Flashcards 1

For a beneficiary to receive accidental death benefits, death of the insured generally must occur within how many days following the accident? A)90 days. B)60 days. C)45 days. D)30 days.

For a beneficiary to receive accidental death benefits, death of the insured generally must occur within 90 days following an accident.

All of the following are acceptable life insurance death benefit settlement options EXCEPT: A)retain proceeds and pay interest. B)lump-sum cash payment. C)convert to a life annuity for the beneficiary. D)transfer to a rollover IRA on the beneficiary's behalf.

Life insurance proceeds are ineligible for IRA rollover treatment. They can, however, be paid out in a variety of ways that best suit the beneficiary's needs.

Which of the following types of annuity payout options guarantees as a minimum the payout of the entire annuity principal amount? A)Period certain. B)Cash refund. C)Pure life. D)Joint and full survivor option.

Of these options, only the cash refund payout guarantees that the entire annuity principal will be paid out to the annuitant or beneficiary. A pure life option and a period certain option guarantee payments for a certain period of time, during which principal may or may not be fully liquidated.

Once a life insurance settlement option has been put into effect, the relationship between a beneficiary and the insurance company is that of: A)heir/grantor. B)payee/trustee. C)creditor/debtor. D)recipient/donor.

Under a settlement option, the relationship created between the beneficiary and insurance company is that of creditor and debtor because the insurance company is obligated to fulfill the terms of the settlement.

Which type of insurer is domiciled in a state other than Washington? A)Alien insurer. B)Foreign insurer. C)Domestic insurer. D)Interstate insurer.

A foreign insurer is an insurance company incorporated or formed under the laws of the United States, another state or U.S. territory, or the District of Columbia. A domestic insurer is an insurance company formed under Washington law. An alien insurer is an insurance company formed under the laws of a foreign country.

An unincorporated group of subscribers who operate through an attorney-in-fact to provide indemnity insurance for each other is called: A)a surplus lines insurer. B)an unauthorized insurer. C)a fraternal benefit society. D)a reciprocal exchange.

A reciprocal exchange is a type of cooperative insurance. Under this form of insurance, each policyowner is insured by all of the others. Each insured is also an insurer, because contracts are exchanged on a reciprocal basis. Reciprocals are managed by an attorney-in-fact.

All individual life insurance policies must include a notice permitting the policyholder to return the policy within: A)10 days. B)5 days. C)30 days. D)20 days.

All individual life insurance policies must include a notice permitting the policyholder to return the policy within ten days after it is received if he or she is not satisfied with it for any reason. All premiums paid will be refunded and the policy will be void from the beginning, as if it had never been issued.

Which of the following scenarios regarding individual retirement accounts (IRAs) is NOT correct? A)Walter is age 60. He may take a distribution from his traditional IRA without having to worry about an early withdrawal penalty. B)June has accumulated $30,000 in her traditional IRA. At age 55, she withdraws $2,500 to take a vacation. She will have to include the $2,500 in her taxable income for the year and pay a $250 penalty. C)Peter is currently employed, but his wife, Mary, is not. Since Mary has no earned income that she can contribute to a traditional IRA, Peter can set up a joint IRA account for the two of them. D)Ben, age 72, has a traditional IRA. If he does not take at least the minimum required distribution for the current year a 50% excise tax will be assessed on the amount that should have been withdrawn.

For married couples, an individual IRA account must be set up for each person, even if only one spouse is working. Separate IRA accounts could be set up for Peter and Mary, but not a joint account. All of the other answer choices involve correct scenarios.

Mary, age 70, recently purchased a nonqualified immediate annuity to supplement her retirement income and through it will receive a lifetime income of $800 per month. Which of the following statements most correctly describes how this income will be taxed? A)Mary will pay income tax on the full amount received each year until the sum of payments equals the amount she paid for the annuity (her basis), at which point all future payments are not taxed. B)Mary will pay income tax each year on just a portion of the payments received, and when she has fully recovered her basis, all future payments are taxable. C)Mary will not pay income tax until the sum of payments received equals her basis, at which point all future payments are fully taxable. D)Mary will pay income tax each year on just a portion of the payments received, and when she has fully recovered her basis, all future payments will not be taxed.

