elements except: A. Expense loading B. Interest C. Mortality costs D. Morbidity costs
Morbidity costs Morbidity is not in the gross premium because morbidity has to do with health insurance, not life insurance. Note: the first three (rearranged in order) spell MIX (if you allow for X counting for eXpenses). That's the way to remember the "big three" factors. Mortality tables in life insurance; morbidity tables in health insurance.
Out of the major factors used by actuaries in life insurance, which is the most important of the three? A. Morbidity B. Interest C. Mortality D. Expenses
Mortality Yes the mortality tables.
Net Single Premium
Mortality - Interest = Net Premium
An insured, Mr. Ale names his wife, Mrs. Ale as the primary beneficiary on a $100,000 whole life policy with a common disaster provision. Their son Hale is the contingent beneficiary. The common disaster provision prescribes that the primary beneficiary must live 14 days longer than the insured to receive benefits. Mr. and Mrs. Ale are involved in a serious private airplane accident. Mr. Ale is killed immediately. Mrs. Ale lives for 19 days before she dies. The correct statement: A. Mrs. Ale receives the proceeds of the policy which in turn are paid to her estate upon her death. B. The proceeds of the insureds policy are paid directly to Hale, the contingent beneficiary. C. The proceeds of the insureds policy are paid directly to Mrs. Ale and after her death to Hale. D. The proceeds are paid directly to the insured's estate.
Mrs. Ale receives the proceeds of the policy which in turn are paid to her estate upon her death. The common disaster provision has to do with time. The Simultaneous Death Act is where we can't tell who died last. If Mrs. Ale died before the check was written, the check would be received by Mrs. Ale's estate. Her estate is entitled to receive the benefits because she was alive at the time of Mr. Ale's death and the common disaster provision doesn't apply because her death was after the number of days specified in the policy. It also doesn't make any difference how long it is before the company writes the check. The check will be written to the appropriate party as per the provisions in the contract.
AML Program
Must appoint AML compliance officer (does not need to be registered)
Which of the following is not true about elements of insurable risk? A. Must be catastrophic B. Must be due to chance C. Must be predictable D. Must be randomly selected
Must be catastrophic It cannot be catastrophic ... that would wipe out the insurance company. We can't have that happen for the benefit of the rest of the policy owners.
An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?
Mutual
The type of insurance company organized to return any surplus money to its policyholders is known as what?
Mutual company
This association works for the best interest of all policyowners and for ways in broadening the opportunity and advancement of the individual agent: A. Life Underwriting Training Council B. National Association of Insurance and Financial Advisors C. American Council of Life Underwriters D. American College
National Association of Insurance and Financial Advisors Yes. This is the national trade association for the insurance industry.
Taking all the funds available to a family and planning for their financial obligations is an example of: A. Human life value approach B. Needs approach C. Dollar valuation D. Multiple earnings
Needs approach The needs approach takes many factors into consideration when planning for the family's financial outcome. Interim goals can be considered as well as retirement. The needs approach can consider all aspects of a family's future.
No premium
No coverage
Can insurers advertise the existence of the guaranty association during solicitation and sale of insurance polcies?
No, advertising of the existence of the guaranty association for the purposes of solicitation and sale of insurance policies by insuers is a illegal business practice.
Which feature in a life insurance policy allows an insured to stop paying premiums and take a paid-up policy with a face amount less than that of the original policy? A. Non forfeiture option B. Settlement option C. Facility of payment provision D. Waiver of premium provision
Non forfeiture option Right. The Armstrong investigation in 1905 concluded that the client was not going to forfeit (lose) their savings in a cash value policy. The non-forfeiture options were established for that purpose.
What is the plan called if the employer pays the whole premium on a group policy? A. Qualified B. Non-contributory C. Contributory D. Non-qualified
Non-contributory When the employer contributes everything, it is non-contributory... the employee contributes nothing.
Which title can a life insurance agent use when conducting business? A. Financial planner B. Financial consultant C. Investment advisor D. None of the above
None of the above None is correct. Those titles are only used when one has become a CFP or a ChFC or an RIA.... and that is not something that is part of this course. Agents are to be known as agents. The title "agent" is significant in that such a person is "an extension" of the company. See the information on the authority given to an agent and responsibilities of an agent. This is one of few questions where the answer is None Of The Above. Usually, this is not a good answer for the state exam. "All of the above" can often be correct.
Dividends received on accumulation units are taxable at what rate? A. Dividend rate B. Capital gains rate C. Ordinary income rate D. None of above
None of the above Ohh boy, I got to use another "none of the above" as the correct answer. Why? Because the gains are not taxable now, and that includes capital gains or dividends. They are taxed later at the time the accumulation units are converted to annuity units. THEN, even though the gains which happened were a result of dividends, or capital gains, it doesn't make any difference. When the funds are withdrawn, the taxes are all calculated at the ordinary income rate.
This report reflects an applicant's mode of living, and exposure to abnormal hazards. A. Agents report B. Special questionnaire C. Medical report D. None of the above
None of the above Yes... wow... another "none of the above" got used. The answer to the question is the Inspection Report. None of the above is correct here, but is rarely right on the state exam. Usually it is used because the test-builder couldn't think of a good fourth answer.
Implied
Not specifically stated in the contract but is assumed necessary to conduct insurance business
Under a payor provision, what happens if the child covered under the policy becomes disabled? A. Face amount payable B. Nothing C. Premiums waived until age 25 D. Premiums waived permanently
Nothing They do nothing. The payor provision is for the protection of the payor - the adult paying for the policy, not the child. It's for if/when the payor is disabled or dies.
Which of the following documents must be provided to the policyowner or applicant during policy replacement?
Notice regarding Replacement -during policy replacement, the replacing producer must present to the applicant a notice regarding replacement.
predictable
Number of losses must be statistically predictable
MECs and 7-pay Tests
Once a MEC, always a MEC
When could a war clause exclusion be enforced in a policy? A. Never in policies B. Only during wartime C. Always in policies D. At the insurer's discretion
Only during wartime Right. That's like "when are babies young?" When they are babies. Also look at answer (c.) this time for some more information.
Partial surrender or Withdrawal
Only on universal life policies, may be a charge, limits on withdrawal amount, interest may be taxable
Unilateral Contract
Only one of the parties to the contract is legally bound to do anything. -insured makes no legally binding promises. -an insurer is legally bound to pay losses covered by policy in force
Which of the following statements is correct? A. Only speculative risks are insurable. B. Only pure risks are insurable. C. Only quantified risks are insurable. D. Both speculative risks and pure risks are insurable.
Only pure risks are insurable. Yes, pure risks are only covering for losses. We do not have gain with pure risk, or insurance, either.
Universal Life Death Benefit Options (2)
Option A: level db equal to policy's face value, more prem placed in cash account Option B: increasing db equal to face value + cash account; more prem applied to inc db
Fraternal Benefit Society
Organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government
Annuity periods
Owner pays into annuity, pays into annuitant
Which would not be covered under business overhead expense insurance? A. Water utility bill B. Leased equipment C. Owners salary D. Long distance telephone bill
Owners salary Yes, the owner's salary is NOT included.
Explain the difference between what a General Agent does as compared to a PPGA? A. Both basically train agents and transact insurance B. Both basically just transact insurance C. PPGA's primarily sell, General Agents recruit, train, manage, etc. D. General Agents primarily sell, PPGA's recruit, train, etc.
PPGA's primarily sell, General Agents recruit, train, manage, etc. Yes... this is right. PPGAs are often found in a small office where the desire for the PPGA is to function like a one man/one woman operation.
In order to maximize policy death benefits for a beneficiary which dividend option should be selected? A. Paid-up additions B. Accumulate at interest C. Reduce premium D. Cash
Paid-up additions Yes. Either this, or one-year term, except that answer wasn't included here. The paid up additions are for long-term benefits, and the one-year term is temporary... and was originally created to supplement in the case of policy loans. That is why the one-year term option is also known as the 5th dividend option.
If a medical report is required, it is completed by: A. Insurer medical officer B. Insurer underwriter C. Physician only D. Paramedic or Physician
Paramedic or Physician Yes, and usually the medical reports are done by a paramedic, or on larger amounts of insurance or older client age, in a physician's office or clinic.
The agent's report is found where in the application? A. Part I B. Part II C. Part III D. Part IV
Part III Yes, it's part III. This is where the agent makes comments about the client, situation, or anything he/she wishes to be noted.
Mutual companies usually sell: A. Participating policies B. Non-participating policies C. Non-sequitur policies D. Contributory policies
Participating policies The reason is that this is the mechanism that allows a mutual company to lower the cost to the policyholder. Remember, that's the goal of a mutual company. Par (participating) policies make that work
Emergency Reserve Funds
Paying for unexpected expenses following the death of the insured. -travel expenses -lodging for family members
If the premiums on a child's policy are waived after the death or disability of the policy owner. The policy must have which of the following features? A. Exclusions B. Extended term C. Automatic premium loan D. Payor provision
Payor provision That's it. The payor is the person who is the owner of the child's policy and is the one paying the premiums.
An annuitant selects a life with period certain as his annuity option, what will he receive? A. Payout for a fixed number of years. B. Payout for life or a fixed number of years whichever is first C. Payout for life or fixed number of years whichever is longer D. Payout for life
Payout for life or fixed number of years whichever is longer He will receive income for life, and if he dies before the end of the period certain, his beneficiary will receive the same payment until the end of the period certain.
Which of the following is a requirement of a participating life insurance policy? A. Pays dividends to stockholders B. Assesses premiums against stockholders C. Pays dividends to policyowners D. May be converted to a term life policy
Pays dividends to policyowners Yes, that's what they do. However the dividends are not guaranteed, but the company really wants to pay dividends to keep their clients happy.
Pensions v. Profit-sharing Plans
Pension requires employers to make funding contributions every year, whereas profit-sharing plans don't require it (can contribute whenever they want/make profit)
All of the following will determine the dollar value of variable annuity units except: A. Investment results from the annuity portfolio of common stocks B. Mortality expense C. Performance of the stock market D. The expenses of running the company
Performance of the stock market This is too general a term. If we restrict the market to the annuity portfolio, then it is true. Then it would become the same as answer (a).
What is the term for the causes of loss insured against in an insurance policy?
Peril
What type of life insurance offers an applicant a cash value element?
Permanent insurance (whole life)
Minor
Person under legal age
Standard risks
Persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions.
physical
Physical Condition
3 types of hazards
Physical, Moral, Morale
What are the three types of hazards?
