Georgia Life Insurance

The minimum number of credits required for partially insured status for Social Security disability benefits is

6 credits. To be considered partially insured, an individual must have earned 6 credits during the last 13-quarter period.

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?

Common Disaster Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?

Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.

Which of the following is NOT true regarding a nonqualified retirement plan?

It needs IRS approval. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the

One-year term option. The dividend is utilized to purchase one-year term insurance.

The Federal Fair Credit Reporting Act

Regulates consumer reports The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.

In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriter approves coverage In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

Another name for a substandard risk classification is

Rated. Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

What is the purpose of settlement options?

They determine how death proceeds will be paid. Settlement options are methods used to pay the death benefits to a beneficiary upon the insured's death, or to pay the endowment benefit if the insured lives to the endowment date.

All of the following benefits are available under Social Security EXCEPT

Welfare benefits. Social Security is an entitlement program, not a welfare program.

What does "liquidity" refer to in a life insurance policy

Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values.

An insured receives an annual life insurance dividend check. What term best describes this arrangement?

Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

Which of the following terms describes making false statements about the financial condition of any insurer that are intended to injure any person engaged in the business of insurance?

Defamation Defamation is making statements that are false as to the financial condition of any insurer and which are calculated to injure any person engaged in the business of insurance.

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?

Fixed amount When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.

Whenever agents submit applications to insurers, they must also submit statements, signed by the applicant and agent, disclosing the involvement or lack of involvement of

Replacement. Whenever agents submit applications to insurers, they must also submit statements, signed by the applicant and agent, disclosing whether or not replacement is involved.

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

An agent selling variable annuities must be registered with

FINRA Because variable annuities are considered to be securities, a person must be registered with the FINRA (formerly NASD) and hold a securities license in addition to a life agent's license in order to sell variable annuities.

In a direct rollover, how is the money transferred from one plan to the new one?

From trustee to trustee In a direct rollover, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan.

Which Universal Life option has a gradually increasing cash value and a level death benefit?

Option A Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures.

Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option?

Size of each installment The size of each installment determines the length of time that benefits are received under the Fixed Amount settlement option. It logically follows that larger installments translate into shorter benefit periods.

Which of the following is NOT true regarding Equity Indexed Annuities?

They earn lower interest rates than fixed annuities. Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.

Which of the following is a feature of a variable annuity?

Benefit payment amounts are not guaranteed. Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent's license.

Which of the following would be considered a nonqualified retirement plan?

Split-dollar plan Examples of nonqualified plans are individual annuities and deferred compensation plans for highly paid executives, split-dollar insurance arrangements, and Section 162 executive bonus plans.

SIMPLE Plans require all of the following EXCEPT

At least 1,000 employees. A SIMPLE plan is available to small businesses that employ not more than 100 employees receiving at least $5,000 in compensation from the employer during the previous year.

An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?

It will increase because the insured will be 5 years older than when the policy was originally purchased. The premium will remain level during the entire level premium term policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal.

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

Which of the following terms will be permissible in describing a life insurance policy in company advertisements?

Variable plan Any terms that imply that life insurance is an investment plan, or the terms that may lead a consumer to believe that it offers benefits not actually available are prohibited in advertisements.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT

Signed waiver of premium. The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.

What type of premium do both Universal Life and Variable Universal Life policies have?

Flexible Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, as long as there is enough value in the policy to fund the death benefit.

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as

Contracts of adhesion. Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.

Variable Whole Life insurance is based on what type of premium?

Level fixed Variable Whole Life insurance is a level fixed premium investment-based product.

What is the name of the insured who enters into a viatical settlement?

Viator Viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.

The act of trying to discourage a policyholder from dropping his/her existing policy is called

Conservation effort. The act of trying to discourage a policyholder from dropping his/her existing policy is called "conservation effort".

What is the purpose of the buyer's guide?

To allow the consumer to compare the costs of different policies The buyer's guide provides generic information about life insurance policies and allows the consumer to compare the costs of different policies. The policy summary provides specific information about the issued policy, as well as the insurer's information.

What is the purpose of establishing the target premium for a universal life policy?

To keep the policy in force The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

Any form of life insurance Any form of Life insurance may be used to fund a buy-sell agreement.

In insurance transactions, fiduciary responsibility means

Handling insurer funds in a trust capacity. An agent's fiduciary responsibility includes handling insurer funds in a trust capacity.

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used?

Lump sum Upon the death of the insured, or endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses an optional mode of settlement.

What is the term for how frequently a policyowner is required to pay the policy premium?

Mode The premium mode is the manner or frequency that the policyowner pays the policy premium.

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?

Executive is the owner, and the executive pays the premium. Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Aleatory An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk.

Insurers must screen all marketing plans to ensure that an advertisement does NOT use as the name of any kind of an annuity contract any phrase that

Does not include the word "annuity" unless accompanied by other clear language indicating it is an annuity. Advertisements for life insurance policies and annuities must not use as the name or title of a policy or contract any phrase that does not include the words life insurance or annuity unless accompanied by other clear language indicating that it is that type of contract.

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?

The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.

Which nonforfeiture option has the highest amount of insurance protection?

Extended Term The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time.

The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the

Incontestability clause. If an insurer wishes to contest any statements on an application, they must do so within the first two years.

What type of insurance would be used for a Return of Premium rider?

Increasing Term The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the

Other-insured rider. The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance

Which of the following statements is correct regarding a whole life policy?

The policyowner is entitled to policy loans. Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans.

What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military?

War or military service There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war.

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

5 days Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

The LEAST expensive first-year premium is found in which of the following policies?

Annually Renewable Term Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.

The type of policy that can be changed from one that does not accumulate cash value to the one that does is a

Convertible Term Policy. A convertible term policy has a provision that allows the policyowner to convert to permanent insurance.

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT

Erase the incorrect answer and record the correct answer. An agent should not use white-out, erase or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary.

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?

Immediate annuity An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement.

Life income joint and survivor settlement option guarantees

Income for 2 or more recipients until they die. The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

What is the benefit of choosing extended term as a nonforfeiture option?

It has the highest amount of insurance protection. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

Which of the following is TRUE regarding the annuity period?

It may last for the lifetime of the annuitant. The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?

Level term A 20-year term policy is written to provide a level death benefit for 20 years.

Which of the following information will be stated in the consideration clause of a life insurance policy?

The amount of premium payment The consideration clause states that the value offered by the insured is the premium and statements made in the application, so it will include the information about the amount and frequency of premium payments.

The Commissioner of Insurance is

The chief officer of the Department of Insurance. A Department of Insurance has been established in Georgia, and the Commissioner of Insurance is the chief officer of the Department. The Commissioner is elected to office for a term of four years. The purpose and function of the Department and the duties and powers of the Commissioner are to carry out and enforce the provisions of the Insurance Code.

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT

The interest is not taxable since it remains inside the insurance policy. The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

Which term describes the benefits of a life insurance policy that the policyowner does not automatically relinquish even if the policy lapses?

Nonforfeiture values Nonforfeiture values are the benefits of a life insurance policy that the policyowner does not forfeit (lose) even if the policy lapses.

Which of the following will be included in a policy summary?

Premium amounts and surrender values A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.

Which of the following is an example of a producer being involved in an unfair trade practice of rebating?

Telling a client that his first premium will be waived if he purchases the insurance policy today Rebating is defined as offering any inducement in the sale of insurance products that is not specified in the policy, including money, reductions in commissions, promises, and personal services. Both the offer and acceptance of a rebate are illegal.

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?

Insuring clause The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.