Final Review

An annuity contract provides for all of the following, EXCEPT:

A health plan Depending on the type of annuity, it usually provides a safe retirement income tool, acts as a forced savings account, and has payments for a lifetime of a fixed period of time.

What plan would likely meet the needs of 2 partners who want to create a buy/sell agreement and an inexpensive and simple funding plan?

A joint life plan, which will provide the survivor money to buy out the deceased partner's heirs. A joint life plan, or first to die plan, is one of the best choices.

All of the following are types of whole life policies, EXCEPT:

Credit Credit life is life insurance that is issued on the life of a person who has debt and it is the creditor that owns and is the beneficiary of the policy.

Collin intentionally surrendered a right on his contract is known as waiver. What prevented him from reclaiming the right?

Estoppel Waiver is voluntarily surrendering a right, and estoppel is the legal process preventing the reclaiming of that right.

What law requires that an applicant be notified that an insurance underwriter may request a report from an investigative agency?

Fair Credit Reporting Act The Fair Credit Reporting Act, also known as Insurance Information and Privacy Protection Act, requires that the insurance company inform you that they might order a report.

Underwriting considerations for group coverage employ which of the following considerations?

Groups usually do not have a requirement for medical exams. Groups are rated based on average age, proportion of men to women, and larger groups pay lower premiums.

Which of the following is not an action that only the owner of an annuity can take?

He/she can make withdrawals. The only time that changes can be made to an annuity is during the accumulation period. Once it reaches the annuity period, it cannot be changed.

Which of the following is a common element, when it occurs, that allows an insurer to charge lower premiums?

Higher interest earnings Higher interest rates on premiums, which have been received and invested, can allow an insurance company to charge lower premiums.

Which of the following statements best describes how cash value in a life insurance policy is taxed?

If the policy cash value is surrendered, the interest earned on the cash value is taxable as ordinary income. If the policy cash value is surrendered or endows, the interest is taxable as ordinary income.

The clause that prevents an insurer from denying a claim, except for nonpayment of premiums, after the policy has been in force for over 2 years is called the:

Incontestability clause It is the incontestability clause that prevents an insurer from denying a claim, EXCEPT for nonpayment of premiums, after the policy has been in force for over 2 years.

What requires that an individual have a valid concern for the continuation of the life or well being of the person insured?

Insurable interest Insurable interest requires that an individual have a valid concern for the continuation of the life or well being of the person insured.

All of the following are features of variable universal life, EXCEPT:

Insurer decides where to invest premiums It is the policyowner, not the insurer that chooses where to invest premiums.

What life insurance policy provides a blend of the benefits of traditional whole life and universal life?

Interest-sensitive whole life Interest-sensitive whole life is a mixture of traditional whole life and universal life.

What type of annuity would someone pay monthly premiums for many years until the payout phase begins?

Level premium deferred annuity A level premium deferred annuity has a level premium (same amount) paid throughout the entire accumulation phase.

Field underwriting is primarily useful to:

Make observations that could impact insurability The primary value of the field underwriting, is that the agent has the opportunity to view the applicant in his/her surroundings, in person, and make observations regarding insurability and perhaps class of risk (i.e. is the applicant obese, does he/she have any obvious dangerous hobbies, does he/she smoke).

What guarantee states that if the policyholder discontinues payment of premiums, the policyholder can have access to the cash value of the policy?

Nonforfeiture provision The nonforfeiture provision protects a policyowner from losing their investment. If a policy is cancelled, surrendered or premiums are not paid, the nonforfeiture provision provides the policyholder access to the cash value of the policy.

Mark names his wife and children as beneficiaries on his life policy. They would not be considered:

Other insureds Mark's wife and children could be primary, contingent or irrevocable beneficiaries.

Philip named his wife Mary as the primary beneficiary of his life insurance policy. His children are contingent beneficiaries. Under the Uniform Simultaneous Death Act, who will receive the death benefit if Mary and Philip are in a car accident and there is no evidence of who died first?

Philip's children from his prior marriage Under the Uniform Simultaneous Death Act, the death benefit is paid as if the primary beneficiary died first. If Philip's children predeceased him, then his estate would receive the death benefit.