Physical, Moral, Morale
retention
Planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance.
The major areas of regulation by the Office of Insurance Regulation include which of the following? A. Policing against unauthorized insurance activities B. Proposing legislation to regulate the insurance industry C. Enacting new insurance laws D. Enforcing criminal penalties against those who violate the Insurance Code
Policing against unauthorized insurance activities Yes, policing means watching over. That's what they do.
Which of the following is not usually offered as a dividend option? A. Policy loan B. Paid up additions to the face value of the policy C. One-year term insurance D. Premium reduction
Policy loan Policy loans have nothing to do with the dividend options.
Which of the following will pay the policyowner an amount that does not exceed the guaranteed cash value? A. Policy loan B. Automatic premium loan C. Entire Contract option D. Dividend option
Policy loan Yes... a policy loan may be taken out against the cash value of the policy.
What document describes the specific information about a policy?
Policy summary
To whom must a dually licensed agent send a notice if the purchase of securities will occur, and the policyholder will be replacing his/her existing policy? A. Company B. SEC & FINRA C. Policyholder D. Policyholder & commissioner
Policyholder Right. To the policyholder. Only to the policyholder. This is important and interesting because it has been changed. Sample tests which circulate around offices could easily have this answer wrong. One of the reasons I like this format you are now using is that I can change it when we hear about changes, and you benefit immediately. Answer (d) was correct until recently. This is still called the "dually licensed life agent's rule."
Before replacing insurance, an agent must give a copy of a comparison and summary statement to the policyowner upon the request of: A. Policyholder B. Insurance commissioner C. Company being replaced D. Policyowner & beneficiary
Policyholder Upon the request of the policyholder. This is a form that has two boxes on it.... YES and NO. If the policy owner indicates YES, that's when this requirement applies.
Who must have insurable interest in the insured?
Policyowner
A dually licensed agent, who knows an existing insurance policy will lapse, and based on his recommendation, will be invested in a security, must notify who in 15-days? A. Insured B. Beneficiary C. The insurance company D. Policyowner
Policyowner Yes. There is some explaining which needs to be done here. First, there is a difference between duly and dually. Duly means properly licensed. Dually means two licenses. Watch the spelling. This is talking about dually, and a notice must be given to the policyowner 15 days prior to doing something to carry out the proposal.
Express
Powers specifically stated in the contract
In March, farmer Brown needs $250,000 of permanent life insurance. He is "cash poor" until fall harvest. The solution to his problem is: A. Monthly renewable term B. Limited pay policy to keep the cost down C. Preliminary term for interim coverage D. Temporary insurance agreement
Preliminary term for interim coverage Yes... it's Preliminary Term for interim coverage. Typically it works for up to 11 months. Don't get confused with the temporary insurance agreement mentioned in conjunction with a binding receipt. The temporary insurance agreement has a maximum of $100,000 and 60 days.
What term describes the fee a person pays an insurance company to receive coverage?
Premium
Which would be higher for a participating life insurance policy than for a comparable nonparticipating life policy? A. Premium B. Surrender value C. Lump sum settlement D. Interest rate on policy loan
Premium Yes... only the premium. All else is the same, except, dividends are available to those with PAR policies. PARticipating with the company on their expenses.
What is the term that describes the frequency and the amount of the premium payment?
Premium mode
Which of the following features makes universal life different from whole life? A. Free look B. Settlement options C. Premium payment schedule D. Beneficiary provisions
Premium payment schedule Universal life is VERY flexible. Whole life is set on a specific premium payment for the full time of the premium schedule. Rigid.
Which of the following makes universal life different from other whole life insurance? A. Premium schedules B. Free look period C. Settlement option D. Beneficiary provision
Premium schedules Yes... flexible, flexible, flexible. The premium, the face value, withdrawals, the way it functions. Those other answers are all the type of thing that is consistent from policy to policy including term insurance.
Which is correct concerning a graded premium whole life policy? A. It is a form of term insurance. B. Premiums are reduced each year during the early policy years and then remain level. C. Premiums are payable to age 65. D. Premiums start low, increasing each year during the early years of the contract and then remain constant for life.
Premiums start low, increasing each year during the early years of the contract and then remain constant for life. Yes, the premiums start low, rise slightly each year, and then finally level off for the remainder of the contract period.
What are illustrations in a life insurance policy?
Presentations of nonguaranteed elements of the policy
The MIB's main purpose is: A. Provide detailed medical information B. Prevent overinsurance C. Prevent misrepresentation and fraud D. Assist doctors
Prevent misrepresentation and fraud Yes, this is right. Prevent misrepresentation and fraud. And the big reason is to keep the costs down for the legitimate policy owners! Minimizing policy costs for the client is actually the bottom line answer. If there is no fraud, that keeps the rest of the clients paying the right amount of premium for their coverage.
Types of Licenses
Producer(agent) -Business Entity -Nonresident -Temporary
social insurance programs
Programs to help the elderly, ill, and unemployed if the claimant has paid into them -Social Security -Medicare -Medicaid -Federal Crop Insurance -National Flood insurance
Disability Riders: Disability Income Rider
Provides insured with monthly benefit check if they become disabled
the agent's producer's report
Provides the agent's personal observations concerning the proposed insured
Employees of the following type of organizations generally may participate in Tax Deferred Annuity plans. A. Professional sports association. B. Small business enterprises. C. Professional corporations. D. Public school systems and other "Not for profit" groups.
Public school systems and other "Not for profit" groups. This is one of the primary uses of the TDA.
One-Year Term Option
Purchase one-year term protection
Single premium immediate annuities (spias)
Purchased with a single, lump sum payment and provides income payments that start within 1 year from the date of purchase. Typically and immediate annuity will make the first payment on month from the start date
Flexible premium deferred annuities (FPDAs)
Purchased with multiple payments that can vary from year to year and the benefit payments begin sometime after one year from the date of the purchase
What type or risk is insurable?
Pure
A situation in which a person can only experience a loss and no gain presents what type of risk?
Pure risk
Nonprofit trade organization
Receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals
Which is the most correct about a GA verses a PPGA? A. Sells vs. recruits and trains B. Recruits and trains vs. sells C. Recruits & trains vs. assists GA in recruiting and training D. Employed by a company vs. employed by the State Department of Insurance
Recruits and trains vs. sells Yes, this is what they both do. The GA recruits, trains and supervises, and the PPGA produces business personally.
An old man stops payment on his policy, but wants coverage for the remainder of his life. Which would provide this? A. Extended term B. Reduced paid up C. Term D. Endowment
Reduced paid up Yes.. this is it. Reduced, paid-up means it covers for the remainder of a lifetime, but at a reduced face value, and without any further payments of premium.
Which of the following is a Nonforfeiture Option that provides continuing cash value buildup? A. Extended Term B. Cash Surrender C. Reduced paid-Up D. Fixed Period Option
Reduced paid-Up The cash value will continue to grow (build up) even though the policyholder is not contributing any more money to it.
Which of the following rules 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. Conversion rule B. Disclosure rule C. Replacement rule D. Reinstatement rule
Replacement rule Yes, it's the replacement rule. This means that if the agent determines that a policy will be lapsed, cashed in, or otherwise terminated, or even partially reduced to where some cash value is being used to purchase a new policy, the agent must fill out the replacement form so the current company is aware that a transaction is about to occur that would affect their existing policy.
Conditional Contract
Requires that certain conditions must be met by the policy owner and the company in order for the contract to be executed and before each party fulfills its obligations. -the insured must pay the premium and provide proof of loss in order for an insurer to cover a claim.
Reinstatement Provision
Restores a lapses policy IF insured: -submits an app for reinstatement within 3 years of lapse -Pay all past due premiums with interest -Provide satisfactory evidence of insurability (medical exam)
What are the strategies used by underwriters to prevent adverse selection?
Restriction of coverage -refusal to accept a risk -accepting a risk at a higher rate
What is the best way to handle incomplete insurance applications
Return the application to the applicant for completion
Revocable vs. Irrevocable beneficiary
Revocable - changeable anytime w/ Change of Beneficiary Form; Irrevocable - not changeable w/out beneficiary permission.
Changing one's lifestyle to minimize a known risk is an example of? A. Risk avoidance B. Risk transference C. Risk reduction D. Risk retention
Risk reduction Minimizing risk is reducing exposure to that risk. Changing lifestyle/habits can definitely reduce a known risk.
What is the main responsibility of a company's underwriting unit?
Risk selection
Rollovers v. Transfers
Rollover: funds distributed to owner where they must be deposited within 60 days into new IRA or it becomes taxable; can only do it once a year Transfer: money directly distributed to new IRA; unlimited times per year
Under what rule are endowment policies taxable after 60 days of maturation date? A. Rule of definition of benefit B. Rule of constructive receipt C. Rule of installment value D. Rule of excess deposits
Rule of constructive receipt Right. It means that the owner of the endowment policy has 60 days from the date the contract matures, to make arrangements for a payout (such as an annuity). If that isn't done, the IRS will determine that the owner "received" it... "THE RULE OF CONSTRUCTIVE RECEIPT," and any and all taxes are due immediately on an ordinary income basis.
In a variable annuity who regulates the separate account? A. State Department of Insurance B. SEC C. FINRA D. SEC & FINRA
SEC Right. Securities and Exchange Commission. They said so in 1956. The Supreme Court of the US agreed in 1959.
Who regulates the separate account in a Variable Annuity? A. Insurance Dept. B. FINRA C. SEC D. Fred & Wilma
SEC Yep. It's the S.E.C. (Securities and Exchange Commission). You know what though? They don't care whether the investments in the separate account do well or not. All they are watching (and it's significant) is that the people who are doing the investing with the money in the separate account are doing exactly what they said they were going to do with it as described in the PROSPECTUS.
In addition to the state, the organization that regulates variable contracts is: A. FTC B. SEC C. FCC D. NAIC
SEC Yes, the Securities Exchange Commission regulates all variable life and variable annuity products.
Who regulates variable annuities? A. SEC and state insurance department B. SEC C. FINRA D. The State Office of Insurance Regulation
SEC and state insurance department Yep. SEC and the State. Both because the SEC regulates the investment portion and the state regulates the "insurance" part of the contract. Yes, there is an "insurance" part even though there is no insurance in an annuity. It's the part that deals with actuarial tables determining how long the annuitant is expected to live. That has to do with how much the monthly payment will be.... and that's why the insurance industry is involved with annuities.