How benefits will be taxed in retirement will always be an important part of any senior planning. The exclusion ratio calculation identifies the amount of each annuity payment that is a tax-free return of basis. The remaining amount of each annuity payment is taxable as ordinary income. Once the annuity's cost basis is fully returned, however, the full amount of any further payments is fully taxable.

All of the following are duties of the agent regarding replacement EXCEPT: A)signing the Notice Regarding Replacement and submitting it to the insurer. B)obtaining a list of all existing life insurance. C)advising the existing insurer of the replacement. D)presenting to the applicant a Notice Regarding Replacement.

It is the insurer's responsibility, not the agent's or the applicant's, to inform the existing insurer that its policy is being replaced.

Lisa has three young children and is the breadwinner in her family. She would like to purchase a life insurance policy that will provide protection to her children while they are living at home but that provides fewer benefits once her children grow up. In this case, Lisa should consider purchasing a: A)family income policy. B)family plan policy. C)credit life policy. D)joint life policy.

Lisa should purchase a family income policy, which is a combination of whole life and decreasing term covering a select period of years. If she dies within a specified period, the policy will provide monthly income from the date of death until the end of the specified period. At the end of the income period, the face amount of the whole life policy is payable to the beneficiary.

Which of the following types of life insurance riders is NOT based on term life insurance? A)Return of premium. B)Spousal. C)Cost of living. D)Waiver of premium.

The waiver of premium rider is based more on the actuarial principles of disability insurance than life insurance. All other riders listed are based on some form of term life insurance.

Which of the following descriptions of life insurance policy settlement options is CORRECT? A)Today, most life insurance proceeds are not paid out as a lump sum. B)Glenn chooses a life-income-only option, and Jerry chooses a life-income-with-cash-refund option. Jerry's income is based on the higher rate per $1,000 of proceeds. C)Under an installment refund option, if the primary beneficiary dies, payments of the same amount continue to the secondary beneficiary until all installments to both beneficiaries equal the original amount of proceeds. D)Under a life-income-only option, if a primary beneficiary dies after receiving income payments for only 3 months, the balance of the proceeds would be paid in a lump sum to the secondary beneficiary.

Under an installment refund option, if the primary beneficiary dies, installments of the same amount continue to the secondary beneficiary until all installments paid to both beneficiaries equal the original amount of proceeds. Under a life-income-only option, installments are paid to the primary beneficiary as long as he lives, with no return of principal guaranteed. Therefore, this option provides the largest installments per $1,000 of proceeds. The lump sum option is still the most commonly used settlement option.

When indebtedness is discharged before the scheduled maturity date, credit insurance is: A)transferred to another debt which is still owed. B)extended for the length of the loan, at additional cost to the insured. C)prorated for the actual length of the payment period with premiums adjusted accordingly. D)terminated and a refund paid to the insured.

When a debt is paid off before the scheduled maturity date, through renewal or refinancing, the insurance coverage must be ended and a refund paid to the insured.

A beneficiary receives the proceeds from a life insurance policy in a lump sum payment. Which of the following statements best explains how the proceeds will be treated in relation to the debts of the beneficiary? A)It is protected from the beneficiary's creditors as long as it is paid in a lump sum. B)It is protected from the beneficiary's creditors once it is paid to a beneficiary. C)It can be subject to the beneficiary's debts and creditors. D)It is not subject to the beneficiary's debts and creditors.

When proceeds of a life insurance policy are payable to a beneficiary but held in trust by the insurer, the beneficiary has an exclusive right to the proceeds. These payments are not subject to the beneficiary's debts and cannot be reached by creditors. This protection only applies to policies in which the proceeds are payable in installments. It does not protect proceeds paid in a lump sum. The protection also does not extend to proceeds once they are paid to a beneficiary.

Which of the following statements pertaining to key-person life insurance is NOT correct? A)The ABC Company is the beneficiary of the key-person life insurance policies on its president and general sales manager. B)The ABC Company purchased a $75,000 permanent life insurance policy on its general sales manager five years ago. This likely was reflected each year in the company's balance sheet as a loss. C)A key employee is any person whose contribution to the success of a business is essential. D)The ABC Company insured the life of its company president for $150,000. The ABC Company is the owner of the key-executive policy.

With key-person insurance, the business itself is the owner, premium payor, and beneficiary of the policy. As a result, the policy can be considered a company-owned asset, not a loss.