Which of the following is not one of the tax benefits of a qualified retirement plan?

Proceeds of a qualified plan are not taxed. Employees only pay taxes at the time of withdrawal of funds from the plan.

Which of the following is usually the owner of the annuity?

The annuitantThe annuitant The annuitant is the insured - or person on whose whole life the annuity contract has been issued. The annuitant is usually also the owner of the annuity.

Which of the following is not a case in which life insurance proceeds would be included in the deceased's estate?

The deceased's wife was the beneficiary. The proceeds are taxable if the deceased was the policyowner, the deceased's estate was the named beneficiary and / or the deceased transferred the policy to another person within 3 years of his/her death.

Which of the following statements is not true about irrevocable beneficiaries on life insurance policies?

The policyowner can borrow cash without consent of the beneficiary. With an irrevocable beneficiary, the owner must get the consent of the beneficiary in order to borrow cash from the policy.

Replacement is not always the best option for the insured because:

a. A new policy could required the applicant to prove insurability b. A new incontestable period will start with the issuance of the new policy. c. The premiums for the new policy could be higher. d. All of the above The items listed are all considerations for an applicant when he/she is considering replacing an existing policy.

Insurance uses a pre-existing condition clause to prevent:

a. Adverse selection A pre-existing condition removes the element adverse selection, i.e., unhealthy persons seeking insurance.

Which of the following is NOT a right of the owner of a life insurance policy?

a. Changing the irrevocable beneficiary b. Implementing a verbally agreed change c. Borrowing funds before cash value exists A policy owner cannot change an irrevocable beneficiary without the consent of the beneficiary. No verbal changes are allowed. A policy owner cannot borrow from the policy if there is no cash value.

"Take it or leave it" is the basis for insurance policies. Because of this, they are referred to as:

a. Contracts of Adhesion Contracts of Adhesion are "take it or leave it".

In life insurance, which of the following is taxable?

a. Interest on life proceeds paid in installments. The interest portion of installment benefits is taxable.

Which of the following is not a common use for annuities?

a. Pay legal fees Paying legal fees is not a common use for annuities.

Which of the following is true regarding taxes on nonqualified annuities?

a. Premiums are not tax-deductible, but interest is tax-deferred. During the annuity pay-in period, premiums are not tax-deductible, but interest is tax-deferred until withdrawn.

Group policies must include an option to convert from the group policy to an individual policy if:

a. The individual loses coverage due to loss of employment b. The individual loses coverage because the master policy was cancelled All group life insurance policies must include a conversion privilege. If the master policy is cancelled, or the employee is terminated, the individual has the option to convert to an individual policy.

Life insurance may be included in the insured estate when:

a. The insured is also the owner of the policy The value of the death proceeds of an insurance policy are generally part of the insured's estate if he/she is the owner of the policy at the time of death.

Which of the following is true about the waiver of premium rider on an insurance policy?

a. The premiums are waived during the period of the disability b. There is usually a waiting period for the benefit to kick in. c. There is an additional premium charged for this coverage. d. All of the above

Which of the following is a typical characteristic of a whole life insurance policy?

a. The premiums remain level for the entire period that the policy is in force. b. Whole life policies have a guaranteed cash value. c. The face amount of the policy does not change while the policy is in force. d. All of the above

All of the following statements are correct, EXCEPT:

b. All annuities are qualified. Not all annuities are qualified. Some annuities are used to fund nonqualified retirement plans.

Janice has received a contract that defines the agreement in explicit terms. Signing the contract will allow her to represent the agency. This is an example of:

b. Express authority The contract which details the terms of the agreement between Janice and the agency is an example of express authority.

Which of the following statements is not true about the tax liabilities for individual life insurance policies?

b. Policy loans are taxable as income. Policy loans are not taxable as income because they are regarded as a debt against the policy.

When an insurance policy is taken out, if the owner of the policy is someone other than the actual insured, the owner must be able to prove:

b. That he/she has an insurable interest If the owner is someone other than the insured, he/she must be able to prove that they have an insurable interest.

Which of the following is not guaranteed under a fixed annuity contract?

b. That there will be no fluctuation in the interest The contract cannot guarantee that there will be no fluctuation in interest over the life of the contract. The principal, benefit amount and a minimum interest rate are guaranteed.