Henri is self-employed. He decides to start a retirement plan, which plan will allow him to save the most with tax deferred treatment? A. TSA B. IRA C. SEP D. 401(k)
SEP Yes.... because Henri's SEP is the best of those shown for a small self employed business.
All of the following are defined contribution plans except: A. Money purchase plans B. Profit sharing plans C. Stock bonus plans D. Salary sharing plans
Salary sharing plans What is a salary sharing plan? I just threw that in. A good possibility for the state exam as a fourth answer is: pension plan... because a pension plan is not one of the defined contribution plans; it is a defined benefit plan.
Liquidation
Selling assets in order to raise capital
If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?
Send the application back to the applicant for signature
Variable Annuity
Serves as a hedge against inflation, and is variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity
Della is covered under a qualified retirement plan. Which of the following is true about her I.R.A.? A. She can contribute up to $5,500 B. She can contribute only up to $250 C. If her spouse has a pension, they are restricted to one IRA. D. She and her husband can open a joint IRA up to $8,000
She can contribute up to $5,500 Right. Here's what we know: Della is working somewhere that has a qualified retirement plan so we can ASSUME for the purposes of the state exam that she is making more than $5,500 per year. ANYONE who earns more than $5,500 per year, whether or not they are qualified for a qualified plan, can have an IRA of $5,500 or less. This doesn't speak to the problem of how much is deductible because then we have to be concerned about how much Della is making per year with regard to the Traditional IRA. The question doesn't mention whether it is a traditional IRA or a Roth. The Roth IRA is not deductible. BUT the interest grows tax free because it will not be taxed at the time of withdrawal. However, the answer only stated about contributing to an IRA.
Accumulation units
Similar to buying shares in a mutual fund, these are purchased by variable premiums
All of the following retirement plans automatically qualify for a federal income tax deduction except: A. Corporate pension plans B. Single premium deferred annuity C. 403(b) D. SEP
Single premium deferred annuity Right. A single premium deferred annuity is not a QUALIFIED plan (unless it is specifically setup in one), and therefore, it does not have a federal income tax deduction. The other three plans mentioned in this question are all QUALIFIED plans and do qualify for a tax deduction and are also tax deferred.
A life insurance applicant chooses the length of the premium-paying period when selecting the type of policy that should best meet his objectives. Which type of policy has the highest initial premium and shortest pay period? A. Single premium life policy B. 10 pay life policy C. Variable life policy D. Endowment policy
Single premium life policy Right. Pay it once for a lifetime. This has the highest initial premium, but from a total out-of-pocket dollar standpoint, this one is the least expensive. The company has the money to work with for a lifetime from the very beginning, so in actual dollars spent, it is probably going to be the least.... and will be the least if the insured lives a long life.
Process of Issuing a Life Insurance Policy
Solicitation and Sales Presentations -> Underwriting: Field and Company -> Premium Determterm-93ination -> Policy Issue and Delivery
Fiduciary
Someone in a position of trust
HIV consent
Special permission is needed to administer a test which detects HIV
Wagering on a sporting event is known as what type of risk
Speculative
The two types of Risk are
Speculative and Pure
Which clause protects proceeds from creditors of the beneficiary? A. Insuring clause B. Incontestable clause C. Spendthrift trust clause D. Suicide clause
Spendthrift trust clause Yes. This clause protects the beneficiary from him/herself. How it works is that if there are proceeds left with the company (doesn't work with a lump sum), this clause doesn't allow any creditor of the beneficiary to come and claim against the money.
Best way to handle an error
Start fresh with new application
A modified whole life policy: A. starts with lower face that increases over life of policy B. Starts with lower premium that increases over life of policy. C. Starts as term and automatically converts to permanent D. Starts without any riders and the eligibility for options begins in five years
Starts with lower premium that increases over life of policy. Starts with a low premium and jumps up perhaps five years later to the amount it will be for the remainder of the policy. It allows people to get in who don't have sufficient funds presently, but will as time goes on.
The insurer organized to return a profit to the stockholders is what type of insurer?
Stock company
What is the success of variable annuities in the market place based on? A. Bonds because they outperform fixed investments B. Fixed investments because they outperform stocks/bonds C. Stock/equity market because it outperforms fixed investments D. The junk bond market because of the high returns
Stock/equity market because it outperforms fixed investments Yes.... Stocks are equity investments and are used because of their appreciation over time. They outperform fixed investments. Bonds are not generally used because bonds are not ownership or "equity" investments and as such don't appreciate over time.
Who owns stock companies?
Stockholders
Which of the following policies provides the greatest amount of death protection for an insured's periodic premium dollar as well as some cash accumulation? A. Term B. Annuity C. Limited-Pay Life D. Straight Whole Life
Straight Whole Life Yes. This is a good question to have to think through.
Mary wishes to have her annuity pay her until her death, with no further payments to anyone. What type of annuity should she get? A. Refund option annuity B. Interest only option C. Straight life annuity D. Period certain annuity
Straight life annuity Yes, this is it. Also known as Straight Life Income option.
What type of policy has premiums paid to age 100, and upon age 100 pays the face amount as an endowment? A. Straight whole life B. Limited pay whole life C. Endowment at 50 policy D. Refund annuity
Straight whole life Right. Pay 'til 100, coverage 'til 100, and at the point it is fully endowed (age 100) the policy pays the face value.
Which policy below, if issued at age 40, has premiums payable for 60 years, insurance protection for 60 years, and endows at age 100? A. Endowment at age 60 policy. B. 20-pay endowment at age 60 contract. C. 20-pay life policy. D. Straight whole life policy.
Straight whole life policy. Right. Payable for 60, insurance for 60, endows in 60 ... remember, the insured was 40 when the policy was purchased.
Which one of the following is most commonly included in the exclusion clause in a life policy? A. Felonious acts B. Suicide C. Commercial airline flights D. Private air flights
Suicide Yes. Always. At least for the answer on the state exam.
A policy will not be reinstated if it has been: A. Subject to substantial borrowing B. Surrendered for its cash value C. Continued under the reduced paid up option D. Continued under the extended term provision
Surrendered for its cash value Right... surrendering means cashing in which means over and done with!
Insurance agents represent the insurer.
THE PRINCIPAL
Which of the following is the best example of what is known as "stripping?" A. Taking cash values from one policy for another investment B. Taking accumulated dividends out in cash C. Taking out a policy loan D. Eliminating special features to reduce cost
Taking cash values from one policy for another investment Yes, this is stripping a cash-value policy of it's cash.
Premiums for group term life insurance paid by an employer on behalf of his employees are: A. Not tax deductible B. Partially tax deductible C. Tax deductible under certain conditions D. Considered taxable income for the employee
Tax deductible under certain conditions Yes, the premiums are tax deductible under certain conditions. This is an unusual arrangement... it's like the IRS is not getting taxes on either end up to a $50,000 limit.
How is the divisible surplus received by a recipient? A. Tax free B. Taxable C. Tax deferred D. None of the above
Tax free Tax free because the funds are effectively an overpayment of premium... the money had already be paid by the policyholder with after tax dollars. Divisible surplus is the extra funds left over when the liability estimates were higher than what actually occurred. The left over money is divided among the PAR policy owners and paid out in dividends. This surplus would be called profit in a stock company, but we are talking about a mutual company here which is non-profit. Money at the end of the year is known as divisible surplus.
What's the special class of retirement plan available to employees of certain nonprofit charitable organizations? A. Charitable IRA B. Qualified corporate retirement plan C. Tax-deferred annuity D. Keogh Act
Tax-deferred annuity This is a special class of retirement plan... which can be used in a qualified retirement plan.
What is the type of insurance that would not make a good retirement vehicle? A. Whole life B. Endowment C. Limited pay life D. Term
Term Yep. It's term because term is used to cover an insurance need for a fixed period of time and then not be needed anymore... and it doesn't have any cash value at any time.
Under a family plan policy, the child rider is usually what type of insurance? A. Term B. Whole life C. 30-pay life D. None of the above
Term Yes... and the child is normally given the option when they become an adult to continue the coverage without proving insurability.
Which of the following is the basic coverage issued to an eligible member under the Servicemember's Group Life Insurance (SGLI) program? A. Whole life insurance. B. Term insurance. C. Endowment insurance. D. Split dollar.
Term insurance Right. Term is the least expensive and provides coverage for a fixed period of time (enlistment) of the service personnel.
In a typical family policy, coverage on the children is usually provided by which of the following? A. Whole life B. Term life C. Endowment plan D. Fixed annuity
Term life Yes, level or decreasing term insurance.
Who are the members of the Financial Services Commission? A. The Governor, the CFO, and the Attorney General B. The Governor, the Commissioner of the OIR, and the Commissioner of the OFR C. The Governor, the Assistant Governor, and the CFO of the DFS D. The Governor, the CFO, the Attorney General and the Commissioner of Agriculture
The Governor, the CFO, the Attorney General and the Commissioner of Agriculture Yes, these are the four. I love this question because it's a surprise. Why is the Commissioner of Agriculture one of the members of the financial services commission? I was told it's because Florida was originally a farm state from long ago, and the Commissioner of Agriculture was involved in much of state government.
The separate account of a VA company will be regulated by: A. The VA company. B. The State Department of Insurance. C. The SEC. D. ERISA.
The SEC Yes, it is the Securities and Exchange Commission.
If an applicant does not receive his or her insurance policy, who would be held responsible?
The agent
Usually, the policy delivered to a new policy owner is done by A. a representative of the policy issue department of the company B. the FEDEX agent who has a delivery contract with the insurance company C. the agent D. the underwriter
The agent Yes, it's usually the agent. There are several good reasons for this because the agent will cover specifics of the policy and any ratings. It's also one the free look begins when the client receives the policy physically.
Whose responsibility is it to determine that all the questions on an insurance application are answered?
The agent's
What is the main purpose of the agent's report during the application process?
The agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process.
The consideration clause states which of the following? A. The amount of proceeds payable B. Names the insured C. Where to send the application and initial premium D. The amount and frequency of premium payments
The amount and frequency of premium payments How much and how often. Note that it says "consideration clause" and not just the word consideration. The word "consideration" by itself means the application and the initial premium together.
Single premium deferred annuities (SPDAs)
The annuity is purchased with a single payment, but the benefit is no paid out until one year has elapsed
An applicant has been denied insurance coverage because of information contained in a consumer report. According to the Fair Credit Reporting act, which of the following statements is true about this situation? A. The applicant has the right to obtain a copy of the consumer report directly from an insurance company that used the report. B. The applicant has the right to obtain disclosure of the substance of the information in the consumer report from the reporting agency. C. The applicant may require the agent to deliver the report to him personally. D. The reporting agency advises the insurance company of adverse information and may suggest a non standard rating on poor risks.