Which of the following statements regarding a cost of living rider on a life insurance policy is not correct? A)An inflation index determines the amount of inflation adjustment that must be made to the policy up to a maximum percentage increase. B)A cost of living rider seeks to protect against inflation's erosion of life insurance policy values. C)All insurance companies offer cost of living riders. D)The cost of living rider provides increases in insurance without requiring the insured to provide evidence of insurability.

A cost of living (COL) or cost of living adjustment (COLA) rider is tied to an increase in an inflation index, most commonly the Consumer Price Index (CPI). The COL rider provides for automatic increases in the policy death benefit in proportion to increases in the CPI.

An individual, corporation or other legal entity that has a right to payment under an insurance policy or contract because a loss covered by the policy has occurred is called: A)a first-party claimant. B)a second-party claimant. C)a third-party claimant. D)a noninsured litigant.

A first-party claimant is an individual, corporation, or other legal entity that has a primary right to payment under an insurance policy or contract resulting from a loss covered by the policy. A first-party claimant may bring an action to recover the damages and other costs sustained if a claim for payment of benefits by has been unreasonably denied by the insurer.

A written statement that describes various elements of a life insurance policy is called: A)buyer's guide. B)policy summary. C)mandatory provisions. D)list of benefits.

A policy summary is a written statement describing various elements of a policy, including cost and benefit information, life insurance surrender costs and payment cost indexes.

All of the following statements pertaining to life policy assignment are correct EXCEPT: A)the life insurance company assumes no responsibility for the validity of an assignment. B)the policyowner must notify the company in writing of any assignment. C)the policyowner must obtain approval from the insurance company before a policy can be assigned. D)to secure a loan, the policy temporarily can be transferred to the lender as security for the loan.

A policyowner may assign or transfer ownership of a life policy to anyone without the insurer's approval.

In general, a temporary license expires after: A)30 days. B)60 days. C)90 days. D)120 days.

A temporary license is valid for up to 90 days in any 12-month period but may be extended for another 90 days at the Commissioner's discretion.

For the purposes of group life insurance, an employee group must include at least how many employees? A)Two employees. B)One employee. C)Ten employees. D)Five employees.

An employee group must include at least two employees. Those eligible for insurance must be all the employees or all of a class of employees determined by conditions related to their employment. When an employer pays the entire premium, the plan is a noncontributory plan since the employees are not required to contribute to premium payments. If a group plan requires its members to pay a portion of the premium, it is a contributory plan. If 75% of the insured employees elect, a group life policy may cover the dependents of insured employees.

The fact that an insurance contract promises to pay benefits contingent on a future uncertainty (such as death or illness) makes it what type of contract? A)Aleatory. B)Conditional. C)Adhesion. D)Estoppel.

An insurance contract is conditional in that the insurer's promise to pay benefits is dependent on the occurrence of the risk insured against. If the loss does not materialize, no benefits are paid.

What is an authorized insurer? A)A company that is authorized by the Commissioner to transact insurance business in Washington. B)An agent who has the authority to represent an insurance company. C)A policyholder who has a legal contract with an insurance company. D)An agent who is authorized by the Commissioner to transact business in Washington.

An insurer who has been granted a certificate of authority by the Commissioner to transact insurance business in Washington is an authorized insurer.

Tom has a $50,000 whole life policy. If he continued to pay the required premiums and lived to age 100, he would receive: A)double the face amount, or $100,000. B)nothing, because he outlived the term of the contract. C)$50,000 as an endowment. D)the cash surrender value, a sum less than $50,000.

By design, a whole life policy endows for its face amount at age 100. That means that when the policyowner is 100 years old, the cash value of the policy equals the face amount of the policy. At that point, the insurance is canceled, and the insured receives the face amount as an endowment.

Which of the following statements is CORRECT? A)Stan was a devoted hang-glider. His younger brother Kevin inherited his old equipment and took up the sport. Family history is considered a risk factor in insuring Kevin. B)Joyce's mother died ten years ago of cirrhosis of the liver when she was 58. Family history is a risk factor in insuring Joyce. C)Both Todd and his wife Joan are licensed general (noncommercial) aviation airplane pilots. They do not have to identify their hobby when they apply for insurance. D)George's brother, his father, and grandfather had diabetes during their lifetimes. Family history will be considered a risk factor when George applies for insurance.