A temporary insurance agent license can be issued for what maximum period of time?

c. 180 days A temporary license will remain in force for a period not to exceed 180 days.

Which of the following best describes an insurer that is a charitable organization providing insurance only to its members?

c. Fraternal benefit society Fraternals are religious, ethnic or charitable organizations that provide insurance to their members.

Field underwriting is done by the agent/producer when he/she is face-to-face with the applicant, completing the application. The application contains three main parts:

c. General information, medical information, producer's report The application contains General Information, Medical Information, and a Producer's report/Agent's statement.

What rider can decrease the death benefit when utilized?

c. Long-term care rider A long-term care rider normally allows the policyholder to utilize some or all of the policy's specified amount, or death benefit, for long-term care costs, either for a period of time or until the available coverage amount has been exhausted, under stated terms. The long-term care rider can reduce the death benefit if the decrease is incorporated into a life insurance policy.

Mrs. Conroe's policy lapsed. Her agent, Mrs. Acker, accepted her past due premiums and re-instated her policy. Since agents cannot usually reinstate policies, why it was allowed in this case?

c. Mrs. Acker was allowed to accept late premiums in the past to reinstate policies. Because the insurance company allowed Mrs. Acker to accept late premiums in the past for the purpose of reinstating a policy, they allowed it in this case.

The producer's responsibilities in field underwriting include all of the following, EXCEPT:

c. Produce a consumer report It is not the producer, but the insurer that is responsible for the consumer report on the applicant.

Gregory recently purchased a one-year term insurance policy. At the end of the year, he can purchase an identical policy without having to show proof of insurability. Why type of policy did he purchase?

c. Renewable term It is a renewable term policy that allows the policyowner to purchase another identical policy at the end of the year without proving insurability.

Which of the following is true about the automatic premium loan rider?

c. The rider gives the company the right to borrow against the policy's cash value. The rider does give the insurer the right to borrow against the policy's cash value.

Using an insurance license to sell mainly to relatives is referred to as:

d. A controlled business An agent is not allowed to use a license for the principal purpose of procuring controlled business (insurance sold to relatives, employers, or employees).

All of the following are valid insurable interest scenarios, EXCEPT:

d. A sister and her best friend Relatives, and key employees are the most common insurable interest. An insurable interest exists when the loss of a person could cause harm (financial or otherwise) to another person or entity. An insurable interest in another person must exist prior to application for a policy.

Which of the following is not a settlement option in a life insurance policy?

d. Extended term option The extended term option is a nonforfeiture option - not a settlement option.

All of the following are federal income tax free transactions for a life insurance policy, EXCEPT:

d. Gain on policy surrender value If there is a gain in the insurance policy (surrender value exceeds premiums paid), the gain is taxed as ordinary income in the year received.

The annual renewable term (ART):

d. Has no requirement for proof of insurability at renewal and a maximum age. Annual renewable term allows the insured to renew every year without providing proof of insurability.

An annuity that will not only provide benefits for the life of a husband, but also the wife if she outlives the husband is called:

d. Joint life and survivorship annuity The joint life and survivorship annuity provides benefits for the life of the survivor. The joint life annuity benefits cease when the first annuitant dies.

All of the following are elements of insurable risks, EXCEPT:

d. Loss must be catastrophic Losses must not be catastrophic risking insurer insolvency.

Which of the following is not true about the accelerated benefit rider?

d. Provides a monthly check when you become disabled The Accelerated benefit rider does not provide a monthly check when the insured becomes disabled..

Which of the following is a difference between a limited-pay whole life policy and a straight life policy?

d. The premiums are higher Limited pay policies are paid for a specified number of years, or until the insured reaches a certain age - perhaps 65 of 70. Premiums are paid for a limited time, and therefore are higher than a straight life policy.

Which of the following is true about immediate annuities?

d. They do not have an accumulation period. They do not have an accumulation period, and payouts must begin within one year of the first premium payment.

All of the following are true about market value adjusted annuities, EXCEPT:

d. This is not a fixed contract. A market value adjusted annuity IS a fixed contract.