The applicant has the right to obtain disclosure of the substance of the information in the consumer report from the reporting agency. Right. The only thing the insurance company can tell the applicant, (or the agent either) is where the report came from which caused the company to decline the coverage.
A business is the owner and beneficiary of a key-person life policy. When the business collects the policy benefit, how is it taxed?
The benefit is received tax free
With a key employee insurance policy, who is normally the beneficiary? A. The family of the insured. B. The business. C. The insured's estate. D. The key employee.
The business Right. Key employee insurance is purchased by a company because of the concern of losing a key employee's efforts by death. It is the loss to the company that makes it an important factor in protecting the company financially. Therefore, the company is the beneficiary.
Which of the following best describes the normal conversion benefit available to terminated employees under a group life insurance policy? A. The employees may convert to an individual term policy within 31 days by submitting evidence of insurability. B. The employees may convert to an individual whole life policy within 31 days by submitting evidence of insurability. C. The employees may convert to an individual term policy within 31 days without submitting evidence of insurability. D. The employees may convert to an individual whole life policy within 31 days without submitting evidence of insurability.
The employees may convert to an individual whole life policy within 31 days without submitting evidence of insurability. Right. That's it.
Who is the beneficiary on a key-person life insurance policy?
The employer
If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?
The existence of insurable interest between the applicant and the insured
A policy owner commits suicide 2 1/2 years after the policy is issued. What will the company pay? A. Nothing B. All back premiums will be refunded C. The face amount D. 1/2 the face amount
The face amount Yes, the company will pay the face amount because the owner had the policy longer than the period stipulated by the suicide clause. There's one other thing you have to assume on this question. I have included the question this way because you will have questions like this on the state exam. The assumption is that the policy owner's policy is on him or herself. Otherwise, the question doesn't make any sense. The other variable here is "who" is going to be paid. If all back premiums are refunded where it has been less than the suicide clause period, they would go to the estate of the policy owner, not to the beneficiary. In this case, the face amount is paid and that only goes to the beneficiary.
Who is responsible for the contents of insurance advertisements?
The insurance company
"An insurance contract is prepared by one party, the insurer, rather than by negotiation between the contracting parties." Which of the following statements explains this characteristic of insurance contracts? A. The insurance contract is an aleatory contract. B. The insurance contract is a contract of acceptance. C. The insurance contract is a contract of adhesion. D. The insurance contract names only the insurer as the competent part.
The insurance contract is a contract of adhesion. Yes, adhesion means the client cannot change the wording in the application, the policy, or anything that has to do with the transaction. The state of Florida has approved the content and wording of all forms and policies. There can be no negotiating. It's set, and the client either adheres to all wording, or doesn't purchase the policy.
Under the uniform simultaneous death act, when there is no proof as to who died first, it assumes: A. the insured died first. B. the insured died last. C. It makes no difference. D. the beneficiary died last.
The insured died last Yes... Always. If George and Martha died and it can't be determined who died last, George died last on his policy, and Martha died last on her policy
When planning for survivor protection in life insurance, what needs to be considered?
The insured's current assets -libabilites + survivor needs
Who bears the investment risk on whole life?
The insurer
Common accident, the insured dies and the primiary beneificary dies shortly after...
The insurer will respond as if the primary beneificary died first -insurer pays death beneift to secondary benefiicary
Law of Agency
The law that governs the relationship between a principal and his or her agent.
How is the policy loan repaid if the policy pays a death claim? A. Because the policyowner, not the beneficiary, made the loan, it does not have to be repaid at the insured's death. B. The loan, plus any interest due, is deducted from the death benefit. C. The beneficiary takes over the loan, plus any interest due. D. The loan, plus any interest due, is paid through the insured's estate, just as with any other debts.
The loan, plus any interest due, is deducted from the death benefit. Right. You chose wisely.
Premium
The money paid to the insurance company for the insurance policy
Gross Annual Premium
The net premium for insurance plus commissions, operating and miscellaneous expenses, and dividends.
Under a life income annuity option which of the following is true? A. The older the annuitant, the smaller the monthly payment. B. The older the annuitant, the shorter the payment period. C. The younger the annuitant, the shorter the payment period. D. The older the annuitant, the larger the monthly payment.
The older the annuitant, the larger the monthly payment. Yes, because the actuarial table says the annuitant will probably not live as long as a younger person, and therefore, the monthly payment will be larger. The monthly payment is based on the table.
Underlying Investment- Variable Annuity
The payments that the annuitant makes into the variable annuity that are invested in the insurer's separate account, not their general account. The separate account is not part of the insurance portfolio, and is not subject to the restrictions that are applicable to the insurer's own general account
Blackout Period
The period of time between the youngest child turning 16 and the widow(er) reaching retirement age during which no Social Security Survivor Benefits are paid to the surviving spouse.
Accumulation period (pay-in period)
The period of time over which the owner makes payments (premiums) into an annuity. The period of time during which the payments earn interest on a tax deferred basis.
Beneficiary
The person who receives annuity assets (either the amount paid into the annuity or the cash value, whichever is greater) if the annuitant dies during the accumulation period, or to whom the balance of annuity benefits is paid out.
Annuitant
The person who receives benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written. Does not need to be the owner, but most often is. Must be a natural person, not corporation, trust, or other legal entity
Which statement is not true regarding qualified corporate retirement plans? A. The plan must be in effect. B. Minimum funding standards must be met. C. The plan must be temporary. D. The plan must meet minimum participation requirements.
The plan must be temporary. The plan cannot be temporary. It must be permanent and on-going.
Who bears the investment risk on variable life?
The policyowner
Nonforfeiture Options
The policyowner decides he can no longer afford his permanent life insurance premiums.
backdating
The practice of making a policy effective at an earlier date than the present.
In calculating the amount of life insurance needed, what is the needs approach based on?
The predicted needs of a family after the premature death of the insured
What is insurance underwriting?
The process of risk selection and classification
Owner of Annuity
The purchaser of the annuity contract. Has all the rights. May be a corporation, legal trust, or other legal entity
Legal Purpose
The purpose of the contract must be legal and not against public policy. -Insurable interest + consent -Contract without a legal purpose is considered void + cannot be enforced by any party.
Loss
The reduction, decrease, or disappearance of value of the person or property insured in a policy, by a peril insured against.
What is also known as the American Agency System? A. A system devised as a result of the Armstrong Investigation which occurred in Early America B. The American version of the Lloyds of London plan C. The same as the Independent Agency System D. A system based on Paul vs. Virginia of 1868.
The same as the Independent Agency System Yes, and that information is in the ZoomBook and is also in the ZoomWords list of definitions.
In a group plan, what conversion rights belong to a surviving spouse? A. The same conversion rights that belonged to employee B. Must look for a new policy C. Can stay on the group for 9 months D. Spouse will have rights but not the children
The same conversion rights that belonged to employee Yes. The same rights as the employee. Important. The spouse can convert to an individual policy without proof of insurability.
Annuity Period, Annuitization Period, Liquidation Period, Pay-Out Period
The time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant. Can be a set period of time or the lifetime of the annuitant, whichever is longer.
Annuitization Date
The time when the annuity benefit payouts begin (trigger for benefits)
Insurance
The transfer of risk through the pooling or accumulation of funds.
Waiver
The voluntary act of relinquishing a legal right, claim or privilege
Concealment
The withholding of known facts which, if material, can void a contract.
What is the application fee associated with the issuance or renewal of an agency license? A. $2500 at issuance and $500 every three years at renewal B. $1000 at issuance and $250 every three years at renewal C. $500 at issuance and $100 every three years at renewal D. There is no fee associated with issuance or renewal of an agency license
There is no fee associated with issuance or renewal of an agency license No fee for either the issue once or renewal of an agency license.
Randomly selected and large loss exposure
There must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health and economic status, and geographic location.
What are blanket life policies? A. It is a marketing term meaning to blanket the area with sales. B. They have to do with covering agents in their offices. C. They cover a group of people exposed to a common hazard. D. They are policies which haven't been used in the USA since 1890.
They cover a group of people exposed to a common hazard. Yes... blanket life policies cover groups in motion. This could be schools, a transportation company, a church, or any group which regularly fluctuates. Insureds are not specifically named in the policies.
Which employees would likely NOT be excluded from group term life insurance? A. Those with less than 3 months service B. Those who work fewer than 20 hours per week C. Those who work fewer than 4 months per year D. Those who have worked many years full time
Those who have worked many years full time Someone who has worked many years full time (and must still be working now or we wouldn't be talking about them) would be covered. To answer this correctly, you need to make some assumptions that the employer and the insurer have some latitude as in terms of setting the guidelines. The factors mentioned in choices a. b. and c. are commonly used to set the requirements.
Why is a "corridor" needed in a permanent insurance plan? A. To insert a hedge against inflation between a fixed product and a variable product B. To prepare for a conversion from a group policy to an individual policy C. Corridors are only used in term policies D. To fulfill the requirement that some portion of the permanent policy is purchasing insurance
To fulfill the requirement that some portion of the permanent policy is purchasing insurance Yes, it is a requirement with universal life that insurance is a part of the policy. It can't just be used as a storage place for assets.
What is the purpose of key person insurance
To minimize the risk of financial loss caused by the death of a key employee
What is the purpose of insurance guaranty associations?
To protect policyowners, insured and beneficiaries from financial losses caused by insolvent insurers
How is a policyowner's cost basis determined for accumulated cash values in a life insurance policy? A. Total premiums paid B. Total premiums paid less cash received C. Total premiums paid less-dividends, and loans received, less premiums paid for supplementary benefits D. Total premiums paid less dividends received
Total premiums paid less-dividends, and loans received, less premiums paid for supplementary benefits Right. Here's the story: you as the policy owner get to count ALL premiums paid even though it should be obvious to most everyone that at least some of the premiums are going toward life insurance... but you have to subtract off any dividends you have received since dividends are really a return of premium... and you have to subtract off any loans and loan interest owed, and any monies that went for extra supplementary benefits like waivers. Other than that, you get to count it all.
In a single premium Immediate annuity you have to start taking payments within 12 months. A. True B. False
True Let's look at this one. The reason it is true is because if you buy an immediate annuity, it means that you are going to start the annuity payments at the end of the first period... whatever you choose for the period. That means 1 month, 90 days, 6 months, or 1 year. How often do you want to receive the payment? Monthly, quarterly, semi-annually, or annually. The longest is going to be annually which means the first payment will come to you in exactly 1 year. Thus, the longest waiting time before the payments begin is 12 months. "Immediate" doesn't sound like that, but it's true. That's why the test writers like this question for the state exam.