Family history is considered a health factor insofar as it relates to the health status of the living and the cause of the related deceased's death. A dangerous hobby (such as hang-gliding or flying airplanes) is a risk factor and must be disclosed when applying for insurance. Nonhereditary illnesses (such as cirrhosis of the liver) are not considered relevant for underwriting purposes.

Susan, while in the process of converting her group life insurance to an individual policy, dies. What happens to the claim her beneficiary submits? A)It is paid under the old group plan. B)It is paid under the new individual policy. C)It is paid pro rata by both plans. D)It is not paid by either policy.

If the person insured under the group life insurance policy dies while eligible for conversion but before the individual policy becomes effective, the amount of life insurance that she would have been entitled to have issued under the individual policy is payable as a claim under the group policy, whether or not the individual application or payment of the first premium has been made.

Paul, age 62, is applying for a universal life insurance policy and wants to arrange the beneficiary designation in such a way as to use the proceeds to provide lifetime income to his wife, Marsha. Which of the following settlement options is best suited for this purpose? A)Distribute the proceeds in a lump-sum payment, deposit the money in a bank account, and then set up a periodic distribution plan for Marsha. B)Select the fixed-period option and base the distribution period on Marsha's life expectancy at the time of Paul's death. C)Use the proceeds to purchase an immediate annuity with Marsha as the annuitant. D)Leave the proceeds with the insurance company to accumulate interest, and distribute the interest to Marsha.

Only an annuity can provide income that is guaranteed to continue for the life of the annuitant. The life income settlement option purchases an immediate annuity with the policy proceeds. The fixed-period option falls short in that Marsha could outlive the selected period.

When replacement is involved, a producer must do all of the following EXCEPT: A)obtain a signed statement from the applicant disclosing any existing insurance policies to be replaced. B)make a list of the applicant's existing life insurance policies. C)notify the existing insurer when one of its subsidiaries will issue the replacing policy. D)give the applicant a notice regarding replacement of life insurance signed by the applicant and producer.

Replacement regulations do not apply to transactions where the replacing insurer and existing insurer are the same or subsidiaries under common ownership.

What settlement option is designed to pay out a specified amount of income at regular intervals, over an unspecified period of time? A)Interest-only option. B)Life income option. C)Fixed period option. D)Fixed amount option.

The fixed amount settlement option provides for the payment of a policy's death benefit in specified amounts at regular intervals. The duration of the payments is not specified; payments are made until the proceeds---or principal---and interest are exhausted.

All of the following statements about accelerated benefits provisions are correct EXCEPT: A)the money received as an accelerated benefit must be used to pay medical expenses. B)the death benefit, less the accelerated payment, is still payable. C)they are standard in life insurance policies. D)they provide for the early payment of part of a policy's face amount if the insured suffers from a terminal illness or injury.

Accelerated benefits provisions are standard in life insurance policies. They provide for the early payment of part of a policy's face amount if the insured suffers from a terminal illness or injury. The death benefit, less the accelerated payment, is still payable. The insured may spend the money received as he wishes; it does not have to be spent on final expenses or medical expenses.

Which of the following statements pertaining to key-person life insurance is CORRECT? A)A company insures the life of its controller with a key-employee life insurance policy. The premiums are tax deductible, but if the controller dies, the policy proceeds would be taxable. B)A corporation has key-executive life insurance on its president and vice president. The policies show a current total cash value of $15,500, which may be used by the corporation for emergencies. C)Key-person life insurance provides a death benefit for the key-person's family equal to the benefit for the business organization. D)The owner of key-person life insurance is the key person, and the beneficiary is the business organization.

The death proceeds or cash values of key-person insurance are a company-controlled asset, available to the company to use for emergencies. Death proceeds from the policy are not taxable nor are premiums tax-deductible.

Which of the following statements about participating and nonparticipating life insurance policies is NOT correct? A)Policy dividend payments cannot be guaranteed. B)Participating policy premiums are normally slightly higher than nonparticipating policy premiums. C)Policy dividends are considered taxable income. D)An extra charge to cover unexpected contingencies is built into the premiums of participating policies.

The payment of policy dividends will vary from year to year and therefore cannot be guaranteed. Unlike corporate dividends, life insurance policy dividends are considered to a return of part of the premiums paid and are not taxable income. A slightly higher premium is typically charged for participating policies than for nonparticipating policies because an extra charge to cover unexpected contingencies is built into premiums for par policies.