Level term remains at a level face amount with increasing premiums at renewal. A. True B. False
True Level face amount, and the only variable is the increase of premium at each renewal point.... without requiring insurability.
The main purpose of the MIB is to hold down the cost of life insurance. A. True B. False
True Right. What the MIB does is hold down the cost of life insurance for all policy owners through the prevention of misrepresentation and fraud. You will see answers about holding down the cost, and answers about preventing misrepresentation and fraud. Either are correct.
The disadvantage of naming an estate as the beneficiary is that the proceeds will be included in the insured's gross estate. A. True B. False
True This question is a little misleading. The proceeds will be included in the insured's estate anyway, if the insured and owner were the same person, but naming the estate causes the proceeds to be counted for sure and to have to be paid out of the estate along with the rest of the estate.
Pure risk involves only the chance of loss, therefore only pure risks are insurable. A. True B. False
True True. Insurance works with pure risk. The other type of risk is called speculative where there is a hope of gain in addition to the possibility of loss. Not in insurance. Only pure risk.
VGLI insurance is 5 year renewable and convertible term insurance. A. True B. False
True Veterans Group Life Insurance.
If the insurer cancels a life policy, all unearned premiums will be returned. A. True B. False C. The insurer cannot cancel a life policy
True Yes -- this is the right answer. "Wow... I thought the company couldn't cancel a policy once it was in effect." No -- they can if there was something wrong with the policy. Two ways. The first is what makes the policy VOID. There are factors when the policy was issued like incompetent parties, insurable interest, illegal intent, impersonation, etc. that caused the policy to never have been correctly issued and by legal terms, IT NEVER HAPPENED. Therefore all premiums will be returned and everyone will pretend that it never occurred. The second way is if they find out fraud or material misrepresentation happened within the contestable period. Then they will return all premiums...there are no earned premiums.
The code of ethics of the NAIC is incorporated into state law. A. True B. False
True Yes it is.
An agent has fiduciary responsibility both to his client as well as his company. A. True B. False
True Yes, fiduciary responsibility is the care needed in offering financial advice. Those who offer financial advice and suggestions to clients are required to take this function very seriously because they hold a position of special trust and confidence in the client relationship as well as the company. Therefore, they must conform to the rules of fiduciary responsibility.
Of the following terms, which best describes the act of replacing existing life insurance with a new life insurance policy based upon incomplete or incorrect representations? A. Twisting B. Rebating C. Embezzlement D. Concealment
Twisting Yes. Twisting is defined as using misrepresentation to cause the client to terminate their existing policy with a different company. Churning is the same concept but with the same insurance company.
Fair Credit Reporting Act (FCRA)
U.S act that protects privacy of background information and ensures that information supplied is accurate.
For the purpose of insurance, what is risk?
Uncertainty of loss
Risk includes
Uncertainty regarding financial loss
Liquidation vs. Retention of Capital
Under the retention of capital approach, enough insurance is purchased so that when added to other liquid assets, there is enough to pay income benefits without jeopardizing the insured's principal asset - such as a home.
Which feature of an insurance contract states that only one party has any further obligation? A. Unilateral B. Adhesion C. Provisionally D. Contemporary
Unilateral Unilaterial is one of the words which describes the unusual relationships in life insurance contracts. The company is obligated until the end of the period, which in the case of permanent insurance, it is a lifetime. The policyowner is only obligated on a day by day basis. Only one party is making an enforceable promise and that party is the insurance company.
Hernando has a policy in which the cash values increased to a point where the corridor was utilized. What type of policy does he have? A. Whole life B. Universal life Option 1 C. Universal life Option 2 D. Variable life
Universal life Option 1 Yes, and this is another where you don't want to talk with the experienced people in your office. Just remember: Universal Life Option 1. The corridor.
What type of permanent plan has a "corridor?" A. Whole life B. Term life C. Variable life D. Universal life option I
Universal life option I Yes. Don't talk to the experienced people in your office about this. Just remember universal life type I. It has to do with the M.E.C. but that won't be asked.
The unconditional binding receipt
Used most often with property and casualty insurance. Coverage begins immediately for a specific length of time, until the policy is issued.
Unconditional (binding) receipt
Used most often with property and casualty insurance. Coverage begins immediately for a specific length of time, until the policy is issued.
Mass marketing of insurance is best described as: A. Uses vending machines B. Does not need a licensed agent C. Largest insurance producers D. Uses print, TV and radio
Uses print, TV and radio Yes. Lots of print. Unlike this Internet review which doesn't use trees to convey the message.
Life insurance is considered what type of contract? A. Valued contract B. Indemnity contract C. Bilateral contract D. Reimbursement contract
Valued contract Yes... Valued because there is a specific value known. Indemnity is a similar concept to valued. If someone or something is indemnified, it means money will be available for paying a claim, without needing a receipt as the value was established ahead of time. A reimbursement contract isn't a set amount as such, and the value varies.... reimbursing the insured for the cost of the loss, and a receipt is necessary to show proof of loss.
All of the below are true features of variable life insurance except: A. Variable life is regulated by the State & the S.E.C. B. The owner may balance the risk of loss with the desire for gain. C. Variable Life compensates for inflation by having the face value indexed to the consumer price index. D. The cash values are determined by the value of underlying mutual funds selected by the owner.
Variable Life compensates for inflation by having the face value indexed to the consumer price index. False statement. The face value is not indexed to anything. It's set. This answer reaches a bit for your knowledge (or lack of knowledge) about the stock or mutual fund market using indexed funds. In this case, knowledge of that could be worse for you than not knowing about it. The level of this test will not test your knowledge about indexed funds.
Wilson had a waiver of premium clause in his life insurance policy. He became disabled 8 months before turning 65. He was disabled for 48 months; how long will the company waive the premiums? A. Until age 65 B. Waived permanently C. Waived for 42 months D. Waived for 48 months
Waived for 42 months If the policy had a 6 months typical waiting period, that leaves 42 months from the total. There is a slight problem with this question because it doesn't take into consideration the possibility that the premiums paid before the waiting period ends may be refunded. I have worded the question in this way intentionally because it is an illustration of some of the questions you will have to wade through on the state test. Sometimes, they will be a bit ambiguous.... you won't know exactly where they are coming from and you will have to try to judge which answer goes best.
Which of the following is the voluntary relinquishment of a given right? A. Estoppel B. Waiver C. Adhesion D. Voidable
Waiver A waiver is giving up the right, estoppel is what you are prevented from doing because of giving up the right.
Which of the following is/are a common life insurance exclusion? A. Accidental means B. War C. A commercial aviation flight D. All of the above
War Yes. I need to comment on this one. War is an exclusion in the insurance books of today, but in reality, this exclusion is rapidly falling off. Older policies almost always had this exclusion; newer policies often don't, but you wouldn't know that from the exams. Go with the PMReview now and find out reality later when you have your license.
Market value of common stock is set by: A. the broker dealer. B. Dow Jones. C. What the buyer is willing to pay and what the seller is willing to accept. D. the NYSE.
What the buyer is willing to pay and what the seller is willing to accept. This may sound like a simple explanation, but it is exactly correct.
Common Disaster Clause
When insured and primary die at the same time, it is assumed that the primary died first
What would a misrepresentation on an insurance application be considered fraud?
When it is intentional and material
When is the greatest need for income? A. At the death of the insured to pay all final expenses, taxes, debts, funeral, etc. B. When you send your children through college. C. During the blackout period to support the spouse. D. When the children are growing up.
When the children are growing up. Yes, the time of children growing up incorporates a number of expenses and the time period may be a long one.
In Insurance, when is the offer usually made on a contract?
When the insurance application is submitted
In forming an insurance contract, when does an acceptance usually occur?
When the insurer approves a prepaid application
When does an insurance policy go into effect?
When the policy is delivered and the premium is paid
When does a tertiary beneficiary collect? A. When the primary beneficiary dies B. When the secondary beneficiary dies C. When the primary and secondary pre-decease the insured D. None of the above
When the primary and secondary pre-decease the insured Yes, when there is no one living on the two lines above the tertiary. There is no one else for the proceeds to go to ahead of the third line. What if there was a charity on the second line rather than a named beneficiary? Then the proceeds would never make it to the third line because the charity is like a corporation which never dies.
When is a statement of good health required regarding a life insurance policy? A. When the initial premium is paid with the application B. When there is no premium with application C. Always D. Never
When there is no premium with application Yes, when there is no premium sent in with the application, the company wishes to know if anything has changed regarding the health of the insured since the time of application. Then the policy can be delivered as the insured pays the requested premium and accepts the policy.
Adjustable life policies are constructed using which of the following as their base policy? A. Whole life B. Decreasing term C. Annuitized term D. Variable life
Whole life Yes, it's a whole life base with a term rider.
All of the following statements are true about universal life policies except: A. Premiums can be increased or decreased B. The death benefit can be changed C. With changes a new policy needs to be issued immediately D. Cash values can be allowed to pay premiums
With changes a new policy needs to be issued immediately No, a new policy doesn't need to be issued... the old one works fine with changes.
How soon can an immediate annuity be started and the payments begin? A. Within 1 year or less from the time it is purchased B. After 5 years C. Any time specified by insurer before age 67 D. At age 65 or thereafter
Within 1 year or less from the time it is purchased Yes, within 1 year or less. There was another earlier question which spelled this out. The 1 year part is what sounds strange in something immediate. The one year period happens when the annuitant selects an "annual" method of payments.
A Universal Life Insurance policy has all the following features except: A. It is considered a form of Permanent Life Insurance. B. Without its adjustable features it resembles an Endowment policy. C. Contributions (premiums) may be increased or decreased by the policy payor. D. The face amount may be increased (subject to evidence of insurability), or decreased (subject to the I.R.S. corridor).
Without its adjustable features it resembles an Endowment policy. No it doesn't resemble an endowment policy...without stretching a lot. I mean they're both financial contracts, so what. Did you see the word "except?" On the state exam, that word might be capitalized, but maybe not.
Are there limitations placed on Universal Life to get favorable tax treatment? A. No, insurance policies always receive favorable tax treatment. B. No, there will be no need to maintain a corridor due to the tax deferral of the cash values. C. Yes, a percent of all premiums must purchase death benefits. D. Yes, the IRS will check each policy to be sure it is not a MEC.
Yes, a percent of all premiums must purchase death benefits. A certain fraction of all premiums must purchase death benefits. If the cash values build up too quickly without this requirement, the policy can become a modified endowment contract.
Are insurance company underwriters allowed to discriminate?
Yes, but not unfairly
Which of the following is an element of a legal and binding contract? A. Offer and acceptance B. Consideration C. Legal purpose D. Competent parties
Yes, you're right.... and so are the other three. I am having fun with you on this one; it is the ONLY one in the 800 questions where ALL the answers provided are right. The state likes to make questions like "which one of the following is not..." and they do so when there are three possible answers, or even four. The state exam would have distorted one of these four, and then ask which one is not. When you are working through the material and you see three of something, or four of something, it is a very likely place for the state to make such a question. Study and remember the three or four items and you will be ready.
contract
a binding agreement between two or more persons that is enforceable by law
All of the following statements about life insurance and the risk it covers are true except: A. life insurance is a mechanism for pooling and sharing risks. B. as the number of separate risks of the same type increases, the amount of loss within a given period becomes more certain. C. the probability of an individual insured's death increases each year until it becomes a certainty. D. a certain sum of money must be set aside by the companies each year and held by the state insurance commission to meet the contractual obligations of the insurers.
a certain sum of money must be set aside by the companies each year and held by the state insurance commission to meet the contractual obligations of the insurers. This is not true and therefore, it is the right answer. Money is set aside (on paper), but it is not held by the insurance commission. The companies keep the money to be managed like the rest of their investment funds. This is a reserve system to take care of the problem of future claims. The money in reserves is treated like a future liability because the companies know they are going to have to pay it out since the actuarial table tells them how many people are going to die next year. Companies keep track of all of this and then report it at the end of each year to the state insurance commissions. To clarify this, you might want to reread the part on the reserve system.
Insurance policy
a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
material fact
a fact that would lead to a different underwriting decision had the insurer known about it
Surrender Charge
a fee that may be imposed on any money withdrawn from an annuity
Equity Indexed Annuity
a fixed, deferred annuity that allows the owner to participate in the growth of the stock market and provides downside protection against the loss of principal and prior interest earnings if the annuity is held to term
A life insurance company organized in Illinois, with its home office in Philadelphia, is licensed to conduct business in Florida. In Florida, this company is classified as A. a domestic company B. an alien company C. a foreign company D. a regional company
a foreign company Yes, formed and the home office in another state or US territory is known as foreign.
Social Security Dependant survivor benefits are: A. restricted to people over age 64. B. a form of government life insurance. C. generally reduced to disabled dependant children who reach 21. D. available to all, but only after 12 quarters of gainful employment.
a form of government life insurance. Yes.... it is a form of government insurance. It is insurance, and the government is doing it.
A policy covering two lives that pays the death benefit when the first insured dies is: A. a joint life policy B. a family policy C. a double indemnity policy D. a joint and last survivor policy
a joint life policy Yes, in a joint life policy, the policy pays when the first insured of the pair dies.
Reciprocity/Reciprocal
a mutual interchange of rights and privileges
Applicant/Proposed insured
a person applying for insurance
beneficiary
a person who receives the benefits of an insurance policy
Estate
a person's net worth
cash value
a policy's savings element or living benefit
Annuities can be designed to provide all the following except: A. a stable and predictable monthly income for the remainder of the annuitants life. B. a variable monthly income based upon the value of a fixed number of mutual fund units being retired monthly. C. a regular monthly income from previously committed funds which do not require any decisions by an infirm or senile annuitant. D. a predictable death benefit to a beneficiary.
a predictable death benefit to a beneficiary. The annuity does not have life insurance coverage associated with it and therefore, doesn't have a predictable death benefit. There may be benefits left to a beneficiary depending on the plan chosen, and when the annuitant dies... it may be zero.
State law provides that at least once each year the insurer must provide the annuity contract owner with: A. a guarantee to give annuitant back immediately his/her money if the account goes down. B. a report that states the number of units and dollar value of the units to date. C. a statement that he/she cannot purchase a deferred annuity unless he/she owns a fixed account. D. a provision that policy owner must be rich enough to withstand low market periods.
a report that states the number of units and dollar value of the units to date. Yes... an annual "accounting" of what is going on. Also see "annual statement."
Moral
a tendency towards increased risk
Combining the principles of waiver & estoppel results in: A. another form of a waiver. B. a voluntary relinquishment of a known right. C. being stopped from ever exercising them again. D. This has nothing to do with insurance, it is only used in real estate.
a voluntary relinquishment of a known right. Yes... A right is waived and the person/company who granted that waiver is now "estopped" from doing something (like collecting the premium).
Policy Summary
a written statement describing the features and elements of the policy being issued
Fraud is:
a. The intentional misrepresentation or concealment of relevant facts b. Unnecessary costs as a result of poor management, practices, or controls c. Excessively or improperly using government resources d. Pre-determined non-economic damage
Solvency
ability to meet financial obligations -insurance company maintains enough assets to pay claims
An action an agent cannot be fined for is: A. twisting B. acting as a fiduciary C. converting premiums for personal use D. defamation
acting as a fiduciary True. This is a catchy way to try to get you with a term you may not have committed to memory yet. A fiduciary is a person who holds a position of special trust and confidence. Now that doesn't sound like something for which you could be fined, does it?
Reduction
actions we take to avoid risk, actions including installing smoke detectors in our homes, or making changes in our life styles.
Long Term Care Rider
advances db while insured is living to cover home care, assisted living, nursing home care
Insurers cannot refuse coverage based of
adverse information on a MIB report.
Insurers cannot refuse coverage solely based on
adverse information on an MIB report
Insurance companies strive to protect themselves from
adverse selection
Variable annuities guarantee ___________. A. recovery of the initial investment. B. against a down turn in the market. C. against living too long. D. with life insurance.
against living too long. This is right and is also true for fixed annuities. An annuitant can't outlive their annuity payment.
Life insurance insures
against the financial loss caused by the premature death of the insured.
Settement options are triggered by the insured's death or
age 100.
Agent's producer report provides
agent's personal observations concerning the proposed insured.
the insurer is reponsible for
agents action
The concept that the values given by two parties is unequal refers to: A. indemnity. B. valued. C. reimbursement. D. aleatory.
aleatory. Yes... aleatory means that is it never fair.... one of the parties receives more benefit than what is equal. The principles that make all this work are risk pooling and the law of large numbers. Make sense? The other three answers offered have to do with the way the policy is constructed, but don't have anything to do with whether the value is balanced or unbalanced.
In order to be a Florida agent, any individual who solicits insurance must A. hold a valid license issued by the DFS B. be properly appointed by an insurer C. follow the Florida laws, rules, and regulations D. all of the above
all of the above
When the agent receives the policy from the company, what should then occur? A. deliver the policy to the client in person B. review the policy, it's provisions, riders, ratings with the client C. explain how the policy meets the client's objectives D. all of the above
all of the above All of the's need to occur as a part of completing the transaction with the insured.
Which of the following may the Department of Financial Services perform within the scope of their authority? A. conduct any investigation as deemed necessary B. disseminate information as required by the code C. employ actuaries D. all of the above
all of the above Yes, all of these are within the scope of the Department of Financial Services. In this type of question, if you like to out of the three answers, then the answer all of the above must be correct. Approach the test questions logically.
The use of an irrevocable beneficiary option may do all the following except: A. limit the owners normal ability to exercise all her policy rights. B. protect the rights of an alienated beneficiary. C. allow the owner to change the face amount of insurance coverage. D. restrict the owner in the use of the loan values in the policy.
allow the owner to change the face amount of insurance coverage. This is correct because it is not true.... it is the "except." Once an irrevocable beneficiary has been granted, the owner of the policy cannot change the face amount of the policy, unless the beneficiary signs such an agreement.
the Privacy rule
allows disclosures without individual authorization to public health authorities. -
Producer Report
allows the producer to communicate with underwriter
level of reserves
amount of money kept in a separate account to cover debts to policyholders
Grouping small businesses together to obtain insurance as one large group is characteristic of which: A. an M.E.T. (multiple employer trust). B. a PPO C. an HMO D. a franchise health plan.
an M.E.T. (multiple employer trust). Yes -- that is the definition of an M.E.T. Could be on the test.
Signing over all rights of ownership in a policy by the owner is: A. known as "policy owner privilege." B. an absolute assignment. C. a policy owner amendment. D. a transfer of rights
an absolute assignment. Right. Absolute. This is a complete transferring of ownership to the new owner. It is not necessary to get the approval of the insurance company to do this.
The nonforfeiture options include all of the following except: A. cash surrender payment. B. reduced paid-up insurance. C. extended term insurance. D. an advance on the next dividend.
an advance on the next dividend. No such thing.
Fiduciary responsibility
an agent handles the funds of the insured and insurer.
Executive Bonus
an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee
Executive Bonuses
an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee
Solicitation of insurance
an attempt to persuade a person to buy an insurance policy, and it can be done orally or in writing
Morale
an indifference to loss
In all of the following situations, the policy owner possesses complete control of the policy except when: A. the policyowner has no insurable interest in the insured B. an irrevocable beneficiary has been named on the policy C. the spouse of the insured was the beneficiary for the policy D. the policy was purchased to cover an employee
an irrevocable beneficiary has been named on the policy That's it. An irrevocable beneficiary is a loss of control of the policy. The owner can't change the beneficiary.... and the owner can't make a loan against the cash value.... and the owner can't assign the policy, etc. All such things would impact the beneficiary. When the beneficiary is irrevocable, changes aren't allowed unless the beneficiary agrees to it.
Before payout phase begins, accumulation units must be converted to: A. credit units. B. annuity units. C. value units. D. stock units.
annuity units This is the definition of going from one side of an annuity to the other.
Before Variable Annuity benefits can be paid out, accumulation units must be converted into: A. dollars. B. value units. C. credit units. D. annuity units.
annuity units Yes... annuity units. Then the amount to be paid each month is determined by the number of annuity units.
Before variable annuity benefits can be paid out, accumulation units must be converted to: A. annuity units B. credit units C. dollars D. mutual fund shares
annutiy units Exactly. This is the way it is defined and would be on the state exam. Accumulation units in the accumulation phase and annuity units in the annuity (payout) phase
advertisement
any oral, printed, or written communication designed to create public interest in life insurance.
Consideration
applicant - representation + premium insurer- payments of claims
requiried signatures + owner +
applicant ---> changes on the application and consequences of incomplete applications
Conditional Receipt
applicant may be covered as early as the date of the application
Declined Risks
applicants who are rejected. Risks that the underwriters assess as not insurable are declined.
An agent should never erase/ white out any information on an
application for insurance.
perils
are the causes of loss insured against in an insurance policy.
Cost of Living Rider
as inflation increases, so does the db of the policy
A standard risk submits an application requiring a medical exam and receives a conditional receipt for his premium. The policy is first effective: A. as of the date of the application. B. as of the date of the issue of the policy. C. as of the completion of the required medical examination. D. as of the delivery date of the policy.
as of the completion of the required medical examination Right... this is a great question with some very good answer possibilities. The question says "standard risk" which means that the initial premium was enough to cover the policy and get it started if it is approved. It says "requires a medical exam" so we know that it can't be approved until something happens, and that something is the medical exam. The third thing it says is "first effective" because the day the policy is issued, and the day the policy is delivered certainly will be days when the insured is covered, but they aren't the first day of coverage. That date is the day of the medical exam IF and ONLY IF the application PROVES to be insurable after everything else is checked out.
If a person indicates on a life insurance questionnaire that he is a private pilot, the company will: A. refuse to write the coverage. B. ask for an aviation questionnaire to be completed. C. write up the policy without restrictions. D. write up the policy with restrictions.
ask for an aviation questionnaire to be completed. That's right... companies are attempting to get enough information to make a good decision. The aviation questionnaire provides enough to make a decision on an applicant who is a private pilot. There may or may not be restrictions based on the number of hours the pilot has logged as well as FAA ratings.
-valid insurable interest in life insurance must exist
at the time of the application
express authority
authority a principal intends to grant an agent by means of the agent's contract -authority written in the contract
Dollar cost averaging is: A. the average number of units received. B. averaging out the cost of units during pay-in period. C. the average dollars spent. D. used in computing the cost of insurance.
averaging out the cost of units during pay-in period Yes, averaging the cost of the units purchased over the period of accumulation.
apparent
based on the principal's actions or words
Personal Contract
because it is between the insurance company and an individual. -the insured cannot be changed to someone else without written consent from the insurer. -nor cannot be transferred to the contract of another person with insurer's approval.
Settlement Options: Life Income
beneficiary guaranteed to receive an income for the rest of their life (an annuity basically)
Settlement Options: Life with Period Certain
beneficiary selects pmt period; if beneficiary dies, pmts continue to another person for remainder of period
Nonforfeiture Values
benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses
personal
between insurer and insured
Consideration
binding force in any contract -something of value that each party gives to the other. -on part of Insurer: promise to pay in the event of loss.
he option that one party can set aside a contract refers to the: A. aleatory concept. B. voidable concept. C. unilateral concept. D. both (b) and (c).
both (b) and (c). Yes, both. Voidable means the contract can be set aside through lack of payment of premium. Unilateral means the client can set aside the contract, but the company cannot.
Insurance companies are prohibited to
bring up the Guaranty Association in a sales Presentation
Accumulate
build up
A plan, usually funded by life insurance, to purchase a deceased partner's share of a business is known as a: A. deferred compensation plan. B. qualified retirement plan. C. key employee life policy. D. buy and sell agreement.
buy and sell agreement. Right. A buy-sell agreement, which is usually done by an attorney, is for handling the legal arrangements when a partner dies. That is not its only function; it can be set up for the purpose of legally separating two or more partners as a result of choice rather than death. Life insurance is an excellent funding method for the potential death portion of the agreement.
Term Rider on the Insured
can add term insurance to a perm policy; prem lower than separate term policy
peril
cause of a loss
Conditional
certain conditions must be met
conditional
certain conditions must be met
Due to chance
chance of loss beyond insured's control
Exchange Privilege (Substitute Insured) Rider
change insured to a diff person; usually when a key employee leaves/retires
When insuring substandard life insurance risks, provision is usually made for the expected higher death rate by: A. charging an additional premium. B. reducing the death benefit. C. establishing special risk groups. D. reducing the agent's commission.
charging an additional premium. Yep, that's how and why the companies do it.
Per Stirpes
children of deceased beneficiary are entitled to their share of proceeds
When cash values of an insurance policy are used to purchase another policy from the same insurer for the sole purpose of earning additional premiums or commissions, this is called: A. replacement B. twisting C. rebating D. churning
churning Yes. And answer A is also true as a part of what is happening, but the much better answer, and where the state exam will be going, is churning.
Incontestability-any time after 2 years..
claim cannot be denied even due to misstatement of facts or concealment
Existing Insurer
company whose policy is being replaced
hazards
conditions that increase the probability of an insured loss
When an applicant applies for insurance by completing an application and paying the initial premium, this constitutes: A. consideration and an offer to buy. B. an acceptance. C. a conditioned contract. D. a completed contract.
consideration and an offer to buy. Right. That's it. Except don't talk to the experienced people in your office about the number of months of premium. Just go with "initial premium."
the association guarantees payment of benefits and
continuation of coverages
When the first person dies covered in a joint and last survivor life policy, the second person will A. continue to be insured for the same amount B. be able to buy an insurance policy without having to prove insurable C. be able to apply for insurance but needs to prove insurable D. not be able to purchase insurance from that company
continue to be insured for the same amount Yes, the joint and last survivor policy pays after the second person dies. Nothing is paid one the first of the two pass. Thus the second person will continue to be covered for the same amount.
Settlement Options: Joint-and-Survivor Life
continues paying benefit as long as either beneficiary survives (married couples)
Variable life insurance products
contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance
Fixed Life Insurance
contracts that offer guaranteed minimum or fixed benefits
Fixed life insurance products
contracts that offer guaranteed minimum or fixed benefits
Group insurance plans that require employees to pay a portion of the premium are called A. underwritten B. contributory C. participatory D. shared
contributory Contributory means the people in the group are contributing something, or maybe all of the premium.
Employee is the policyowner and has full
control of the policy
When leaving an employer, Florida law provides the employee with an option to: A. convert to their own individual plan without proving insurable B. exercise the rule of adhesion to remain in their company's plan indefinitely C. obtain a discounted policy with the same insurer D. receive a payment from the company for all unearned premiums
convert to their own individual plan without proving insurable I might add that it needs to be done within 31 days of leaving employment.
Entire Contract
copy of application + policy
Business Entity License
corporation/association/partnership must have a designated agent
Life Insurance
coverage on human lives
Life,Accident and Sickness Insurance Guaranty Association
created to protect policyholders, insured, and beneficiaries of life insurance policies. -when insurers fail to perform contractual obligations due to financial impairment.
life insurance
creates immediate payment upon the death of the insured.
Suicide- any time after
death benefit paid
Level
death benefit that does not change throughout the life of the policy
A joint & survivor annuity pays a fixed income to two or more annuitants at the same time & ceases on the: A. death of the last annuitant. B. death of the first annuitant. C. at the end of the period certain. D. date the actuarial table predicts the death of either annuitant.
death of the last annuitant This is similar to a question later on, but with different answer possibilities.
Decreasing term coverage
decreases
Law of Agency
defines the relationship between and the agent
Only participating policies
distribute dividends to policyowners
A nonparticipating policy does not pay
dividends to the policyowners
Level in level term insurance refers to the death benefit, which
does not change.
Continuing to buy when the stock market levels are fluctuating, thus tending to average out the cost of units during the pay-in period is called: A. buying on sale. B. illegal stock purchases. C. dollar cost averaging. D. annuity averaging.
dollar cost averaging. As the units vary, the purchaser is able to average out the cost of the accumulation units.
What is the name of the policy rider where George's spouse would receive twice as much if he dies in an accident? A. cross purchase rider B. excessive coverage rider C. double indemnity rider D. accidental determination rider.
double indemnity rider Yes, the benefit becomes twice as much if the insured dies from accidental causes.
Variable Universal Life
dually regulated by state and federal government (SEC FIRNA)
Elements of Insurance Risk
due to chance, definite and measurable, predictable, not catastrophic, large exposure, randomly selected exposure
application may be backdated to
effect a lower premium
When COverage begins policy delivery with preium has a
effective date
Avoidance
eliminating exposure to a loss (ex.):risk being killed by airplane, avoids airplane.
If an agent converts premium he collects for his personal use, he can be charged with: A. twisting. B. fraud. C. embezzlement. D. unethical conduct.
embezzlement Yes... embezzlement is the converting of company funds to his or her own use.
An agent who converts premium he collects for his personal use is guilty of ___________. A. churning B. embezzlement C. fraud D. twisting
embezzlement Yes... taking money which doesn't belong to the agent.
Cash Value
equity amount accumulated in permanent life insurance
A variable annuity separate account will be invested in: A. the legal reserve for liquidity B. equity investments C. bonds D. short term government securities
equity investments Now here's the deal: it says equity investments. That means stocks (or bond funds) which indicates ownership and the chance for appreciation. That's the goal. Equity means ownership.
Agents are legally obligated to treat applicants + insured in a
ethical manner.
Calculating the tax-free portion of each annuity payment utilizes the: A. exclusion ratio B. taxation ratio C. interest factor D. variable factor
exclusion ratio This is a good way to put it. The state exam may not get a lot more technical than this about the exclusion ratio... they just want to make sure you understand what it is and where it comes from.
Participating Variable Annuities provide for: A. only investment earnings. B. contributions from the employer. C. expense savings which may be credited to individual VA accounts. D. multilevel marketing with participating clients.
expense savings which may be credited to individual VA accounts. Yes... expenses are estimated, and if the VA does better than the estimate, dividends can be credited to the VA separate account.
What are the three types of agent authority?
express, implied, apparent
A policy that is sold in proportioned units to cover an insured, spouse and children is called a: A. family income policy B. family plan. C. family maintenance policy. D. multi-faceted policy.
family plan. Yes, the key to this is the fact that there are more people than one in the policy, and the second thing is that it is in units.
Ambiguities in the contract are always resolved in
favor of the insured
HIPAA Privacy Rule
federal law that protects health information
Insurance agents are referred to as
field underwriters
Securities
finanical instruments that may trade for value -stocks -bonds -options
The Department of Insurance does NOT set premium rates or establish
fines and penalties(those are defined by law.)
The incontestable clause permits insurers to contest a death claim: A. for any misrepresentations, regardless of the elapsed time. B. for material misrepresentations beyond 2 years. C. for material misrepresentations if 2 years or less. D. whenever the insured lied on the application.
for material misrepresentations if 2 years or less. Yes. Notice the use of the word "material." This is a very important word in such decisions. If I forgot to mention on the application that I shut my pinky finger in my car door a year ago and went to a neighborhood clinic to have it taped, that is a misrepresentation but NOT a "material" misrepresentation. Material is important enough that they company would have made a different decision, had they known it. After 2 years, the company cannot contest a claim on a material misrepresentation. (The word misrepresentation is interchangeable with the word: misstatement.) There is another trick to this one. It has to do with the 2 year point. In the state exam, their question is: "When does the policy become incontestable?" The answer is NOT "2 years from the policy effective date." The answer is: 2 years and 1 day from the policy effective date."
A company based in New Jersey has offices in New Mexico. In New Mexico, this company is referred to as: A. alien. B. foreign. C. domestic. D. extra terrestrial.
foreign Right. Remember the story about the people in Albuquerque, New Mexico who in 1996 sent their money in for tickets to the Olympics in Atlanta. Their money was returned with a note which said, "you will have to order tickets through your Embassy." That made national news. Obviously, the clerk in Atlanta didn't know that New Mexico was an actual state in the USA. The other two places to watch out for on the state exam are Puerto Rico, and Guam. Both of these have also been used. All three are foreign, not alien.
If company has their home office in Omaha, Nebraska, according to the Alaska Department of Insurance, in Alaska, the company would be considered: A. alien. B. domestic. C. foreign. D. domiciled.
foreign Yes, foreign. Good job. The state exam will have descriptions like this where you have to mentally put yourself in another state to answer the question.
Intentional Material Misrepresentation
fraud
Fraud & Concealment
fraud that occurs when one party takes specific action to conceal a material fact from another party
Legal reserves show on the balance sheet as: A. assets. B. current liabilities. C. future liabilities. D. none of the above.
future liabilities. Yes, this is right. It's because the companies know they are going to have the claims to pay in the future, and they even have a very good idea of how much they will need to pay in claims. They take a look at the actuarial tables and know how many of their policyholders will die next year, etc. Therefore, the reserves are to cover "known" future expenses which are a liability to the company.
The Office of Financial Regulation is responsible for which of the following: A. general supervision over all state licensed insurance agents B. general supervision over all state financial institutions C. general supervision over all state employees D. all of the above
general supervision over all state financial institutions The office of financial regulation covers banks and financial institutions, but the reason we need to know this is because it covers the securities business, those insurance agents who have a securities license.
Flexible Life Insurance
give policyowner options in terms of premiums, face amounts, and investment objectives
Private vs.Government Insurers
government programs are funded with taxes, and serve national + state purposes. While private policies are funded by premiums.
Group Life is formed for a reason other than buying group insurance
group sponsor (usually employer) receives the master policy
All of the following are eligible groups under Florida law EXCEPT A. associations of licensed professionals B. debtors of a single creditor C. members of a credit union D. groups established to buy insurance
groups established to buy insurance Yes, because the members of such a group just got together for the sole purpose of buying insurance. That is not a natural group. That is known as a fictitious group.
Fixed Annuities
guaranteed, fixed payment amount; premiums in general account
Settlement Options: Life with Refund
guarantees total pmts will be amount of db; if beneficiary dies, pmts continue to another person
The following statements about universal life are true, except: A. it is a contract containing a cash value account from which current mortality costs are drawn monthly by the insurer. B. the maximum mortality charges against the cash values permitted by the insurer are disclosed in the policy and are based upon industry tables. C. the policy reserves accrue in a different account and are paid as a bonus when the policy endows. D. the interest rate credited to the cash value is variable, and responds to the fluctuating market rates, but usually is guaranteed for an initial period.
the policy reserves accrue in a different account and are paid as a bonus when the policy endows. This is not where the policy reserves are used so therefore, this answer is correct because all the other answers are right. There are some other things which need to be mentioned in this question. Note the difference here between cash value and policy reserves. The cash value is the fund from which the mortality charges are withdrawn each month to pay for the insurance part. Policy reserves are what the company "sets aside" from all the policies to make sure there are funds available for claims. Also look at the other three "right" answers, because they are all true statements.
All the below are true about guaranteed renewable term insurance except: A. no medical evidence of insurability is required at renewal. B. the incontestability clause is not renewed. C. the premium cost cannot be increased at renewal. D. the face value of the policy normally remains the same.
the premium cost cannot be increased at renewal. Exactly. The premium cost is the only thing that does change at renewal.... based only on increased age.
Level Premium
the premium that does not change throughout the life of a policy
Annuities are used primarily as a protection against: A. the risk of permanent disability. B. the risk of premature death. C. the risk of outliving one's income. D. the risk of being terminated at age 65.
the risk of outliving one's income. Yes... an annuity is the peculiar vehicle which never stops, once the amount is agreed upon by the annuitant and the company. You can't outlive it.
A joint and survivor income option on a annuity will pay until when? A. the first annuitant dies B. the second annuitant dies C. payments don't stop until the annuity is exhausted D. the payment period expires
the second annuitant dies Right. The agreement on a two-person (two annuitant) annuity is to pay until the death of the 2nd annuitant.
-premium receipt
the type of receipt issued when premiums are collected with the application
Risk is
the uncertainty/ chance of a loss occurring.
The human life value approach states: A. a life is worth 5 times the income. B. it is very difficult to decide a value since they may hit lotto. C. the value is determined by discounting estimated future income. D. the value is determined by taking the future income plus retirement and subtracting an assumed interest amount.
the value is determined by discounting estimated future income. This is right... and it's a tough question. The human life value approach is basically a simple one. The needs approach is the other one which covers the many aspects of potential need for insurance. Human life value uses the current situation in setting values and therefore, "discounts" (both in numerical value and in attention to the need) the future income requirements.
Aleatory Contract
there is a exchange of unequal amounts/ values. -premium paid by the insured is small in relation to amount that will be paid by insurer in event of loss.
Not catastrophic
there must be limits the loss can't exceed
Dividends are not taxable as income because: A. the government will collect them when the policy matures B. they're considered a prepaid portion of the proceeds C. they are a return of part of the premium paid D. taxes were paid when the premium was paid
they are a return of part of the premium paid Yes. Early tax law stated that dividends are a refund of an overpayment. The premium payment was paid with "after-tax" dollars.
The general powers and duties of the Office of Insurance Regulation include which of the following? A. to enforce the Florida Insurance Code B. to determine if an insurance company has more agents than prudent C. to enact statues to govern the insurance industry D. to create brochures for companies to use in promoting insurance with the general public
to enforce the Florida Insurance Code It is the duty of the OIR to monitor companies, agents, and agencies to ensure compliance with the Florida insurance code.
Endow
to have the cash value of a whole life policy reach the contractual face amount
Ways in which dividends may be used by the policyowner include the following except: A. to obtain stock in the company B. applied to reduce the premium. C. left to accumulate with interest. D. used to buy additional paid-up insurance.
to obtain stock in the company This answer is not true and therefore, it is the right one because it is the exception. There are five ways for dividends to be used, but this isn't one of the five.
If Premium paid during first 7 years
total amount of net premium required to pay up the policy
Insurers must obtain a Certificate of Authority prior to
transacting business in the state.
Producers must be licensed at time of
transactions
Insurance is the
transfer of risk of loss
An agent replacing an existing policy from another company with one from his own company which is of no financial advantage to the insured is guilty of: A. defamation. B. embezzlement. C. twisting. D. unethical conduct.
twisting Yes... this is the definition of twisting. Policies from two different companies. Churning is when the two policies are from the same company.
Classification of Insurers: Surplus Lines Insurers
unauthorized insurers that provide insurance for indivs with large risk that no other authorized insurer will cover
In the insurance field, risk can best be defined as: A. sharing the possibility of a loss. B. uncertainty regarding the future C. uncertainty regarding a financial loss D. uncertainty regarding date of death
uncertainty regarding a financial loss Yes, a financial loss. This is true of all kinds of insurance.
An insurance application is the key source
underwriters use for information about the applicant.
Group life includes group
underwriting
Aleatory
unequal exchange
aleatory
unequal values -unilateral=one-sided(only one party makes a promise.)
Any agent who fails to maintain an appointment with an insurer during any 48 month period will not be granted an appointment: A. until he/she qualifies as a first-time applicant B. until he/she obtains an additional 15 hours of CE credits C. until he/she demonstrates competency to transact business as an insurance agent D. until he/she makes an appeal to the CFO of the DFS
until he/she qualifies as a first-time applicant If you wait too long, you will have to restart as a first-time applicant. This is a window you don't want to close.
Stock Purchase
used by privately owned corporations when each stockholder buys a policy on each of the others
Cross Purchase
used in partnerships when each partner buys a policy on the other
Conditional Receipt
used only when the applicant submits a prepaid application
Conditional receipt
used only when the applicant submits a prepaid application
Stock Redemption
used when the corporation buys one policy on each shareholder
Waiver of Cost of Insurance
waives the cost of the insurance and other expenses but doesn't waive the cost of premiums necessary to accumulate cash values -in universal life policies
Cross Purchase
when each partner buys a policy on the other
entity purchase
when the partnership buys the policies on the partners
A domicile refers to the location
where an insurer is incorporated, but not necessarily where the insurer conducts business.
The rejected business rule is: A. not allowed by state law. B. not allowed by federal law. C. where the agent's company refuses to sell the policy. D. where the company the agent is not licensed with, refuses to sell the policy.
where the agent's company refuses to sell the policy. This is right. The agent turns in an application as standard and the company declines to issue the policy standard. The agent is able, through another company, to get a similar policy issued standard for the client. This is known as "rejected business." The agent does not have to be appointed by the 2nd company, for this specific case, and can be paid a commission. State law. It will probably never happen to you, but it protects the client.
rating classification to be used in deciding
whether or not a applicant should pay a higher/lower premium
Never erase or
whiteout on an error: agent does not initial changes
Settlement Options: Life Only/Straight Life
will pay the largest amount to beneficiary; pmts stop upon death of beneficiary
Universal Life is the only type that allows for a
withdrawal(instead of a loan)
Deferred
withheld or postponed until a specified time or event in the future
The Florida Office of Financial Regulation may conduct investigations: A. only within the state of Florida B. within the state of Florida and outside the state as well C. only within the Florida county in which the event occurred D. the Office of Financial Regulation may not conduct investigations
within the state of Florida and outside the state as well Yes, within the state of Florida and outside the state as well.
A material misrepresentation is information that was misrepresented that
would have changed the insuser's underwriting decision : -policy type -premiums -amount of coverage
Express
written in the contract
Application
written request to an insurance company to issue a policy